What does the Insurance Distribution Directive (IDD) mean to customers?
The regulation comes into effect on the 1 October 2018 and focuses on customer outcomes and building trust between customers and insurance providers.
The majority of press I found seems to be focused internally on the industry and talks at great length about the impact on insurers, brokers and reinsurers, who are still recovering from the GDPR regulations, but there is little coverage of what this means for the customers it is designed to assist.
The IDD introduces general principles that apply to all insurance distributors. These are overarching requirements, which apply in a similar way to the current FCA ‘Principles for Businesses’.
In summary, the IDD general principles say that:
firms must act honestly, fairly and professionally in accordance with their customers’ best interests (The Best Interest Rule)
firms must communicate in a way which is clear, fair and not misleading. Marketing materials must be clearly identifiable as such
remuneration of a firm or its employees, and performance management of employees, must not conflict with the duty to act in accordance with their customers’ best interests.
What do the changes mean? 1. The Insurance Distribution Directive (IDD) replaces the Insurance Mediation Directive (IMD) (add dates) and the scope of the new regulations are much wider, and it affects everybody within the general insurance sector, insurers, wholesalers, MGA’s and insurance brokers and intermediaries whether insurance is their full-time role.
2. Earnings need to be disclosed so customers are given clarity on the nature of fees and commission although not a percentage or an amount.
3. Training and Development - A minimum requirement of 15 hours CPD for staff with responsibilities for insurance distribution. Apply new knowledge and competence requirements including minimum CPD requirements for staff. The minimum requirement would also include call centre staff whose role is limited to providing non-advised, script-based sales but the CPD can be designed around the complexity and nature of the role.
4. Demands and Needs - A new rule requires firms to provide the customer with a personalised recommendation explaining why the recommended product would best meet the customer’s needs and a requirement to act in the customer’s best interests, if the firm does not offer a product which meets the customer’s needs it should say so. This includes any needs that have not been met being highlighted (like the current position).
5. Insurance Brokers must state, where they give advice, that it is based on a personal recommendation and if a fair and personal analysis of the market has been used, as opposed to the current requirement which states a “fair analysis”.
firms must disclose whether they are an insurer or an intermediary
firms must disclose whether they provide advice
intermediaries must disclose whether they act for the customer or the insurer.
So what changes are customers likely to see? 1. A lot of brokers are wrapping up many of the changes in new Terms of Business Agreements (TOBA) which will be issued to clients.
2. The content of key documentation will change to set out transparently broker earnings, who the broker is working on behalf of, if this is not included in the Terms of Business this will be included in placement or renewal documentation. 3. Some of the language has changed. There is now much more focus on customers best interests and Key Facts documents and policy summaries are replaced with the Insurance Product Information Document (IPID), personal recommendations become a requirement if you are receiving an advised sale, with an explanation of how the product meets your demands and needs.
Shouldn’t they be already doing this?
Yes, and the FCA already has in place a more robust regulatory environment that other EU countries so the changes for UK brokers will be more manageable, whereas companies whose main business is not insurance such as travel agents and car hire companies may have more to digest and implement.
All this is designed to improve the communication between the broker and the client to help clients feel more informed about the insurance products they buy and more confident that they are being sold the most appropriate cover for their needs and that has got to be a good thing.
This article is a summary of the regulations and you can find out more on the FCA website.
If you would like this as a document to share with clients, please contact me and I can provide you with a free pdf version email me at catherine@catherinefrance.com with the subject heading IDD Customer.
