1. Insurance Distribution Directive
06 November 2018
Insurance Distribution Directive
Rebecca Prestage
23 March 2018

2. Agenda IDD purpose and scope Key changes:
06 November 2018
Agenda
IDD purpose and scope
Key changes:
Training
Cross-selling
Consumer protection
Disclosure requirements
Conflicts of interest
PII, passporting and client money
Product governance
Changes to categories of insurance intermediaries
Insurance based investment products

3. Purpose and scope of IDD
06 November 2018
Purpose and scope of IDD
Purpose
Scope
To harmonise national provisions concerning insurance and reinsurance distribution.
Consumers should benefit from the same level of protection regardless of distribution channel.
Current and recent financial turbulence has underlined the importance of ensuring effective consumer protection across all financial sectors.
All businesses that sell insurance products, including agents, brokers, insurers and reinsurers.
Market participants that distribute insurance products on an ancillary basis (such as travel agents, mobile phone providers and car rental companies), unless they fall within a limited exemption.
·        Insurance mediation becomes insurance distribution (includes insurers)
·        Applies to all intermediaries in the chain not simply the one in contact with the end customer
Estimated that replacement of IMD with IDD will mean 98% of the market is covered compared to 48% covered by IMD.
What does distribution mean in relation to the IDD? It’s not just the sale of the policy/product that’s captured. The IDD covers everything from product design, marketing, selling and after sales service.
IMDA did not cover claims handling on behalf of insurance companies, expert appraisal and loss adjusting – these remain out of scope. As insurers are FCA regulated, the systems and controls relating to insurers’ claims handling processed, whether in-house or outsourced, remain subject to regulation.

4. Knowledge, skills & expertise
06 November 2018
Knowledge, skills & expertise
Training
Minimum 15 hours Continuing Professional Development (CPD) for anyone directly involved in insurance distribution activities, their supervisors and relevant management.
Must cover areas such as product coverage, the claims process and insurance regulation.
Start date not specified and training can be pro-rata initially to match accounting reference date.
CPD at new employee’s former workplace can be taken into account if verified.
No prescribed mixture of structured and unstructured CPD.
*Those within the management structure with responsibility for the firm’s insurance distribution activities. Some claims handling on behalf of the insurer is excluded (Article 39B RAO)
Training – won’t apply to employees in ancillary roles eg, HR, facilities and IT.
Terms and conditions of product offered, knowledge of applicable laws governing distribution of insurance (consumer protection, tax and relevant social and labour law), claims handling, complaint handling, assessing customer needs, insurance market, business ethics standards, and financial competence.
Can be through online modules, mentoring, on the job learning etc.
Specific record keeping requirements – what’s the point otherwise? Responsibility of HR with input from compliance.
Product governance - FCA does not expect the new requirements to lead to significant change for firms already compliant with RPPD.
Insurance distributors should consider whether they understand materials provided by manufacturer and should not distribute the insurance if they do not understand it sufficiently!

5. Cross-selling
Cross-selling
Where insurance is the primary product and is sold alongside other products, information must be given on whether the different parts of a package can be bought separately.
The information must provide an adequate description of the products, explain any interaction between them and provide separate information on costs and charges.
Where insurance is ancillary to other goods or services the customer must be able to buy the primary product or service without the insurance.
Updates needed to COI policy, procedure and training. Appropriate to business example – if part of a Group should take into account COI arising as a result of the structure/business activities of other group entities. Should refer to specific insurance distribution activities carried out.
Specific contents of the policy set out – control of exchange of information between conflicted persons, separate supervision of conflicted persons, removal of direct link between payments to persons conflicted, measures to limit person exercising inappropriate influence etc.
COI disclosure – last resort. To include sufficient detail, taking into account the nature of the client, to enable that client to make an informed decision about service provided. Should have a template document at the ready.
Record of COIs – reports made to senior management at least annually on those COIs recorded.

6. Insurance Product Information Document (IPID)
06 November 2018
Consumer protection
Insurance Product Information Document (IPID)
Standalone document of two sides of A4 paper and must contain information such as:
a summary of the insurance cover
means of payment of premiums
main exclusions
obligations at the start of the contract, during the contract and means of terminating the contract in the event of a claim.
Demands and needs
IPID – titled as such. Short summary of the policy and presents information about the insurance policy in a standardised format. Provided in durable medium. Manufacturer is required to draw it up and focus on key information needed for customer to make an informed decision. IPID is required for each new insurance policy, including renewals and those distributed as part of a package. (Large risks and commercial customers excluded)
Demands and needs – all contracts proposed must be consistent with the customer’s demands and needs (even non-advised sales). Firms cannot simply provide a generic statement of demands and needs without some matching of an individual customer’s needs to the product offered. Non-advised sales do not need to go beyond the customer’s high level needs – main perils, level of excess and use of the item insured. Firms who advise must provide a personalised recommendation explaining why the product best meets the customer’s needs.
Best interests rule – does not mean firm has to give advice. No remuneration practices to conflict with this (eg Plevin). Should not incentive staff to recommend a particular product when another could better meet their needs. (applies to same employees as CPD – directly involved in insurance distribution, their supervisors and relevant management). Not restricted to individual working under contract of employment. Just TCF?
Interesting where, for example, a coverholder may owe fiduciary duties to its principal
Wholesale intermediary – will have to place reliance on information provided by other firms in the distribution chain. Rule applies to activities carried out beyond the sale of an individual policy eg remuneration structure and product oversight and governance. Much change from TCF?
Amendment to durable medium definition – seems like default to be paper based. Where information is provided by or via a website the customer should be given option to receive information on paper.
Complaints – Eligible complainant definition won’t change. Not just taking people out for lunch.
Need to ensure clients properly categorised when it comes to giving FOS rights/civil action.
Fin proms – does not require every communication to state whether or not it is marketing. Firms should review communications from perspective of product’s target market and consider whether it would be clear to the typical consumer that the communication is marketing rather than pure information.
Increased personalisation of demands and needs statements.
Requirement for a personalised recommendation where advice is given.

7. Customers’ best interests
06 November 2018
Consumer protection
Customers’ best interests
A new rule explicitly requiring firms to act always in the best interests of their customers.
Complaints
Requirement to have procedures in place to deal with complaints from a person who is not an eligible complainant.
IPID – titled as such. Short summary of the policy and presents information about the insurance policy in a standardised format. Provided in durable medium. Manufacturer is required to draw it up and focus on key information needed for customer to make an informed decision. IPID is required for each new insurance policy, including renewals and those distributed as part of a package. (Large risks and commercial customers excluded)
Demands and needs – all contracts proposed must be consistent with the customer’s demands and needs (even non-advised sales). Firms cannot simply provide a generic statement of demands and needs without some matching of an individual customer’s needs to the product offered. Non-advised sales do not need to go beyond the customer’s high level needs – main perils, level of excess and use of the item insured. Firms who advise must provide a personalised recommendation explaining why the product best meets the customer’s needs.
Best interests rule – does not mean firm has to give advice. No remuneration practices to conflict with this (eg Plevin). Should not incentive staff to recommend a particular product when another could better meet their needs. (applies to same employees as CPD – directly involved in insurance distribution, their supervisors and relevant management). Not restricted to individual working under contract of employment. Just TCF?
Interesting where, for example, a coverholder may owe fiduciary duties to its principal
Wholesale intermediary – will have to place reliance on information provided by other firms in the distribution chain. Rule applies to activities carried out beyond the sale of an individual policy eg remuneration structure and product oversight and governance. Much change from TCF?
Amendment to durable medium definition – seems like default to be paper based. Where information is provided by or via a website the customer should be given option to receive information on paper.
Complaints – Eligible complainant definition won’t change. Not just taking people out for lunch.
Need to ensure clients properly categorised when it comes to giving FOS rights/civil action.
Fin proms – does not require every communication to state whether or not it is marketing. Firms should review communications from perspective of product’s target market and consider whether it would be clear to the typical consumer that the communication is marketing rather than pure information.
Financial promotions
All marketing communications must be clearly identifiable as such.

8. Disclosure requirements
Pre-sale disclosures
Firms must disclose:
whether they are an insurer or intermediary
whether or not they provide advice
(if intermediary) whether they act for the customer or the insurer.
Conflicts of interest and transparency
Firms should disclose information in a way that shows customers the relationship between firms in the distribution chain, highlighting potential conflicts of interest.
Intermediaries must disclose shareholding links between it and any insurers (more than 10% voting rights or capital).
Intermediaries must disclose insurers in limited panels.
Firms should consider customer’s information needs.
Pre sale - what kind of firm they are (identity, address and registration detail)
Some intermediaries may act for both the insurer and customer at different times (eg acting for customer when searching market for suitable policy or for the insurer when receiving claim notification) FCA does not believe it will be difficult to explain – should ensure make all required disclosures in a way that is useful for the customer.
Advice to be based on a ‘fair and personal’ analysis of the Market.
Remuneration – previously this type of information was only available on request. Fees include those which may become payable later and admin fees (eg MTAs). This will include commissions directly linked including volume based and profit commission, sliding scales etc. For employees – disclosure applies to remuneration, including non-monetary benefits, which is received for sale of insurance or achieving a target to which sale of insurance contributes. Not quality. Non-monetary may be other employee benefits such as extra holiday. Likely to be bonuses for hitting sales target.
COI/transparency
Shareholding disclosure applies vice versa
Panels – where not providing advice on basis of analysis of the market they must disclose names of insurers with which they can place business
The information requirements will not apply to contracts of large risk.

9. Disclosure requirements
Remuneration
Intermediaries must disclose remuneration which has a direct connection to the insurance contract being sold, including:
the nature and basis (ie fee, commission, other type or a combination) of their remuneration
the exact amount of fees payable directly by the customer (or where this is not possible, the method for calculating it).
Insurers must disclose nature of remuneration paid to employees.
Firms should consider customer’s information needs.
Pre sale - what kind of firm they are (identity, address and registration detail)
Some intermediaries may act for both the insurer and customer at different times (eg acting for customer when searching market for suitable policy or for the insurer when receiving claim notification) FCA does not believe it will be difficult to explain – should ensure make all required disclosures in a way that is useful for the customer.
Advice to be based on a ‘fair and personal’ analysis of the Market.
Remuneration – previously this type of information was only available on request. Fees include those which may become payable later and admin fees (eg MTAs). This will include commissions directly linked including volume based and profit commission, sliding scales etc. For employees – disclosure applies to remuneration, including non-monetary benefits, which is received for sale of insurance or achieving a target to which sale of insurance contributes. Not quality. Non-monetary may be other employee benefits such as extra holiday. Likely to be bonuses for hitting sales target.
COI/transparency
Shareholding disclosure applies vice versa
Panels – where not providing advice on basis of analysis of the market they must disclose names of insurers with which they can place business
The information requirements will not apply to contracts of large risk.

10. Managing conflicts of interest (COI)
Must have COI policy appropriate to size, organisation and nature, scale and complexity of the business.
Disclosure of conflicts only to be used in cases where the organisational measures are not sufficient to prevent and manage conflicts of interest.
Requirements for disclosure of COIs in durable medium and given in good time before conclusion of contract, including:
Specific description of the COI
General nature and sources
Risks to customer and steps undertaken to mitigate
Statement that the arrangements used to prevent or manage the COI are not sufficient to prevent risk of damage to customer’s interests.
Updates needed to COI policy, procedure and training. Appropriate to business example – if part of a Group should take into account COI arising as a result of the structure/business activities of other group entities. Should refer to specific insurance distribution activities carried out.
Specific contents of the policy set out – control of exchange of information between conflicted persons, separate supervision of conflicted persons, removal of direct link between payments to persons conflicted, measures to limit person exercising inappropriate influence etc.
COI disclosure – last resort. To include sufficient detail, taking into account the nature of the client, to enable that client to make an informed decision about service provided. Should have a template document at the ready.
Record of COIs – reports made to senior management at least annually on those COIs recorded.

11. PII, passporting and client money
06 November 2018
PII, passporting and client money
Professional indemnity insurance (PII)
Client money
Increase in minimum levels of cover to:
€1,250,000 per claim per year
€1,850,000 per year in aggregate
Minimum intermediary financial capacity amount has increased:
Not holding client money - 2.5% of annual income from insurance distribution activity
Holding client money - 5% of annual income from insurance distribution activity.
Passporting
Changes to passporting regime – more detailed process, which sets out obligations of home and host states.
PII – change at renewal and ensure RMAR submissions updated.
New powers for FCA to refuse notification of intention to establish branch.
Activities that can be passported are the same.
No change for firms that already have passporting rights – only apply to new applications.
Amends to relevant forms to gather info required under IDD including category of intermediary.

12. 06 November 2018
Product Governance
Product governance
More robust product approval and monitoring requirements
Large brokers and managing general agents could be manufacturers if they have a decision-making role in the design of a product, eg in relation to coverage, costs, risks, target market or compensation and guarantee rights.
*Those within the management structure with responsibility for the firm’s insurance distribution activities. Some claims handling on behalf of the insurer is excluded (Article 39B RAO)
Training – won’t apply to employees in ancillary roles eg, HR, facilities and IT.
Terms and conditions of product offered, knowledge of applicable laws governing distribution of insurance (consumer protection, tax and relevant social and labour law), claims handling, complaint handling, assessing customer needs, insurance market, business ethics standards, and financial competence.
Can be through online modules, mentoring, on the job learning etc.
Specific record keeping requirements – what’s the point otherwise? Responsibility of HR with input from compliance.
Product governance - FCA does not expect the new requirements to lead to significant change for firms already compliant with RPPD.
Insurance distributors should consider whether they understand materials provided by manufacturer and should not distribute the insurance if they do not understand it sufficiently!

13. Changes to categories of insurance intermediaries
06 November 2018
Changes to categories of insurance intermediaries
Ancillary Insurance Intermediaries
New category of firm whose primary business is not insurance distribution and which sells insurance ancillary to the other goods/services it provides.
Three types:
In-scope AIIs
Connected travel insurance (CTI) providers
Out of scope AIIs (use connected contracts exemption)
In-scope AIIs subject to same professional, organisational and conduct of business requirements as insurance intermediaries.
There are requirements that apply to all firms regardless of whether they are in or out of scope. The authorised firm must put in place appropriate measures to ensure the AII complies.
Will there actually be any difference to the number of firms that already come under FCA’s remit?
In-scope AIIs – meet definition and are regulated (can’t make use of ‘connected contracts exemption’) eg motor vehicle dealers.
CTI providers – main business is to make travel arrangements for customers but distribute insurance that is complementary to that (eg baggage cover)
FCA proposes to extend minimum PII levels and CPD requirements to CTI providers.
For out of scope AIIs (eg electronic goods and furniture retailers) – excluded from regulation where insurance is linked to goods or services provided by provider to cover risk of breakdown, loss of or damage to goods or non-use of the service, where premium does not exceed €600 (or €200 where covers three months or less).
Requirements that apply to all firms regardless of whether they are in or out of scope – general principles, demands and needs, cross-selling rules, the IPID and some of the pre-contract disclosures – requirement to disclose whether or not they are providing advice. IDD expected to enhance oversight requirements already applied to firms.
AR - AII defined by it conducting a primary professional activity other than insurance distribution and the insurance product it distributes.
Changes to SUP for registration of ARs and ongoing oversight. Includes requirement for principal to collect additional information from AR in accordance with registration requirements of IDD (check these!).
Not to exclude introducing, only therefore focusing on ‘provision of information’ (ie distributing financial promotions as per one half of IAR permissions currently). Irrespective of remuneration. FCA would still oversee authorised firms to whom the introduction was made, irrespective. Presumably to monitor whether they are doing more than the exclusion allows.
Firms need to investigate their distribution chains and understand where they have AIIs and communicate with IARs.

14. Changes to categories of insurance intermediaries
06 November 2018
Changes to categories of insurance intermediaries
What about ARs and IARs?
No link between a firm being an AII and an Appointed Representative (AR).
AII can be an AR or an authorised firm.
The difference is that a principal is strictly liable for acts or omissions by an AR acting on its behalf. For an AII, the principal must have arrangements in place to ensure the AII complies with the relevant IDD requirements.
No changes to Introducer Appointed Representative (IAR) category. An IAR cannot sell, it may only introduce potential customers to their Principal.
Will there actually be any difference to the number of firms that already come under FCA’s remit?
In-scope AIIs – meet definition and are regulated (can’t make use of ‘connected contracts exemption’) eg motor vehicle dealers.
CTI providers – main business is to make travel arrangements for customers but distribute insurance that is complementary to that (eg baggage cover)
FCA proposes to extend minimum PII levels and CPD requirements to CTI providers.
For out of scope AIIs (eg electronic goods and furniture retailers) – excluded from regulation where insurance is linked to goods or services provided by provider to cover risk of breakdown, loss of or damage to goods or non-use of the service, where premium does not exceed €600 (or €200 where covers three months or less).
Requirements that apply to all firms regardless of whether they are in or out of scope – general principles, demands and needs, cross-selling rules, the IPID and some of the pre-contract disclosures – requirement to disclose whether or not they are providing advice. IDD expected to enhance oversight requirements already applied to firms.
AR - AII defined by it conducting a primary professional activity other than insurance distribution and the insurance product it distributes.
Changes to SUP for registration of ARs and ongoing oversight. Includes requirement for principal to collect additional information from AR in accordance with registration requirements of IDD (check these!).
Not to exclude introducing, only therefore focusing on ‘provision of information’ (ie distributing financial promotions as per one half of IAR permissions currently). Irrespective of remuneration. FCA would still oversee authorised firms to whom the introduction was made, irrespective. Presumably to monitor whether they are doing more than the exclusion allows.
Firms need to investigate their distribution chains and understand where they have AIIs and communicate with IARs.

15. New requirements for insurance based investment products
06 November 2018
New requirements for insurance based investment products
Insurance based investment product: a contract of insurance which offers a maturity or surrender value and where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations.
It does not include:
non-life insurance products as listed in Annex I to Solvency II
life insurance contracts where the benefits under the contract are payable only on death or in respect of incapacity due to injury, sickness or disability
pensions
Suitability
Appropriateness testing
Costs and charges disclosure

16. Thank you