Is the Insurance Distribution Directive (IDD) still on your ‘things to do list’?

The 1st of October is the next big diary date which will bring changes not only to the replacement TVAS (APTA & TVC) but also within the Insurance Distribution Directive IDD.

Not to worry you, but the 1st of October is now just weeks away!

There has been a lot of industry news about the changes to IDD and how the new process will build on existing ICOBs requirements, so for this blog we will cut to the chase and just tell you what you need to do.

The Insurance Distribution Directive (IDD) is aimed at, protection advisers, general insurance brokers, general insurance managing agents, financial advisers; pretty much everyone involved in the distribution of insurance products are affected.

The changes are to offer more protection to clients and 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.

Changes required from the 1st October

Overall, IDD should not be too onerous on firms and MiFID II has already done part of the work needed.

If your Terms of business / Initial Discussion Document details your protection services, you may need to update them in preparation for the IDD changes.

If you currently give advice on protection you will normally provide your recommendation from either a single insurer, or a limited range of insurers, or offer advice from the whole of market, you will now need to change this to state:

  • If just a single provider, the name of the provider
  • if offering a limited number of providers, a list of all the companies used,
  • for the whole of market providers state that you offer a wide panel of providers following a fair analysis of the market.

Although you may have tweaked your documentation for MiFid II earlier in the year, you may need to add a bit more detail to your Protection status.

  • You now need to state that your advice is based on a personal recommendation and that a fair and personal analysis of the market has been used.
  • You must make it clear if you are acting on behalf of the customer or the insurance undertaking.
  • You will also need to add the process of commission (from either the client or commission). If commission, you will need to disclose that you will receive a commission from the insurer which is a percentage of the total annual premium.

Additional documentation

You will also need to provide to customers before a sale is completed, a prescribed form called an “Insurance Product Information Document” (or IPID if you don’t have enough acronyms in your life!).  For commercial clients, this is a Business Policy Summary.

The good news is that the IPID document should be supplied by the product provider and includes various bits of information about the nature of the distributor and the remuneration arrangements in place.

For those who are general brokers under the ICOB rules, you will also need to change your Statement of Demands & Needs to reflect this.

Additional Procedures

Suitability report – all these changes should be reflected within the client’s suitability report and details of the client’s demands and needs will need to be clearly noted and how the recommendation meets this need as per COBS rules.

Cross-selling – there will be new requirements in relation to the information which has to be provided to customers where an insurance product is sold alongside another product. You would need to inform the customer whether it is possible to buy the different components separately and if so must provide the customer with an adequate description of the different options and costs available.

Training CPD – Everyone who has a material impact on the customer needs to adhere to the IDD and must be able to evidence adequate knowledge, through CPD. Therefore, anyone who falls under the IDD must complete 15 hours of relevant CPD each year.  Some myths to bust here:

  • This impacts all staff involved in the distribution of insurance, and so will include supervisors and management, and very possibly administrators and paraplanners
  • It can be unstructured
  • It does not replace other CPD requirements; so to maintain your status with the CII you still need to do the 35 hours prescribed
  • However, the 15 hours does not need to be in addition – for Retail Investments Advisers it is considered the 35 hours relevant CPD should cover this.
  • The normal process for logging and keeping a reflective statement applies.
  • The requirement is to have at least 15 hours of CPD recorded by 30th September 2019.

Conflicts of interest – This policy must record any circumstances that may generate conflicts of interest with the firm employees and provider and for managing them. It must be reviewed annually, at least, and a record kept of any instances that may have an impact on customers.  If you currently work within a performance-based remuneration basis, the concerns are that it could conflict with the duty to act in a client’s best interests.  Therefore, sales targets linked to incentivise recommendations of a particular insurance contract could be viewed as not being in the client’s best interests. Don’t get caught out!

PI Insurance – The required minimum limit of indemnity on a firm’s PI cover for a single claim per year will be €1,300,380 anyone claim (€1,250,000 currently) – €1,924,560 aggregate one period of insurance*(€1,850,000 currently)

*or 10% of annual income up to £30M if this is higher (existing FCA rules)

Sufficient TimeYou should be aware of the requirement to give the client sufficient time to consider the recommendation and suitability report prior to completing the applications.  Applications completed on the same day that the suitability report was given, may not evidence sufficient time to decide.

Hopefully this helps both inform, and put your mind at ease, as the vast majority of this stuff is likely to be happening in your firm already. Drop us a line with any other questions you may have; we love to help!