Insurance Distribution Directive Consultation Paper II

The FCA has now published the second consultation specific to the implementation of the Insurance Distribution Directive for February 2018. Deadlines for responses to the consultation need to be sent to the FCA by 20 October 2017. A link to the document can be found here: 

https://www.fca.org.uk/publication/consultation/cp17-23.pdf 

We are still awaiting FCA feedback on responses to the first consultation paper. This is expected sometime in September. Feedback on the latest consultation will be provided in December 2017. 

There is likely to be a third consultation paper published in September, prior to the current consultation closing.

 As has been the case in the past, it appears that the FCA is somewhat gold plating the minimum EU requirements. Therefore, any hope that Brexit will lead to a reduction in regulation is likely to be a forlorn hope. 

As the majority of our clients are involved purely with general insurance business, we have not included details relating to the changes to life insurance products which form a large part of the consultation (we will liaise with affected firms independently).

 So, the key points relevant to General Insurance products are:

 Client Money

 There are no planned changes that will impact on the way in which client money is currently handled.

 Professional Requirements

 The only significant change to be aware of is that firms that are considered to be Ancillary Insurance Intermediaries will come under the requirement to ensure that all management within the business are of good repute. 

 The impact of this will need to be considered in connection with firms that may have Appointed Representatives with insurance activities as a secondary income stream. This follows on from previous FCA guidance that all directors of appointed representatives and introducers should be subject to credit checks.

 We will discuss the practical issues arising from this with firms that have Appointed Reps.

 Additional General Insurance Changes

 The key change here is the requirement to provide an Insurance Product Information Document (IPID), somewhat similar to the summaries of cover currently produced by insurers.

 The FCA requirement for IPID content has not yet been finalised. The FCA has previously provided guidance on the information to be included in summaries of cover, but the IPID will be in a more prescriptive format.

 The FCA had considered making it compulsory to provide an IPID document to commercial customers, but has been persuaded that, due to the potentially greater complexity of these products, this may not work in all cases.

 However, for a small commercial package business, we would still expect to see a similar document produced by insurers.

 In terms of providing the IPID, the expectation is that this will be provided before cover is purchased. Additionally, it should be noted that the FCA is very clear that if an ancillary product is sold alongside a core product (legal expenses alongside a motor policy), then two separate IPID documents will be required.

 One of the current FCA proposals is that personal information for the client (sums insured, inception date, etc.) will be incorporated into the IPID. Given the practical problems that may arise from this, the FCA is giving further consideration to whether it is acceptable for this information to be provided separately (and a quote letter or other quotation or renewal document). We hope the FCA will go for the latter option as there would be some software updates needed, to include personal information in IPID, and we do not believe the software houses will have time to implement this before February.

 The FCA is encouraging the electronic distribution of these documents wherever possible. In order for this to be acceptable, you need to be satisfied that the client has access to the internet (you can therefore only take this route if you have an email address for the client). Easy enough to obtain at quote stage and renewals can still be sent by post.

 The final rules relating to the distribution and format of the IPID documents will not be available until later this year. 

 Conclusion

 We will continue to keep you informed as the consultations and rule changes continue. Feedback on the first consultation paper relating to the IDD is expected in September and we will provide a further update at that time.