The IDD introduces change to General Insurance rules

New rules have been brought in by that great lawmaking machine on the other side of the 22 miles.

If you want to have your say reply to the FCA by 5 June 2017 FCA Response Form

IFAC has reviewed the IDD consultation paper and can summarize the paper that is available here 

download pdf  The new rules will be published in September 2017, and come in to force in February 2018. 

The main thrust is a couple of new rules and a bit of filler in between.   Key rule number one is a further development of the principal of TCF.  This first new rule will apply to brokers as much as insurers and is a requirement that all firms must act honestly, fairly and professionally and in their customer’s best interest. The FCA proposals set out some examples of how this should be achieved.

Heard that one before? Well now it has hit Europe, and is bouncing back to us in a new name, THE CUSTOMER’S BEST INTERESTS RULE. The future in insurance will be pivoted on this Rule. This should not present us in the UK insurance market with much of a problem – because we are doing it under TCF already. 

Brokers will be required to ensure that their remuneration and performance management do not conflict with the Customer Best Interest rule, but that they drive activities which are honest, fair and professional. That isn’t difficult, but still needs to be proven, to head off accusations that bias is shown in insurance recommendations working against the customer’s needs.

Other matters lightly labelled “filler” above include some movement on disclosures in front of the customer.  

Intermediaries must ensure that a customer is told of markets that will be approached or details of single insurers or panel members if a whole of market comparison is not being made.  But – IFAs take note - no forced disclosure of commission in the retail GI market (which includes stand alone term assurance) is coming. But we are getting closer. Firms must, from February 2018 disclose the “type of remuneration” they will receive, and who is paying it. 

Personally I think this is a shame. We have had commission / fee disclosure in the investment world since 1996 and it is effective and should be embraced. “Loaded” premiums are a curse on the insurance world. Large retailers such as SJP and Intrinsic present their “best price insurance from the market” at a different (higher) price than others, including IFAs. The customer is duped every time into thinking this is “the market rate” – when it jolly well isn’t. 

The next bit of filler is that brokers must also disclose who they are acting for – client or insurer?  Brokers must also disclose if the quote is a personal recommendation or a non-advised sale. Most smaller firms do this already. 

In addition Professional Indemnity Insurance will probably be going up to a compulsory minimum level of cover of 1.25 million Euros, with an aggregate minimum level of 1.85 million Euros, or 10% of annual income, subject to a maximum indemnity level of 30 million Euros. This may not affect your PII premiums, because most claims and most of the monies paid out are within small amounts.

The second key string that will affect you directly is the new Competent Employee rule. 

There is a requirement for firms to ensure that they can demonstrate that all employees involved in distribution of insurance have the knowledge, training and experience to deal with the customers and type of products that they are selling, paying consideration to the nature and range of financial services and activities undertaken in the course of its business. 

They will also need to be able to demonstrate that employees meet the minimum necessary knowledge for their role and are required to ensure that all employees have a minimum of 15 hours CPD or training each year, and that records are established, maintained and updated. This training and CPD requirement extends to everyone who is representing the firm, regardless of whether they have a contract of employment of not, and whether client facing or not. So all staff will need to have their CPD recorded and banked. What was www.bat.ifac.eu developed for? Yep, recording CPD. Check it out, and check out the exam system available online, and tell them to take the exams online. 

Without wishing to belittle their work, nor my own beautiful article above, most of the changes will make little difference to your daily activities, but,  for larger firms, some areas could have a significant impact.  And for regulators, these are their boundaries – so compliance managers – get this on your radar and complete a gap analysis after the final rules are published in September.  And if you just can’t be bothered, book us in for an audit and gap analysis day.   For members there is no cost involved in a day long audit, it is what you are a member for.  FCA Response Form

In order to get any staff trained,  the first step is to get an appointed supervisor to train them.  And that requires qualifications as a supervisor.