What Should You Do About the Insurance Distribution Directive?
The European Union has issued a new directive governing the regulation of the insurance industry, to replace the 15-year-old Insurance Mediation Directive (IMD). As with the IMD, the Insurance Distribution Directive (IDD) will mostly be transposed through the Financial Conduct Authority (FCA) rules within the UK. The Financial Services and Markets Act (FSMA) will be amended to incorporate any changes.[i]
The FCA have published an imposing 444 page document of the near-final rules. [ii] It is easy to be intimidated by the new regulations, but with a series of timely steps and a little forward planning, it will be possible for insurance companies and brokers to be confident that they are following the rules correctly, with as little disruption as possible.
What is the Insurance Distribution Directive?
The new directive aims to level the playing field across the insurance industry, EU-wide. It applies to a wider range of insurance selling services. As well as underwriters and brokers it will apply to all companies that sell insurance as an additional service (with some exceptions.) This may include airlines selling travel insurance or price comparison websites.
The directive will also demand additional levels of competency and service from insurance sellers and distributors. These include:
· Continuous professional development; evidence that all employees have had at least 15 hours of additional training per year.
· Clarity on the products being sold; with documentation on the product and clear information about any optional add-ons, including whether they can be purchased separately.
· Superior products and product oversight; products are to be reviewed and developed with a clear, specified target market.
· Full disclosure, on issues such as conflicts of interest where they may arise, as well as on the nature and basis of commission and fees. [iii]
Don’t be concerned
UK insurance providers already have an advantage, as the FCA implementation already exceeded the IMD. Much of Europe is less stringent in its current implementation. The IDD will force other parts of Europe to meet many of the standards already demanded of the British insurance industry. Many UK companies are likely to find that they are already complying with much of the new directive, with only minor changes required to ensure they are in full compliance.
Don’t leave it until the last minute.
While there is no need to be concerned, there is also a requirement to respond to the new directive in a timely manner. The earlier you start to consider the implications for your organisation, the easier and less stressful the changeover will be. There are already near final rules available. Speak to your legal advisors now, to ensure that you will have any changes in hand prior to the deadline.
Do your research
As mentioned above, the specifics of the new legislation is complicated and detailed. It may be worth dedicating staff to ensuring that you are keeping to the letter of the new regulation, or for employing outside legal assistance in assessing whether you are complying. Contact your legal team to ensure that all the requirements are made available to you and that nothing is missed.
While you may find that you are complying with the new regulations, it is vital to evidence this with good recording. Many companies will find that they are already providing employees with more than 15 hours a year of continuous professional development (CPD). The importance is for employees to remember to record every time they go on a course, work through some paperwork on new standards or have a meeting updating them on best practice. The rules will state the ways in which the CPD must be recorded.
Ensure robust records are kept of what has been agreed with the policy holder, to comply with the regulations and to evidence your compliance.
A positive impact
While adapting to new regulations is always challenging, it is important to note that the new legislation should have a positive impact on the insurance industry, particularly in the UK. It will ensure that European companies, currently following the IMD will come into line with regulations already being followed UK wide, creating more healthy competition and fairer cross-border trading. It will also reduce scope for less professional companies with substandard products and services to undercut professional brokers and underwriters.
Surround yourself with a forward thinking, pro-active team
It is important now, more than ever, that you benefit from a team of client-centric, knowledgeable and talented employees to ease the load as your company familiarises itself with any changes required by the new rules. For new team members to help you work pro-actively towards the new directives speak to specialist recruitment agency Aston Charles. With a pool of candidates with skill, experience and recent training, we can provide you with excellent job applicants to fill any role within the insurance and financial sector.
None of the information in this article constitutes legal advice. We recommend you contact your legal team when assessing how to bring your company in line with current legislation.
[i]GOV.UK. 2018. Transposition of the Insurance Distribution Directive - GOV.UK . [ONLINE] Available at: https://www.gov.uk/government/consultations/transposition-of-the-insurance-distribution-directive/transposition-of-the-insurance-distribution-directive. [Accessed 03 May 2018].
[ii] The Near final rules can be accessed through a link from this page: FCA. 2018. Update to proposed delay on the Insurance Distribution Directive (IDD) | FCA. [ONLINE] Available at: https://www.fca.org.uk/news/news-stories/update-proposed-delay-insurance-distribution-directive-idd. [Accessed 03 May 2018].
[iii] Some further overview information can be found at Out-law.com. 2016. The Insurance Distribution Directive: changes to the regulation of insurance intermediaries in the EU . [ONLINE] Available at: https://www.out-law.com/en/topics/insurance/insurance-brokers-and-intermediaries/the-insurance-distribution-directive-changes-to-the-regulation-of-insurance-intermediaries-in-the-eu/. [Accessed 03 May 2018].