The aim of this EU legislation is to enhance consumer protection when buying insurance and to support competition between insurance distributors.
Key areas covered by the regulation include:
We’ll focus on the first three of these and highlight things you could consider within your business in order to meet the IDD requirements.
The overarching principle of IDD is that distributors ‘must always act honestly, fairly and professionally in accordance with the best interests of their customers’. Now this is nothing new in itself as the FCA has always expected firms to do what is right for their customers.
The IDD introduces a rule that demands all firms act honestly, fairly and professionally in the customers’ best interests, regardless of their position in the distribution chain. This is whether they have direct contact with the end customer, or not. And it’s not enough to just act in the customer’s best interest - you have to evidence it too.
Specifically, the regulator calls out that remuneration policies for employees shouldn’t impair their ability to act in the customer’s best interest or prevent them from either making a suitable recommendation or presenting information in a form that is fair, clear and not misleading.
You also need to ensure that the product is appropriate for the customer. This means you’ll need show you have performed thorough due diligence on the product governance process of the insurer. You also need to be satisfied with the approach taken to be aware of the target market and distribution approach.
The IDD also requires that firms only offer customers insurance products that are consistent with their demands and needs. Again, this isn’t something new in itself, but what you need to do in order to meet this requirement is.
Prior to IDD, you only needed to provide customers with a ‘statement of demands and needs’ which could be fairly generic and broad brush. You now need to obtain specific information about your clients’ insurance demands and needs up front and map these to the products on offer. This means you need to have carried out a robust analysis of the products available so that you can be confident that your recommendation is in line with the client’s demands and needs – it’s not enough to just take the first three cheapest quotes on your portal of choice and pick from those. You need to look beyond price and make sure you have considered the various product benefits and options on offer.
For example, if you’re recommending a critical illness plan and your client is planning to have children at some point in the future, you’re probably going to want to look into which plans offer the ability to add children’s cover at a later date.
The IDD requires everyone selling insurance to do at least 15 CPD hours per year. If you already need to do 35 hours of CPD each year for retail investment activities, these 15 hours are included in that. The FCA also expects the training to cover specific areas which it refers to as ‘minimum knowledge criteria’.
These areas include product coverage, the claims process and insurance regulation among others. Training and development can include various types of facilitated learning opportunities including courses, e-learning and mentoring. You also need to establish, maintain and keep appropriate records to demonstrate compliance with employee knowledge and ability requirements.
To help you meet your ongoing CPD requirements, we’ve created a CPD hub. Here you’ll find useful articles or webinars on different topics, all divided into bite sized chunks, so it’s easy to build up those valuable CPD hours. Just view the content you’re interested in, answer a few related questions and we’ll send you a completion certificate for your CPD records.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.