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Roundup and Commentary: Insurance Distribution Directive (IDD) Implementation

OAC Digest: Special Editions
FCA, IFAs, Life insurance, Non-Life, OAC Digest

27 March 2017

The FCA has published the first of two consultation papers on the implementation of the Insurance Distribution Directive (IDD) – FCA CP17/7: "Insurance Distribution Directive Implementation – Consultation Paper I".  The consultation period ends on 5 June 2017.

What is it?

The IDD aims to enhance consumer protection and promote competition in the general insurance and life sectors – and will reinforce some of the rules the FCA already has in place and will amend others.

Some of the key aspects covered are professional and organisational requirements, complaint handling and out-of-court redress, professional indemnity insurance, conduct requirements for non-investment insurance contracts, and the regulatory regime for ancillary insurance intermediaries (AIIs). The IDD will apply more broadly than the Insurance Mediation Directive (IMD) and bring consumer protection rules in line with those in other financial markets.

We highlight this, as it is the first of two consultations, the second of which will be published later this year and will include matters such as those IDD requirements which are yet to be adopted by the EU Commission. It will also address the FCA’s approach to the conduct requirements for life policies which are being considered in the light of ongoing implementation of the Markets in Financial Instruments Directive (MiFID) II.

When will it be effective?

The UK is required to comply with the IDD by 23 February 2018.

Who does it apply to?

The IDD applies to any person carrying on the activity of “distributing insurance”, and now governs the activity of distribution whether carried out directly by an insurer or through an intermediary.

IDD recognises and applies rules to three types of insurance distributors:

  • Insurance intermediaries – persons that pursue the activity of insurance distribution for remuneration and who are not ancillary insurance intermediaries.
  • Ancillary insurance intermediaries – persons that pursue the activity of insurance distribution for remuneration but whose principal professional activity is not insurance distribution and who only distribute insurance products that are complementary to their goods or services.
  • Insurance undertakings – this is different from the requirements under IMD, which only covered intermediary sales.

IDD seeks to impose additional requirements on the distribution of insurance-based investment products by insurers and insurance intermediaries, for example, those firms will be required to maintain and operate effective arrangements to manage conflicts of interest, and when the conflict cannot be prevented it must be disclosed in good time before conclusion of the insurance contract; firms providing advice must carry out a suitability assessment, and non-advised sales must be subject to an appropriateness test.

Next steps

Any firm whom the IDD affects will need to review its contents and develop a plan of implementation, noting that some aspects are subject to further detail and guidance over 2017.

If you need any further advice, please do not hesitate to contact us.

Jackie Wright

For more information
Jackie Wright
Senior Regulatory Compliance Consultant

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