The Insurance Distribution Directive (IDD)
The Insurance Distribution Directive (IDD) comes into force in February 2018 and replaces the Insurance Mediation Directive 2002 (IMD), both are designed to regulate insurance intermediaries. The IDD covers a much broader scope than the IMD, all insurance and reinsurance distributors, as well as those selling insurance alongside other products, will need to rethink their procedures in order to comply.
The EU wide directive aims to create a “level playing field” for insurance distribution across all distribution channels to ensure the protection of customers. The IDD also intends to improve competition and bring consistent regulation across the entire insurance market, in line with those required in other financial markets. The main principle is that insurance providers and distributors should act in the customers best interest at all times.
For those selling non-advised products (for example online, and usually non-life policies) there will be stricter requirements to correctly identify clients needs and only offer suitable products. Insurers must have procedures in place to ensure all distributors are offering only relevant products to clients across the entire distribution chain. This may result in a simplification of products available.
There are also professional and competence requirements for those selling insurance products, which includes minimum hours training. 15 hours continued professional development training per year, as well record keeping and reporting standards.
Insurance intermediaries will be required to provide an Insurance Product Information Document (IPID) which gives customers details of the product they are purchasing in a standardised format. Under IDD, the IPID should generally not exceed 2 sides of A4 (maximum of 3 sides), be written in plain language and should cover details including type of insurance, level of cover, restrictions, payment, cancellation and dates of cover. The IDD also outlines which symbols should be used to illustrate each section.
Other changes include extending the FCA’s CASS 5 broker client money rules to reinsurance intermediaries, currently only mandatory for primary general insurance brokers.
Anyone selling insurance, even if selling insurance is not your primary business, will have to comply with the Insurance Distribution Directive and have only three months to ensure that procedures meet the criteria.