insurance fraud

The Insurance Distribution Directive (IDD)

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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.

Identity fraud in the insurance market

As a result of the rise in identity fraud, Action Fraud, the City of London Police, Cifas and Equifax have launched an identity fraud campaign in an attempt to increase awareness and encourage people to go further in protecting their identity. But it’s not just members of the public that have to be vigilant.

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Identity fraud now costs the UK £5.4bn a year, and the insurance industry is keen to banish this costly trend. Identity fraud is a problem across all areas of insurance, but it is most prevalent in motor insurance. False motor insurance claims make up £835m of the total £1.3bn losses a year to the insurance industry.

The internet has made it much easier for fraudsters to cash in; stealing identities through hacking and phishing, as well as taking advantage of online applications which remove the need to apply for products in person or over the phone.

Opportunistic identity fraud is rife in this required, and often expensive, sector of the industry. It can take the form of policyholders looking to reduce their premiums, for instance a parent taking out a policy as the main driver and adding the child as a named driver.

But identity fraud can also be seen in the murkier world of organised crime; false insurance policies used to protect criminals from being caught out from uninsured driving, and facilitating money laundering. Ghost broking companies are common, with bogus companies setting up policies using stolen identities, for people who might struggle to get a policy legally. False claims are also a problem, with people submitting multiple claims under different names.

The war on identity fraud must be collaborative effort, says Simon Dukes, Chief Executive at Cifas, who encourages companies to take data security more seriously. Awareness needs to grow for the public too. “We welcome this new campaign and urge everyone to take more responsibility in protecting their personal information and avoid making themselves an easy target for the identity fraudster.”

Insurance companies must be more vigilant with their Know Your Customer checks and use every available tool in their arsenal.