Having been AMII’s Compliance Consultant for the last 14 years and publisher of the BIBA/AMII Compliance Manual, the fact that the manual has taken 20 man days to update since last year’s version tells me that IDD (and GDPR!) should be making waves at your firm!
Whilst this is EU inspired, the UK, via the FCA, has chosen to implement all of it and thus improve the original Insurance Mediation Directive that came into force on 14 January 2005 (remember that heady day?!). The IDD is far-reaching and impacts areas such as: compulsory training, marketing, the sales process/documents, product oversight and governance, conflicts of interest and systems and controls and it comes into force on 1 October 2018.
Let me take a few of those in this article.
Compulsory training means at least 15 hours of facilitated training that should cover product knowledge, applicable law, claims and complaints process, insurance market, ethics and financial competence. The CII offers a comprehensive online package called Broker Assess and this will need to be supplemented with your own training to cover the products you sell and your own inherent processes. Is 15 hours enough? Qualified CII members have to do 35 hours and once again, unlike IFAs, there is no minimum professional qualification requirement. So I feel this is a very light touch in an area of business that really requires the adviser to be professional and at the top of their game.
One of the biggest areas I feel are the changes to the advice process and the documentation that needs to be issued. You will need to explain your route to market and whether you have undertaken a fair and personal analysis of the market or if you have restricted this in some way. You need to decide whether you are providing advice and thus a personal recommendation if you have undertaken a fair and personal analysis (and this needs to be set out at new business stage and at renewal). Or no advice and it is down to the client to read and understand and then work out for themselves whether what you are suggesting is adequate for their demands and needs (having discussed these in both scenarios and repeated them back to the client).
There is no provision in the IDD for tacit renewal; both totally new contracts and renewals are, essentially, new contracts. However, FCA appreciate that the context of each is different for customers and we recognise harm may materialise if customers did not engage at renewal and firms had to cancel their insurance. Thus the FCA are comfortable with an approach that places reliance on information provided previously, so long as it is reasonable to do so. (It is up to firms to consider if or when information becomes out-of-date and further customer information becomes necessary. We would also expect clear disclosures that the customer's demands and needs are based on previously-disclosed information.)
We get a lovely new rule that requires everyone – insurer and intermediary – to “act honestly, fairly and professionally in the best interests of the customer” – any malpractice should be easily caught by this one! Intermediaries will also need to advise clients on the nature and basis of their remuneration and also avoid conflicts of interest rather than using disclosure as a way of managing them. So, if you have a scheme that offers enhanced commissions but you know something else is much better, you know what you should do!
Do all client files evidence why a certain product met the best interests of the client? And is your conflicts of interest policy up to date? Also, have you recorded all those very nice insurer invitations? Further, if staff are incentivised, are you sure such arrangements do not encourage them to sell a particular insurer more than another? Or a particular product more than another? And if switching does occur at renewal, is this done in the best interests of the customer (and not the firm in terms of commission payment)?
A further document that will be required is the Insurance Product Information Document or the IPID and this will be needed for individual business. It looks good to me and provides an easy to follow and well-laid out summary of cover.
FCA is all about preventing harm to customers and where PMI is concerned, harm can easily occur if the wrong product is sold based on bad advice. Insurance is regarded by some as an industry but by many as a profession where professional advisers act entirely in the best interests of their clients. IDD is all about tightening that up and I am sure PMI advisers know which side of the fence they are on.
Branko Bjelobaba FCII, MIoD
Chartered Insurance Practitioner
Managing Director, Branko Ltd.