The regulator has announced a raft of proposals to bring rules in line with Insurance Distribution Directive
The FCA has published the first of its two consultation papers on the implementation of the Insurance Distribution Directive (IDD).
The IDD, formerly the second Insurance Mediation Directive (IMD2), is being introduced to replace the Insurance Mediation Directive which was introduced in 2005.
It was designed to encourage competition between insurance firms, as well as ensure appropriate levels of protection for customers, across the EU.
The scope of the IDD which is wider is focused on the distribution of insurance and reinsurance. It also covers the administration and performance of an insurance contract post-sale.
The changes will come into force on 23 February 2018.
The consultation paper covers the FCA’s proposals for the application of the directive, which include the following areas:
- Professional and organisational requirements
- Complaints handling and out-of-court redress
- Professional indemnity insurance (PII)
- Changes to conduct of business rules (including commission disclosure)
- The regulatory regime for ancillary insurance intermediaries
The IDD will apply more broadly than the IMD and bring consumer protection rules in line with those in other financial markets.
The proposals will cover all firms carrying out insurance distribution activities, where they have a direct impact on the policyholder. It also includes changes to client money CASS 5 rules for reinsurance brokers.
This means that firms conducting insurance distribution activities as part of a distribution chain will be caught by the customer’s best interests rule.
This will include, for example, a wholesale intermediary who concludes a policy placed with it by a retail intermediary, or a price comparison website who proposes a contract but directs a customer to another intermediary or insurer.
FCA executive director of strategy and competition Christopher Woolard said: “This directive is a significant piece of legislation with implications for the insurance industry as a whole.
“Many of the changes extend UK standards to other parts of the EU and where domestic provisions already exist we will seek to minimise the disruption to UK firms.
“As well as encouraging competition between insurance intermediaries, this directive will continue to ensure protection for insurance customers.”
The second consultation paper 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.