Just as a raft of changes swept through the finance industry to try to restore consumer confidence after the 2008 financial crisis, the IDD aims to improve the level of consumer protection across the insurance sector. It is essentially a new framework of EU regulations designed to raise the bar on insurance standards to make things easier and safer for customers.
The IDD replaced the Insurance Mediation Directive (IMD) when it was published on 23rd February 2016, with a two-year implementation period (extended to 1st October 2018). The revised Directive aims to improve regulation in the insurance market, to ensure a level playing field between all participants involved in the distribution of insurance products, and to strengthen policyholder protection.
Here, we’ve summarised 10 key features of the IDD to help you prepare for this huge change:
- It applies to all providers of insurance products
The IDD will affect everyone within the general insurance market, including insurance companies, brokers, wholesalers and secondary providers. This means that even businesses that don’t deal with insurance full time, such as travel agents and car hire firms, must comply with the new rules.
- It creates more of a level playing field
In addition to modernising the regulations, the directive also aims to bring more equal opportunities to the various providers, intermediaries and distributors of insurance, regardless of the way customers purchase their products.
It should also improve consistency across the EU to encourage cross-border trading. Despite Brexit, the UK will still implement the new rules.
- Customer needs are at its core
Acting in customers’ best interests is at the heart of the new policy, with a focus on their demands and needs. In practical terms, this includes asking your customer about the level of cover they require and the amount of excess they’re willing to pay, then providing a personalised explanation of why a suggested product is best for their needs at the time of quote or sale.
- Staff to undergo 15 hours of training a year
Frontline sales staff and anyone else involved in insurance distribution activities must complete a minimum of 15 hours of continuing professional development (CPD) each year to keep their knowledge up to date.
Employees will also need to undergo checks to ensure they haven’t been convicted of fraud or other financial crimes.
- Cross-selling disclosure
If an insurance product is offered with another service or as part of a package, such as insurance purchased with a car, customers must be informed whether they can buy the different components separately. If they can, an adequate description of the different components must be given as well as separate evidence of costs and charges, so the customer can make an informed decision.
- Regular product reviews
Where an ongoing service is provided to clients, insurance providers are expected to review products periodically to make sure they’re still suitable and relevant to their target market.
All relevant risks to the target market should be assessed, taking into account any event that could substantially affect it.
- Commission transparency
Insurers will need to be upfront about any fees that may apply to policies and whether staff receive a bonus or incentive when selling insurance products.
This greater transparency includes disclosing whether advice is based on ‘a fair and personal’ analysis of the market, and the names of any other insurers the provider is contractually bound to place business with.
- Stating any conflicts of interest
Where conflicts of interest can’t be avoided, they will need to be disclosed to the customer before the conclusion of the contract.
Up to date records must be kept about the kinds of service or activity carried out in which a conflict of interest has arisen or may arise.
- There’s a new professional indemnity insurance minimum
The IDD sets a minimum professional indemnity insurance requirement for intermediaries of at least €1.25 million (£1.12m) per claim per year, and €1.85 million (£1.65m) per year in aggregate for all claims.
It’s worth noting that these figures are only the minimum set by the regulator, meaning it is therefore up to each firm to determine what level of cover they require.
- Proving a pre-sale document
A new standardised Insurance Product Information Document (IPID) is being introduced for personal insurance policies to provide customers with a clearly worded summary about the insurance cover they may opt for, either at renewal stage or for new business. It should list the product’s benefits, terms and key exclusions.
The template is designed to provide more consistency across insurance providers, so customers can easily compare products and make an informed decision. Therefore, it should be provided before the sale is completed.
As part of our commitment to this regulatory change, we’ve updated our Key Facts documents and renamed them Product Summary. And, while the IPID is not required for commercial products, we have nonetheless updated our commercial Product Summaries in line with it, to help our customers stay informed.
If you have any questions about the IDD changes, please contact your regional underwriting office.
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