The Insurance Distribution Directive comes into force on 1 October. Less than a month from its implementation date, we thought it was a good time to revisit what the Directive requires, and look at the steps firms need to take to be compliant.
What is the Insurance Distribution Directive?
The IDD concerns the distribution of insurance and reinsurance, and also applies to firms that help with the administration and performance of insurance contracts post-sale.
It’s designed to create a level playing field for all those involved in the sale of insurance products, improving competition. It replaces the Insurance Mediation Directive, and introduces enhanced requirements around information, conduct of business, product oversight and governance.
When does it come into force?
The regulation came into law on 1 July, with firms having until 1 October to comply. The implementation date was pushed back earlier this year from its original date of 23 February.
The FCA has suggested that firms can adopt some or all of the requirements before the deadline, recognising that as the Directive’s introduction was delayed, some firms may have been in a position to comply ahead of the revised implementation date.
Where can I find out more about the IDD?
The FCA’s dedicated website provides a lot of information on the Directive and how firms can comply.
In May the regulator issued an update to its Handbook confirming the final rules.
This blog on What is the IDD and how can insurance firms comply? also offers a good summary of the new Directive’s requirements.
What do we need to do to comply?
The IDD introduces enhanced information and conduct of business requirements. These include:
- Additional knowledge and competency requirements for distributors
- Product oversight and governance requirements
- The production of an Insurance Product Information Document (IPID) for non-life products
- Disclosures around bundling of products
- Additional disclosure requirements for insurance-based investment products
- Mandated remuneration disclosures
The IDD fits into a broader picture of increased regulatory focus on fair treatment of customers and good conduct. Its focus on consumers reflects the FCA’s wider work on vulnerable consumers and suitability.
In some areas, the IDD goes beyond existing rules set by the FCA, so there are areas where firms will need to look at any additional work they need to do to comply, over and above their current practices.The Directive comes into force in a landscape where insurers are already working to comply with the Senior Managers and Certification Regime, which is set to be extended to almost all regulated firms, and tackling compliance with the PRIIPs regulations that came into force earlier this year.
The Insurance Product Information Document
One of the IDD’s key requirements is the need to produce the new Insurance Product Information Document (IPID). This is the responsibility of the manufacturer of the insurance product, and there are some very prescriptive rules around its format and what it should include.
You will need to ensure that your IPIDs include accurate information, up-to-date figures and the correct risk warnings and disclaimers, displayed with requisite prominence.
Automating some of your processes can help with IPID production and IDD compliance. For instance:
- Automation can increase your confidence that the correct data and performance figures are used.
- The right risk warnings, disclosures and disclaimers are added as a matter of course, in the right place and at the required size.
- Project management is improved, with a more efficient production and approval process – reducing duplication and saving significant time.
- Paper edits and manual interventions are reduced, increasing efficiency and reducing the chances of errors and omissions.
- An FCA-compliant audit trail is automatically created.
- Compliance sign off is mandatory, minimising the chances of regulatory breaches.
Source: Perivan Technology
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