The Insurance Distribution Directive (IDD) comes into force for UK firms on 23 February 2018. Here we look at what it entails – in particular regarding the requirement for the new Insurance Product Information Document (IPID).
What is the IDD and what does your firm need to do to comply?
The IDD concerns the distribution of insurance and reinsurance. Firms that assist in the administration and performance of an insurance contract post-sale will also need to comply with the new directive.
It’s designed to create a level playing field for all those involved in the sale of insurance products.
For your team, it means an addition to an already-lengthy to do list, coming into effect just a month after the Regulation on Key Information Documents for Packaged Retail and Insurance-based Investment Products (PRIIPs) and MiFID II (with which some parts of the directive are aligned).
What does the new directive say?
The IDD introduces enhanced requirements around information and conduct of business. 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
One of the big changes is the need to produce the new Insurance Product Information Document (IPID).
What is the IPID and what should it contain?
One of the IDD’s requirements is that the customer is given information in a standardised format, to enable them to make an informed decision about a non-life insurance product before they buy it.
The manufacturer of the insurance product is responsible for producing the IPID. On 12 August this year, the EU set out some specific requirements for the IPID in its journal. They can be read in detail in the journal – but in summary:
- Title: the document must be titled ‘Insurance Product Information Document’.
- Name and company logo: it needs to clearly state the name of the manufacturer of the non-life insurance product, the Member State where the manufacturer is registered, its regulatory status and authorisation number; the company logo may also appear.
- Reference to complete pre-contractual and contractual information: it must make it clear that complete pre-contractual and contractual information about the product is provided to the customer in other documents.
- Length: the document should cover two sides of A4-sized paper when printed; in exceptional circumstances (which will need to be evidenced) it can run to a maximum of three.
- Presentation and order of content: the document must follow a standardised presentation format. The regulation details prescriptive requirements around font size; the sections to include (and their length and order); the way that information is set out; and specific rules for documents presented digitally.
- Language: the insurance product information document must be drafted in plain language and focus on the key information the customer needs to make an informed decision.
- Headings: the directive stipulates set headings, along with the information that needs to sit under each one.
- Use of icons: set icons need to be used that ‘visually represent the content of the respective section heading’. The regulations dictate the icons to use for each area of the report, along with their colours.
What should you be doing now to ensure compliance?
The IPID will need to be used from February 2018. You therefore need to start putting in place the processes that will enable you to describe your products within the constraints of the IPID template.
There are a few steps you can take now to make this easier:
- Look at the detailed requirements in the EU Journal, as summarised above, and familiarise yourself with what is needed.
- Start working on a template for your IPID, taking into account all the stipulations above.
- Look at how you can make the document work digitally. Although most of the requirements focus on a paper document, in practice many consumers research, compare and buy insurance products online. You therefore need to make sure that you understand the rules around digital versions of the IPID – for instance, how pop-ups and links to further information can be included.
- Explore how automation can help. By introducing an element of automation to your document production can increase efficiency, improve consistency and reduce your chances of regulatory breaches.
What are the next steps with the IDD?
The recent Financial Conduct Authority (FCA) consultation closed on 20 October. The regulator will publish feedback and issue a policy statement once it has reviewed the responses. In the next few months, the Authority will consult separately on its remaining proposals for implementing the directive.
Further information on the FCA’s approach and next steps is available on its website.
How can we help?