Regulatory Bulletin: Insurance Distribution Directive

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Insurance Distribution Directive

 WHAT is it?

The Insurance Distribution Directive (IDD) was designed to strengthen the rules of the 2002 Insurance Mediation Directive (IMD) . It is intended to create a level playing field among all participants in the insurance market.  The new regulation applies to more types of firms than the IMD; whilst the previous legislation applied mainly to insurance brokers, this has been widened to encompass more types of insurance market firms. For example, if your firm operates as a sales agent for a single insurance underwriter, it will now be considered an “intermediary” and must comply with the Directive’s provisions.

Here are some key changes:

  1. There are new requirements for certain categories of staff to ensure their competence
  2. There is a new “customer’s best interest rule” incorporated in the Conduct of Business principles
  3. There are additional requirements for pre-contractual disclosures due to widened scope of IDD as compared to IMD (see ICOBS 4 in the FCA Handbook)
  4. There are new requirements related to conflicts of interest and transparency (ICOBS 4)
  5. There are new requirements for cross-selling (ICOBS 6A)
  6. There is now an obligation for Insurance intermediaries to hold PII
  7. Requirement for record keeping is now more strict
  8. There are restrictions on use of intermediaries and clearer requirements for complaints handling

 WHEN does it come into force?

The Directive entered into force on the 23rd of February 2016 and affected firms are required to comply by the 23rd of February 2018; insurance businesses now have under a year to comply with the Directive’s provisions.

WHAT are the key focus areas?

The IDD principles will be incorporated through SYSC and ICOBS.




Insurance intermediaries ▪     All sellers and insurance products, including those who sell directly to customers

▪     All persons who are involved in performance of insurance contracts, including persons acting on behalf of insurance undertakings

▪     Ancillary insurance intermediaries (examples: travel agents and vehicle dealers)


  1.   Employee requirements

The IDD introduces the minimum of 15 hours continuing professional development per year (CPD)

The IDD sets out minimum knowledge criteria (i.e. knowledge of the product or market in question)

These are called the “Competent employees” rules

  1. Certification/Qualification discretion

There is no requirement for any qualifications for employees apart from IDD training

  1. Conduct of business requirements

(i) General principles

  • Insurance distributors should act honestly, fairly and professionally in the best interest of their customers (New “customer’s best interest rule”)
  • Clear, fair and not misleading ways of communicating with customers
  • Remuneration and performance management of employees not conflicting with the duty to act in the best interest of customer

(ii) Pre-contractual disclosures

  • This rule now also applies to insurance undertakings
  • Firms must confirm whether they are a insurance/reinsurance intermediary or undertaking and whether they offer personal recommendations
  • Intermediaries must state if they are acting on behalf of the customer or the undertaking

(iii) Disclosures related to transparency and conflicts of interest

  • Intermediaries must disclose if they have 10% or more voting rights or capital in an insurer, or vice versa. Currently the requirement is “more than 10%”
  • Intermediaries must state whether they are giving advice based “a fair and personal” analysis of the market
  • Where an intermediary is in contract with certain insurers, it should state their names
  • Where an intermediary is not in contract with insurers and it does not give recommendations based on fair and personal analysis, it must state the insurers with which it may

(iv) Disclosure related to remuneration of firms

  • The insurance distributors must the nature an the basis for remuneration of the distributor receives in relation to the insurance contract
  • Same rule applies to insurers stating the nature and basis of remuneration of their employees in relation to the insurance products
  • The FCA is proposing to include the type of remuneration and the source of remuneration in order to establish consistency across the market

(v) Means of communicating the information to customers

  • Clear, Accurate and comprehensible
  • In an official language of the member state
  • Free of charge

(vi) Advised and non-advised sales

  • All firms must only propose the insurance contracts to customers if they are sure that the proposed contracts are in line wit customer’s demands and needs
  • Insurance Product Information Document (IPID)

(vii) Cross selling

  • Applies to insurance products being sold alongside other goods or services
  • If insurance is primary product in the package, information about how the customer can obtain the other products in the package separately should be provided to the customers
  • If insurance is not the primary product in the package, the customer must be able to buy the product without insurance
  • This rule does not apply to instances where insurance is sold ancillary to other particular financial products, or when ancillary is another insurance product
  1. Professional Indemnity insurance

The IDD requires intermediaries to hold PII or a comparable guarantee against liability arising from professional negligence

Minimum levels of cover are €1,250,000 per claim per year, and €1,850,000 per year in aggregate

  1. Record keeping

The IDD requires insurance and re-insurance undertakings to establish, maintain and keep appropriate records to demonstrate their compliance with regulation

Firms should already maintain records being in compliance with SYSC. However, the level of consistency should be improve in preparation for IDD

There are no time limits for record keeping – Minimum requirement is 3 years

  1. Restrictions on the use of intermediaries

Under IDD, the following rule only applies to insurance and re-insurance undertakings

Insurance and reinsurance undertakings and intermediaries must only use authorised or exempt insurance intermediaries for insurance distribution services

  1. Complaints handling and out-of-court redress

Article 14 of IDD requires insurance and re-insurance distributors to have a process in place for customers and other eligible parties to register complaints and receive replies

Article 15 of the IDD requires Member States to have “adequate and effective, impartial and independent out-of-court complaint and redress procedures” relating to customer complaints about insurance distribution activities which come within the scope of the IDD

  1. FCA’s existing rules are more detailed than the IDD requirements in some respects

A requirement for intermediaries to maintain a higher minimum aggregate cover (10% of annual income up to £30m)where this is greater than the directive minimum amount

Requirements around excess levels

The need to have specific terms which the PII cover must incorporate (such as cover for legal defence costs and Ombudsman awards)

WHAT do firms need to do to comply?

  1. Make all relevant staff aware of the CPD requirement
  2. Map out everyone who requires training and organise it
  3. Ensure customers are being treated fairly and staff are acting in the best interest of their customers (this could be done, for example, by carrying out surveys)
  4. Ensure all pre-contractual disclosures are meeting the requirements
  5. Ensure when insurance is being sold in a package with other goods/services, there is an option to buy the product on its own and it is clearly communicated to the customer
  6. Ensure the firm holds PII and minimum cover levels meet the requirement
  7. Firms should already maintain records to demonstrate their compliance with regulation: ensure those are kept securely and accurately
  8. Ensure there are processes in place to enable staff to receive and respond to complaints from any eligible parties in an organised and timely manner
  9. Ensure the procedures for impartial and independent out-of-court complaint and redress procedures are adequate and effective

What can we do to help?

The team at FinTech Compliance is highly experienced in matters related to insurance mediation – don’t hesitate to get in touch with us should you need advice or assistance.

In particular, FinTech Compliance can assist you with the following:

  • A bespoke scoping exercise to determine whether your firm falls within the scope of the new rules, and any changes or Variation of Permission applications you may require
  • Providing a tailored suite of required policies and procedures compliant with the IDD rules
  • Assisting with Variation of Permission applications (for existing regulated firms) and Part IV authorisations to the FCA (for new firms or firms which have been brought under the IDD’s expanded scope)
  • General advice and assistance on the application of the IDD provisions and other associated Handbook rules

If your business could benefit from any of the above, please do not hesitate to get in touch with us by calling +44 207 100 4058, or write to us using our website’s Contact Us page.