14 June 2018
Insurance Distribution Directive, more than just Continuous Professional Development and all about a principle: ‘customers’ best interests’
As we count down to the implementation of the Insurance Distribution Directive (IDD) in October, just four months away, now is the time to put preparations in place.
While much of the comment in relation to the IDD has been on training and competence, IDD is about more than this and requires that distributors: ‘must act honestly, fairly and professionally in accordance with their customers’ best interests’. Importantly distributors must be able to demonstrate this. The impact of the application of such a broad principle in practice will only become clear once the FCA shows its regulatory appetite to challenge firms in this regard.
As with most regulation, the best way to tackle this challenge is to think about what you do already, what you record, and whether or not that lives up to regulatory expectations.
IDD introduces a new requirement on everyone involved in selling insurance to do a minimum of 15 hours training a year. While this might include, for example, call centre employees whose role may be limited to conducting non-advised script-based sales, CPD can be tailored to allow for the nature and complexity of the individual’s role.
It’s important to note that the more important principle, enshrined in the legislation, is that employees should possess ‘appropriate knowledge and ability’ to perform their roles adequately. This sounds like an easy requirement to live up to, but as our jobs become more complex, gaps continually appear. Customer vulnerability, GDPR and data management all make ongoing assessment of personal development needs essential.
My guess is once you work out how much time you spend reading, doing refresher courses and events to maintain competence, you will actually have much more than the required 15 hours worth of activity. If that is the case, all you have to do to comply with the IDD is to record all this activity.
The IDD requires advisers, brokers and insurers to show that they have implemented all the ongoing training needed to satisfy competence and understanding in the following areas:
- Terms, conditions and suitability of policies offered
- Regulation
- Claims handling
- Complaints handling
- Assessing customer needs
- The insurance and related market
- Business ethics
- Financial competency
- Customer vulnerability
- Applicable insurance contract law, consumer protection law, data protection law, anti-money laundering law and, where applicable, relevant tax law
- Conflict of interest management.
All you need to do is to make sure that the amount of time you and your colleagues spend on training and competence maps across to these categories.
For very small firms, this recording requirement will be straightforward. For larger ones, it may be worth using some simple software to keep track of which of the IDD categories is being covered off by ongoing training.
Whatever system you use, the best way to comply is to follow the spirit of the rules, and then simply ask yourself what you need to do to provide evidence to the regulator that covers what you have done. If you do this now, four months will be plenty of time to prepare for the IDD.
But, IDD is only one piece of the puzzle…
The IDD comes into effect at a time when both international and national regulators are placing increased focus on the conduct and customer agenda. This is reflected in the FCA and PRA’s move towards the Senior Managers and Certification Regime (SM&CR) to apply to all insurers and solo FCA regulated firms (including insurance intermediaries). SM&CR aims to encourage all levels of employees to take personal responsibility for their actions and to make sure firms and their employees clearly understand and can demonstrate where their responsibilities lie.
Firms should look at IDD in the context of these other developments in the conduct agenda to ensure that the cross impact of different pieces of regulation is appropriately understood and managed.
Scottish Widows will be here to assist you in meeting the challenge of IDD and SM&CR.