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Insurance Distribution Directive (IDD)

News

Publication date:

24 August 2018

Last updated:

22 October 2018

Author(s):

Chartered Insurance Institute

The Insurance Distribution Directive (IDD) law was passed by the European Union in 2016. 

What is the Insurance Distribution Directive (IDD)?

The IDD is a law that was passed by the European Union in 2016. As with most laws made by the European Union, there was an implementation period for the IDD. As a result, the new law will come into force in the UK on the 1st October 2018. The EU authorities passed the law because they wanted to ‘to strengthen the confidence of customers’ in insurance. There already was a law regulating insurance at EU level, called the Insurance Mediation Directive (IMD), which came into force in 2005. However, this law only covered brokers, not direct sales by insurance companies. The IDD extends minimum standards to insurance companies, and improves those minimum standards in key areas such as customer information, training and product governance.

Why do I still have to do 35 hours CPD to remain a qualified member of the CII, when the regulator only asks for 15 hours?

The 15-hour requirement is meant as a minimum for anyone involved in ‘insurance distribution’. However, the IDD also has a requirement that people involved in the distribution of insurance should ‘possess appropriate knowledge and ability in order to complete their tasks and perform their duties adequately’. As a professional body, it makes sense for our standards to represent good practice rather than a legal minimum. The 35-hour CPD requirement for qualified members (Cert and above):

  • Embodies good practice, rather than simply minimal compliance
  • It puts members in a stronger position to comply with the IDD’s more demanding requirement to ‘possess appropriate knowledge and ability in order to complete their tasks and perform their duties adequately’. 
  • It reflects the demands of wider roles in insurance, rather than the demands of the most basic role covered by the IDD

Find out more

What products are covered by the IDD training requirements?

All insurance products are covered by the IDD. This includes general insurance, protection and insurance-based investment products such as insurance bonds.

Are all the markets that the CII operates in covered by these requirements?

The IDD only covers the European Union, including the UK.

Will Brexit affect the introduction of the IDD?

No. First, the Government has stated that until Brexit formally takes place, the UK still has to fulfil its Treaty obligations by implementing existing EU regulation. Second, even if the FCA fundamental review of its handbook post-Brexit reveals some streamlining, there will be many elements of regulation that need to be retained because they either comply with international regulatory initiatives or retaining them would make it easier for businesses to operate both in the UK and the EU.

What must the IDD CPD cover?

The IDD directive has three lists of subjects that the IDD must cover: general insurance, life insurance and insurance-based investment products. Neither the EU authorities nor the FCA have published any further guidance than these three lists. It is up to firms to interpret what the lists mean. Basically, the lists boil down to adequate knowledge of:

  • the products being sold,
  • customer needs
  • the market,
  • regulation
  • where relevant, of alternative benefits available from employers and the government (e.g. for disability benefits)

For general insurance

  • minimum necessary knowledge of terms and conditions of policies offered, including ancillary risks if covered by such policies;
  • minimum necessary knowledge of applicable laws governing the distribution of insurance products, such as consumer protection law, relevant tax law and relevant social and labour law;
  • minimum necessary knowledge of claims handling;
  • minimum necessary knowledge of complaints handling;
  • minimum necessary knowledge of assessing customer needs;
  • minimum necessary knowledge of the insurance market;
  • minimum necessary knowledge of business ethics standards; and
  • minimum necessary financial competency

For life insurance

  • minimum necessary knowledge of insurance-based investment products, including terms and conditions and net premiums and, where applicable, guaranteed and non-guaranteed benefits; minimum necessary knowledge of advantages and disadvantages of different investment options for policyholders;
  • minimum necessary knowledge of financial risks borne by policyholders;
  • minimum necessary knowledge of policies covering life risks and other savings products;
  • minimum necessary knowledge of organisation and benefits guaranteed by the pension system;
  • minimum necessary knowledge of applicable laws governing the distribution of insurance products, such as consumer protection law and relevant tax law;
  • minimum necessary knowledge of the insurance market and of the saving products market;
  • minimum necessary knowledge of complaints handling;
  • minimum necessary knowledge of assessing customer needs;
  • conflicts of interest management;
  • minimum necessary knowledge of business ethics standards;
  • minimum necessary financial competency.

For insurance-based investment products

  • minimum necessary knowledge of policies including terms, conditions, the guaranteed benefits and, where applicable, ancillary risks;
  • minimum necessary knowledge of organisation and benefits guaranteed by the pension system of the relevant Member State;
  • knowledge of applicable insurance contract law, consumer protection law, data protection law, anti-money laundering law and, where applicable, relevant tax law and relevant social and labour law; 2.2.2016 EN Official Journal of the European Union L 26/55
  • minimum necessary knowledge of the insurance and other relevant financial services markets;
  • minimum necessary knowledge of complaints handling;
  • minimum necessary knowledge of assessing consumer needs;
  • conflicts of interest management;
  • minimum necessary knowledge of business ethics standards; and
  • minimum necessary financial competency

Does the IDD CPD have to be structured? Can it just be reading?

Provided firms keep a log of the time spent on training, and provided the CPD is not ‘on the job’ experience, it can be unstructured – so, for example, time spent reading about money laundering requirements could count as CPD.

Are there any rules about how much time you have to spend on each area – e.g. do you have to spend 20% of the 15 hours on protection?

No. The rules say you have to be competent in the key areas listed in question 5, but beyond that it is up to firms to decide how much time they spend on each one. If it takes more than 15 hours to maintain competence, then individuals have to spend more than 15 hours on CPD.

What kind of staff are covered by the rules?

All staff of FCA-regulated firms who are involved in insurance distribution are covered by the rules. The definition of ‘distribution’ is wide, and includes people working in claims as well as people doing front line selling roles.  Managers of people in these areas are also covered.

The Directive lists people who work in ‘insurance distribution’ as people: ‘…advising on, proposing, or carrying out other work preparatory to the conclusion of contracts of insurance, of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim, including the provision of information concerning one or more insurance contracts… including price and product comparisonusing a website…

People in generic roles that are same for insurance and non-insurance companies are not covered by the rules. The FCA has listed some examples of these kind of roles, saying: ‘The requirements will not apply to employees in ancillary roles such as HR, facilities management and IT’.

One grey area is staff that simply provide brochures and/or refer customers to sales staff. In these cases, the initial assumption is that they will be covered, unless they can show that they have no judgement at all that needs some insurance knowledge. For example, someone whose only role is to point people to a part of the office where brochures are kept would not be covered, but someone who choses which brochures a customer should go away with would be covered.

Because the CPD rules only apply to people involved in insurance distribution, none of the rules apply to employees of the CII.

Are people who work for non-financial firms covered by the rules?

Most people who don’t work for financial services firms are not covered by the 15-hour rule – for example, someone who worked for a furniture showroom and sold a warranty with the furniture would not be caught. The only exceptions to this are people who work for travel agents and sell travel insurance, and people who work for car dealers who sell insurance.

When did the rules come in?

The IDD came in on the 1st October 2018. Firms can comply before then if they want to, but only have to after the 1/10/18.

Was the IDD delayed? Why?

Yes, it was originally supposed to come in on the 22nd February 2018, but it got delayed until October. This is mainly because under the IDD, retail general insurance firms have to provide a new, 2-3 page summary of all products for customers. The standards for these templates were only developed at the last minute, and many firms have not been able to link them up with their computer systems in time.

I’ve heard that regulators still had to put IDD rules into place in February? What does this mean?

National regulators (in our case, the FCA) must have all their rules for IDD finalised by the 22nd February. This will then give insurance firms 7 months to comply with the final rules. The EU authorities have insisted that the final rules should be in place by February because they did not want national regulators to spend the time up to October tweaking their IDD legislation, because this would not have given insurance firms the certainty they needed to comply with the IDD by October.

This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.

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