The IDD is the European directive that updates the previous Insurance Mediation directive that sets a minimum standard for the sale of general insurance across Europe. This forms the basis for regulation in the UK on which the current FCA handbook is based.
The IDD is scheduled to be implemented on the 23rd February this year however back in December the European Commission announced that whilst the IDD is to set into the rule books by the 23rd February its changes will not apply until the 1st October. This is very welcome as it gives us all time to implement these changes, particularly relevant as the FCA hasn’t finished the consultation process yet. Whilst the final rule book isn’t finalised the draft rules are very unlikely to change significantly and as such we can be confident of the principles changes that will affect managing agents.
Let’s now explore the proposed rule changes in more detail. Taken from the FCA consultation paper CP17/7** we have some new definitions:
IDD insurance intermediary
(a) as defined in article 2(1)(3) of the IDD, any natural or legal person, other than an IDD insurance undertaking or an IDD reinsurance undertaking or their employees and other than an IDD ancillary insurance intermediary who, for remuneration, takes up or pursues the activity of insurance distribution; or
(b) an IDD ancillary insurance intermediary.
[Note: article 2(1)(3) and (4) of the IDD]
This is significant as it defines that anyone who distributes insurance for commission as an IDD insurance. This defines them as requiring regulation subject to the exceptions later specified.
insurance intermediary
a firm carrying on insurance distribution activity other than an insurer.
This further defines the definition above to exclude insurers who are considered separately in the rule book.
IDD ancillary insurance intermediary
any natural or legal person, other than a credit institution or an investment firm who, for remuneration, takes up or pursues the activity of insurance distribution on an ancillary basis, provided that all the following conditions are met:
(a) the principal professional activity of that natural or legal person is other than insurance distribution;
(b) the natural or legal person only distributes certain insurance products that are complementary to a good or service; and
(c) the insurance products concerned do not cover life assurance or liability risks, unless that cover complements the good or service which the intermediary provides as its principal professional activity.
This new definition adds a new category for the purposes of regulation, being firms for whom insurance distribution is ancillary to their principal activity. This could be construed to include managing agents. The inference is that this may be a new category of direct regulation, although this category can also be considered to be outside of scope where a firm is not considered to be distributing insurance as defined by section (e) of the definition of insurance distribution. This will not apply to managing agents.
insurance distribution
(as defined in article 2(1) of the IDD) the activities of 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 in accordance with criteria selected by customers through a website or other media and the compilation of an insurance product ranking list, including price and product comparison, or a discount on the price of an insurance contract, when the customer is able to directly or indirectly conclude an insurance contract using a website or other media.
The following shall not be considered to constitute
insurance distribution:
(a) the provision of information on an incidental basis in the context of another professional activity where the provider does not take any additional steps to assist in concluding or performing an insurance contract; (b) the management of claims of an IDD insurance undertaking on a professional basis, and loss adjusting and expert appraisal of claims;
(c) the mere provision of data and information on potential policyholders to an IDD insurance intermediary or IDD insurance undertaking where the provider does not take any additional steps to assist in the conclusion of an insurance contract;
(d) the mere provision of information about an insurance product, an IDD insurance intermediary or an IDD insurance undertaking to potential policyholders where the provider does not take any additional steps to assist in the conclusion of an insurance contract;
and
(e) (in MIPRU 5), the services of an IDD ancillary insurance intermediary where all the following conditions are met:
(i) the insurance is complementary to the good or service supplied by a provider, where such
insurance covers:
(A) the risk of breakdown, loss of, or damage to, the good or the non-use of the service supplied by that provider; or
(B) damage to, or loss of, baggage and other risks linked to travel booked with that provider;
(ii) the amount of the premium paid for the insurance product does not exceed EUR 600 calculated on a pro rata annual basis; and
(iii) by way of derogation from (ii), where the insurance is complementary to a service referred to in (i) and the duration of that service is equal to, or less than, three months, the amount of the premium paid per person does not exceed EUR 200.
[Note: articles 1(3), 2(1)(1) and 2(2) of the IDD]
This definition is more specific than previously and as such it is difficult to consider how a managing could be involved in the process of handing the insurance of a property without performing a regulated activity, unless they are acting as client by means of being company secretary.
In the draft rules we have the following additional new chapter to the Senior Management Arrangement, Systems and Controls sourcebook (SYSC)
23.2 Knowledge and ability requirements
Knowledge and ability requirements
23.2.1 R (1) A firm must ensure that it and each relevant employee possesses appropriate knowledge and ability in order to complete their tasks and perform their duties adequately.
(2) A firm must ensure that it and each relevant employee complies with continued professional training and development requirements in order to maintain an adequate level of performance corresponding to the role they perform and the relevant market.
(3) A firm must ensure that each relevant employee completes a minimum of 15 hours of professional training or development in each 12 month period.
(4) A firm for the purposes of (3) must take into account the:
(a) role and activity carried out by the relevant employee within the firm; and
(b) type of distribution and the nature of the products sold.
[Note: article 10(1) and the first, second and fourth paragraphs of article 10(2) of the IDD]
23.2.2 G Training and development can encompass various types of facilitated learning opportunities including courses, e-learning and mentoring. [Note: recital 29 to the IDD]
23.2.3 R A firm must, including in relation to the relevant employee, demonstrate compliance with the following professional knowledge and competence requirements:
(1) for general insurance contracts:
(a) minimum necessary knowledge of terms and conditions of policies offered, including ancillary risks covered by such policies;
(b) 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;
(c) minimum necessary knowledge of claims handling;
(d) minimum necessary knowledge of complaints handling;
(e) minimum necessary knowledge of assessing customer needs;
(f) minimum necessary knowledge of the insurance market;
(g) minimum necessary knowledge of business ethics standards;
and
(h) minimum necessary financial competence;
This addition is significant to managing agents as it requires all employees involved in insurance distribution to have appropriate knowledge and for the firm to record a minimum of 15 hours CPD for such staff in insurance.
In the draft rules we have the following amendment to the Prudential sourcebook for Mortgage and Home Finance Firms and Insurance Intermediaries (MIRPRU)
5.2 Use of intermediaries
5.2.1 R A firm must not use, or propose to use, the services of another person consisting of:
(1) insurance distribution; or
(1A) reinsurance distribution; or
(2) insurance distribution activity; or
(3) home finance mediation activity;
unless MIPRU 5.2.2R is satisfied.
This requires a insurance broker to not distribute insurance to an unregulated or out of scope firm.
5.2.3 E (1) A firm should:
(a) before using the services of the intermediary, check:
(i) the Financial Services Register; or
(ii) in relation to insurance distribution or reinsurance distribution carried on by an EEA firm, the register of its Home State regulator; for the status of the person; and
(b) use the services of that person only if the relevant register indicates that the person is registered for that purpose.
(2) (a) Checking the Financial Services Register before using the services of the intermediary and using the services of that person only if the Financial Services Register indicates
that the person is registered for that purpose may be relied on as tending to establish that:
(i) the person, in relation to the activity, has permission; or
(ii) the person, in relation to insurance distribution activity, also is an exempt person or an authorised professional firm.
(b) In relation to insurance distribution or reinsurance distribution carried on by an EEA firm, checking the register of the firm’s Home State regulator and using the services of the EEA firm only if the register indicates that the firm is registered for that purpose may be relied on as tending to establish that the firm is registered for the purposes of the IDD.
This requires an insurance broker to check the status of a firm through which it intends to distribute insurance such as a managing agent.
Conclusion
Whilst these are only the near final rules it would be fair to conclude that it is highly probable that the IDD goes a stage further to defining the need for managing agents to have a route to regulation in respect of being involved in a properties insurance arrangements.
The IDD drops the category of Introducer Appointed Representative which becomes outside scope and firms with this permission should be aware of the new definition of IDD insurance intermediary.
To help property managers fulfil the training requirements we are pleased to announce the launch of Robertson’s Insurance Principles for Leasehold Flats. For further details click here www.1stsureflats/book
