This is the third instalment of our Insurance Distribution Directive (IDD) Q&A with Car Care Plan’s Head of Compliance, Gavin Tinch. In part one, he gave us background information on the Insurance Distribution Directive (IDD) and explained new rules surrounding Continuing Professional Development. In part two, he explained the Insurance Product Information Document (IPID), rules surrounding information on insurance manufacturers and retailers and changes to Advised and Non-Advised Sales rules.
In the part three, we delve into the Product Manufacturer and their responsibilities, requirements to ensure employees are of good repute and what is the Customer Best Interest Rule.
What are the Product Manufacturer responsibilities and who is the Product Manufacturer?
The Insurance Distribution Directive requirements have meant the FCA has introduced a completely new section to its handbook, called PROD.
PROD stipulates the rules surrounding product governance: including the design, approval and testing of products, identifying the target market, assessing distribution channels and monitoring product performance. The rules are intended to ensure firms are offering products designed with the consumer in mind and provide appropriate protection for consumers.
It’s likely that for the majority of products, the parties will agree Car Care Plan and the client are all involved in the manufacture of the product. This means the parties will have to sign a co-manufacturer agreement; stipulating which element of the product manufacture responsibilities each party is responsible for:
- Designing a product to be compatible with the needs, characteristics and objectives of the target market, through a proportionate and appropriate product approval process which is documented as set out in PROD 4
- Drafting and/or approving the policy documentation.
- Identifying the target market including, where relevant, identifying groups of customers for whom the product is compatible.
- Creating the “sales model” and detailing all relevant information as to how sales will be carried out / monitored on an ongoing basis, including ensuring the product is distributed to the target market and all appropriate information on products is provided to the customer.
- Setting the Retail Selling Price charged to insurers, provided that such Retail Selling Price shall, at all times, be “fair” within Principle 6 of the FCA’s Principles for Business.
- Monitoring and regularly reviewing the product, as a minimum ensuring the product remains consistent with the needs of the target market and the distribution strategy remains appropriate.
Car Care Plan intends to introduce a new standard Terms of Business Agreement with all dealers in Q4 2018 to cover off the product manufacturer responsibilities and general Insurance Distribution Directive requirements.
Are there any requirements surrounding ensuring employees are of good repute? What does this mean?
Another requirement of the Insurance Distribution Directive is firms must establish (on reasonable grounds) that all the persons in its management structure and any staff directly involved in insurance distribution activity are of good repute.
The rules state that in considering a person’s repute, the firm must at a minimum ensure the person:
- has a clean criminal record or any other national equivalent in relation to serious criminal offences linked to crimes against property or other crimes related to financial activities; and
- has not previously been declared bankrupt, unless they have been rehabilitated in accordance with national law.
Firms should give particular consideration to offences of dishonesty, fraud, financial crime or other offences under legislation relating to banking and financial services, companies, insurance and consumer protection.
Firms will need to ascertain which employees are included in this assessment and as a minimum:
- Conduct a CRB check;
- Ensure they have not previously been declared bankrupt;
- Assess the individual’s honesty and competence.
What is the Customer Best Interest Rule?
Conduct of Business requirements – general principles including acting in customers’ best interests.
The IDD requires distributors to always act honestly, fairly and professionally in accordance with the best interests of their customers. This is not just about acting in the customers’ best interests, but also being able to demonstrate what this means in practice within your firm. The FCA has confirmed the “customers’ best interests” applies to all firms in the distribution chain. This means even firms in the middle of a distribution chain will have to meet and be able to demonstrate they are meeting this principle.