Insurance Distribution Directive (IDD)
The Insurance Distribution Directive (IDD) is EU legislation which sets out the regulatory requirements for firms designing and selling insurance products. It aims to improve consumer protection in the insurance sector and creates common standards for insurance sales across the European single market by providing more information and advice.
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1. Background to IDD
1.1 When does the IDD take effect?
The Insurance Distribution Directive will come into force from 1 October 2018. This is the delayed implementation date from the original expected date of 23 February 2018.
1.2. Who does it affect?
The IDD affects firms involved in the manufacturing or distribution of insurance products covering general insurance, life insurance and insurance-based investment products (IBIPs).
1.3. What products are in scope?
Products affected by the new legislation include general insurance products, life insurance business (i.e. protection and pensions) and insurance-based investment products (i.e. investment bonds, endowments and trustee investment plans). It is worth noting that not all products are covered under all of the new regulations. Some changes affect existing business, whereas other requirements only affect new business sold after the IDD implementation date.
1.4. What has Zurich been doing?
Zurich has a project in place covering a number of workstreams to implement the changes arising from the new legislation – the main topics are Conflicts of Interest, Product Oversight and Governance, Demands and Needs, Pre-sale and Remuneration Disclosures, and Training and Competency.
1.5. Is Zurich going to communicate to customers re IDD?
No, Zurich has no plans to communicate to customers regarding the Insurance Distribution Directive. The main impacts of the new IDD legislation are around the distribution of insurance products and changes made to the point of sale process.
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2. Product Disclosure
2.1. Where can I get up-to-date literature?
All updated literature will be available via the Zurich Intermediary website. This includes updated Key Features Documents and Terms and Conditions where relevant.
2.2. Will Zurich be providing an Insurance Product Information Document (IPID)?
No. IPIDs are only relevant to general insurance business and therefore we will not be producing any for life insurance business. We will continue with the existing requirements to produce a Key Features Document and protection illustration as we do today. These will be updated with any new disclosures required by the Insurance Distribution Directive, in particular around conflicts of interest and remuneration.
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3. Demands and Needs
3.1. How has Zurich implemented asking/confirming Demands and Needs?
For advised business, the responsibility to ensure that the insurance product is suitable for the client’s needs sits with the adviser as part of providing the client with a personal recommendation. Firms will need to obtain specific information about their client’s insurance demands and needs to ensure that they only offer the client a product that is consistent with those specific demands and needs.
For direct business, Zurich has amended the quote process to ensure that the client’s demands and needs are captured and then replayed back to the client as part of the quote. -
4. Remuneration Disclosure
4.1. What has changed?
Under the new rules, all advisers need to disclose the nature and basis of any remuneration they receive from the product manufacturer.
4.2. What has Zurich done?
We will be updating all of our protection quotes to include the nature and basis of any remuneration paid to the adviser. To support advisers who distribute our products on a COBS basis, we will also continue to provide the actual amount of commission paid. All quotes will also include a statement on the nature of any internal remuneration that may be paid to Zurich employees.
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5. Conflicts of Interest
5.1. What changes have been made to the conflict of interest rules?
The IDD requirements are designed to prevent conflicts of interest and ensure there are effective organisational and administrative arrangements among both advisers and providers. The requirements are broadly consistent with existing rules.
5.2. What changes has Zurich made?
Zurich has updated its Conflict of Interest policy and has also updated all Key Features Documents and Terms and Conditions to reference this.
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6. Product Oversight and Governance
6.1. What changes have been introduced through the new PROD handbook?
There are requirements on product manufacturers / providers to ensure that in the main, customers who are recommended products fit within the providers’ ‘target market’ for a given product. This will likely involve an exchange of information between the product manufacturer / provider and the distributor, depending on the granularity of the target market set by the product manufacturer.
6.2. What new material will Zurich be producing to support the Product Oversight and Governance requirements?
Zurich will be producing a new sales aid which summarises Zurich’s product approval process. We will also be producing new material to help advisers understand the target markets for all propositions open to new business.
6.3. What if an intermediary sells to someone outside the target market?
If we see consistent sales outside of our stated target market for the product, Zurich will engage with the distributor to understand why they believe the product is suitable for that type of client and act based on the information provided.
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7. Inducements
7.1. What changes have been made to the inducement rules?
IDD introduces much stricter rules for indirect and well as direct inducements for advisers. Product manufacturers / providers must disclose to intermediated customers any inducements that advisers have been offered, and this is required at the beginning of the sales process. Zurich discloses this information in its Key Features Documents.
7.2. Will you continue to offer non-monetary benefits to advisers?
Yes, but this will be more narrow than at present, in line with the more restrictive rules and the changes implemented through MiFID II.
7.3. Will you continue to offer non-monetary benefits to adviser practices?
Yes, but again this will be more narrow than at present, in line with the more restrictive rules and the changes implemented through MiFID II.
7.4. Have you updated your adviser / adviser practice inducement policy?
Yes, details can be obtained from your Zurich Business Account Manager.
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8. Knowledge and Competency
8.1. What are the requirements?
The new legislation now means that anybody who carries out insurance distribution activity must complete 15 hours of CPD each year in relation to the area of insurance distribution that they are part of.
8.2. Will Zurich be providing any support to help advisers meet CPD requirements?
There are no plans for Zurich to specifically deliver activity to support CPD requirements, however our BAU activities (presentations, workshops, etc.) will continue – some of which can be counted towards the 15 hours of CPD each year. It is the adviser’s responsibility to ensure sufficient relevant CPD is recorded to meet IDD requirements.
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9. Costs and Charges
9.1. Will Zurich be providing annual costs and charges disclosure for IBIPs?
All of Zurich’s insurance-based investment products (e.g. Investment Bonds) are closed to new business and therefore no new contracts are established. The rules within COBS 6.1ZA relate to the provision of information prior to the set-up of the insurance contract. Our view is that the subsequent requirement to provide updated information on an annual basis (within COBS 6.1ZA.12) only applies where the insurance contract is set up after the Insurance Distribution Directive comes into force. It also does not apply to Zurich as we do not carry out “insurance distribution activities” in relation to the Sterling Investment Bond. Advisers will need to make their own assessment of these rules to ensure their own compliance.
9.2. What will Zurich be providing in annual statements?
Zurich will be providing the information required under COBS 16A, which requires us to provide the value of the insurance contract in an annual statement to the customer.
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10. Target market statements