Better consumer information on the way

Whatever the final outcome of the Insurance Distribution Directive (IDD), end-users will be better informed on the insurance products they are buying.

Consultation may yet modify the FCA’s suggestions but the broad concepts will remain and apply from pre-purchase to after the end of the contract:

• know your customer
• know your target market
• facilitate product comparisons and avoid competitive distortions
• provide Insurance Product Information Document (IPID)
• protect customer’s money
• no conflicts of interest

Achieving all these objectives requires a holistic approach within the organisation and then again when the product is retailed, bundled or distributed. Point of sale is of course the most crucial aspect but IDD will impact on product design, sales, HR, data security and many other areas.

The consumer must first be presented with a clear choice that meets their needs and, second, be provided with something that lives up to their expectations.

The new IPID must be in a durable medium, such as on paper, and contain objective details of the product and exclusions. It must be available for renewals and bundled packages where more than one IPID may be needed. Though brief in content, it must give sufficient helpful information to inform the customer’s choice prior to them concluding the contract. It will be up to the retailer to decide the point at which the information is most appropriate to aid that choice. 

Get it wrong and it will of course count against you in ombudsman decisions.

Sometimes doing the “right” thing leads to unforeseen consequences

A couple of “issues” have passed my desk recently which leave me with a smarting sense of injustice.

Take Insurance Product Information Documents (IPID)…

My own opinion is that IPIDs are inferior to Key Facts documents in the UK because consumers will receive less information about their insurance product than they previously would have been given.

For example, where products are created by a managing general agent, there is no requirement to show the insurer. More generally, IPIDs do not include information about making a complaint and do not allow exclusions that apply to a particular insured event to be lined up against the description of that insured event. Additionally, there is no space to highlight extra services which complement “what is insured” – such as telephone helplines and in-line legal documents which significantly enhance the value of products for consumers.

We have taken a very flexible approach to product development and have delighted in designing unique features that respond to the needs of specific target customers and give niche cover. As a consequence of our willingness to go the extra mile, ARAG IPIDs will need to reflect the many modifications that we have made. Our innovation has been wide-spread and we have hundreds of “non-standard” wordings to consider. Had we adopted a more intransigent approach and not deviated from our standard product specifications, delivering to the exceptionally tight deadline would have been very much easier.

We also have many “embedded” policies where we have integrated ARAG products into primary insurance products. The “primary insurer” is deemed to be the product manufacturer under these circumstances. We will liaise on an individual basis to supply content for their IPID in relation to the ARAG cover that has been embedded.

We continue to hope that the FCA will agree to a transitional introductory period which will allow us to fully review all of our offerings and create suitable IPIDs for all of those special profile customers. In the meantime, we will be contacting our agents to supply suitable IPIDs very soon.

And what about employment tribunal fee refunds?

While the abolition of unfair employment tribunal fees is a splendidly good thing, it was very disappointing to read that where settlements have been reached between the parties in dispute -with fees being included within the settlement figure, the employer will be unable to apply for a rebate. The employee, who would have paid the fee the first place (but recovered it as part of their settlement), can apply for the refund and will stand to benefit from a “windfall”.  It seems that employers who have “done the right thing” by settling the dispute are being penalised, while those who may have proceeded to tribunal, lost and received an order to pay will be able to obtain a refund.

This seems very unfair as escalating disputes to tribunal is surely a last resort. It is in the best interests of parties to arrive at an amicable settlement.

So, doing the “right” thing sometimes causes detriment however, we will always put our customers first. We remain committed to building products that work well and to raising customer awareness of the benefits they can access when they buy legal expenses cover.   

Getting ready for the insurance distribution directive

Background to the IDD

The European Union Insurance Distribution Directive ("IDD") is designed to make it easier for firms to trade cross-border, create a level playing field among all participants and strengthen policyholder protection. The Directive updates the 2002 Insurance Mediation Directive ("IMD"), which set out a framework for regulating EU insurance brokers, agents and other intermediaries.

The overriding aim of the IDD is to ensure that all parties in the insurance distribution chain act professionally, honestly, fairly and in the best interests of their clients.

The IDD is wide-ranging but some of its specific provisions include:

• Professional development: employees of insurance intermediaries must complete at least 15 hours of professional training per year.
• Disclosure: before the conclusion of a contract, intermediaries must disclose to their customers the nature and basis of their remuneration (e.g. fees and commission).
• Remuneration: intermediaries must not remunerate or assess the performance of employees in a way which conflicts with their duty to act in the best interests of their clients.
• Provision of information: intermediaries must provide certain information to their customers to summarise the main features of the proposed contract).

Transposition into UK law

The IDD is currently subject to consultation and the Government intends to transpose it into UK laws by February 2018.

Full details of the Government’s consultation can be found here:
https://www.gov.uk/government/consultations/transposition-of-the-insurance-distribution-directive/transposition-of-the-insurance-distribution-directive

Impact

The FCA is currently assessing the impact of IDD and we are engaging in the consultation process. Where we intend to introduce particular measures in response to the IDD we will be communicating suitable statements as our responses become clear.

Demands and needs

 One specific requirement of the IDD concerns demands and needs statements (D & NS) and we have been able to take an early look at that particular aspect of the directive. It is the responsibility of the organisation or person who sells an insurance policy to a customer to provide a D & NS.

• The IDD makes it clear that firms need to specify the customer’s insurance demands and needs based on information obtained by the firm from the customer. Firms must take an active role in identifying the customer’s demands and needs (through asking questions) early in the sales process.
  
• To comply with this new requirement, firms need to:
  
• identify the customer’s demands and needs and match them to the available products, and
  
• state the customer’s demands and needs to assist them in making an informed decision.
  
• The distinction between advised and non-advised sales will remain. For non-advised retail sales, the FCA will not expect firms to carry out a detailed investigation of the customer’s circumstances, but customer demands and needs must be identified and it must be ensured that contracts proposed provide cover that meets those demands and needs. For example, a firm which sells motor insurance on a non-advised basis would be expected to ask the customer questions about the level of cover they require, the amount of excess they are prepared to pay, and the type/amount of their driving (amongst other relevant things). The product offering should be limited to products which would meet these specified demands and needs.
  
• The FCA will amend its guidance to make it clear that firms must ensure that they identify and specify the demands and needs of the customer. For example, it would not be appropriate to provide a generic statement of demands and needs where the firm has not first taken steps to identify the demands and needs of the actual customer. However, generic D & NS may be appropriate if the firm has narrowed the product options it offers to only those where the customer’s demands and needs match those in the statement.

Our response

We have taken the opportunity to improve our suite of D & NS in advance of the implementation of IDD.

Since it is a seller’s (and not a product designer’s) responsibility to provide customers with a D& NS, agents are free to use their own documents if they wish or to re-brand ours. We will ask to see a copy of an agent’s own document if they do not wish to use the ARAG D & NS.

Our new D & NS comprise of question sets to encourage customers to actively consider what they want from their Legal Expenses or Assistance Insurance policy and raise awareness of policy features at the point of sale. The new D & NS literature can be down- loaded as PDF documents from the product section on our website. Items are suitable for our standard product range. Agents may wish to modify the standard D & NS where we have designed bespoke content into a product or where products target customer groups with particular interests or concerns.