In January 2018, HM Treasury issued a note outlining the UK Government’s response to its consultation on the implementation of the Insurance Distribution Directive (IDD).
The deadline to implement the IDD is likely to be extended from 23 February 2018 to either 1 July 2018 or 1 October 2018. Although the new deadline date is currently unclear, the Government intends to lay The Insurance Distribution (Regulated Activities and Miscellaneous Amendments) Order 2018. (which is a draft statutory instrument) before Parliament.
A key theme that is prevalent throughout the consultation process and the responses is treating customers fairly and minimising the risk of consumer detriment.
Insurance Contracts that fall within the Statutory Instrument
Life insurance and liability products will still be regulated products and will be in the statutory instrument. Travel insurance add-ons will remain regulated as the Government believes that there will be more harm than good to consumers if this product is de-regulated. Additionally, insurance add-ons that cover ‘non-use of services’ will now be exempt from the regulation.
As part of the IDD consultation, the question was raised as to whether firms who merely provide information in relation to insurance products or potential policy holders should no longer be regulated. The Government reported that most of the respondents agree that firms who merely provide information about insurance products should be exempt from the regulations. An example given related to medical charities who were reluctant to publish information on insurance products for fear of falling within the regulations.
The Government has not made its position on Insurance Introducer Appointed Representatives (IARs) clear.
Feedback on Proposed Statutory Instrument from Legal Firms
At the time of publication, the European Commission had announced a proposal to delay the application date to 1 July 2018 or 1 October 2018. This has yet to be formally ratified.
Respondents to the Consultation raised questions about UK firms passporting into the EEA and how the amendments to the draft instrument would change post-Brexit. The Government’s response is that it will continue its close dialogue with stakeholders and firms across industry and will provide as much information necessary to help firms to deal with challenges and opportunities in light of the UK’s departure from the EU.
It is clear that there is no approach in relation to passporting post Brexit and, much is hinged on the Brexit negotiations that are currently underway.
Insurance businesses should keep an eye out for further updates on this position.
Feedback on the Costs and Benefit to Businesses and Consumers
Respondents were asked for feedback about the impact that the amended legislation will have on their businesses and consumers. Concerns were reported about the 15 hour CPD requirement for staff who are involved with insurance and reinsurance distribution and the Insurance Product Information Document (IPID).
One respondent provided feedback that it would take around 12 months to implement the changes and another reported a budget of £4 million to implement the changes. Another respondent reported that the reduction in the FCA’s timeframe for applications will have a positive impact on small, regional start up firms, as there will be more certainty in a shorter amount of time.
The full impact of the costs and benefits to consumers is limited to the selected stakeholders that were consulted. Close monitoring of the impact to consumers as a result of the implementation of the IPID will need to be monitored by the FCA and or Government, to ensure that the proposals have the intended outcome and there is no detriment to consumers.
Distribution of rental car vehicle insurance
The Government addresses personal accident insurance products and those that are provided under waiver agreements. These are currently exempt from FCA authorisation and regulation. The Government’s position is that the products will remain exempt as long as the conditions of the exemption are satisfied. The Government has not seen any evidence to date of significant consumer detriment as a result of insurance car sales by hire firms.
Evidentially, there is still some way to go with the implementation and transposition of the IDD and the draft statutory instrument into UK law.
The general message is to “watch this space” in relation to passporting rights in light of Brexit and the IDD.