UK firms will need to comply with the Insurance Distribution Directive (IDD) from 23 February 2018.
Here we examine what it means for Compliance teams, what you need to do to meet its requirements – and how automation can help.
What is the Insurance Distribution Directive?
The IDD concerns the distribution of insurance and reinsurance. It also covers firms that assist in the administration and performance of an insurance contract post-sale. It aims to create a level playing field for all those involved in the sale of insurance products.
It builds on the existing Insurance Mediation Directive (IMD). This was introduced in early 2005 and was designed to encourage competition between insurance firms across the EU, as well as ensuring appropriate levels of protection for customers.
Certain parts of the IDD are aligned with the rules under MiFID II, in a bid to encourage consistency across the sector.
What challenges does the IDD pose for insurers?
The IDD introduces enhanced information and conduct of business requirements. These include:
- Additional knowledge and competency requirements for distributors
- Product oversight and governance requirements
- The production of an Insurance Product Information Document (IPD) for non-life products
- Disclosures around bundling of products
- Additional disclosure requirements for insurance-based investment products
- Mandated remuneration disclosures
And it comes into effect just a month after the Regulation on Key Information Documents for Packaged Retail and Insurance-based Investment Products (PRIIPs).
In the words of Christopher Woolard, Executive Director of Strategy and Competition at the FCA, the IDD ‘is a significant piece of legislation with implications for the insurance industry as a whole’.This means more work for your team at an already-busy time. Insurers would do well to look at the requirements of both pieces of legislation, to identify any overlaps and capitalise on the efficiencies.
How can automation help?
The potential benefits of automated workflows for Compliance teams are well-recognised.
If you work in Compliance, and particularly in Marketing Compliance, when it comes to the IDD, the production of the new Insurance Product Information Document (IPD) will be one of your main concerns.
This is rather like a Key Investor Information Document (KIID) for the insurance industry.
Automating the production process for this kind of document can have significant benefits:
- You can be confident that correct data and performance figures are used,
- The correct risk warnings, disclosures and disclaimers are added as a matter of course, in the right place and at the required size.
- Project management is improved, with a more efficient production and approval process – reducing duplication and saving significant time. (The Nottingham Building Society saved 1500 hours of Compliance and Marketing team time by automating their processes. You can read a case study of how they did it here.)
- Paper edits and manual interventions are reduced, increasing efficiency and reducing the chances of errors and omissions
- An FCA-compliant audit trail is automatically created
- Compliance sign off is mandatory, minimising the chances of regulatory breaches
What are the next steps with the IDD?
The FCA is running a consultation on the changes required under the Directive. It closes on 20 October, so while there’s still time to contribute, you’ll need to be quick. It looks at the regulator’s proposals for new rules around the Directive.
You can read and respond to the consultation paper via the FCA website.
If you want to read more about how automation can help Compliance teams to meet their obligations, on the IDD and other regulations, you can download a copy of our whitepaper, The benefits of automated workflow systems. It’s free and you can get a copy here.