Chapter 10 Flashcards
Service policies and selling
What does IDD stand for?
Insurance distribution directive
What does the IDD set out and who does it apply to?
How consumers who buy insurance are to be protected.
This applies to firms that sell, advise on or conclude insurance contracts and those who help to administer and perform them.
What are the 2 key provisions of the IDD?
- Professionalism all firms engaged in any of the activites covered by the directive must have the appropriate knowledge and ability to complete their tasks and perform their duties adequatley.
- Commission disclosure pre contractual disclosure of the intermediary and the nature (not amount) of their remuneration (whether commission, fee or other type of arrangement)
What are some of the general principles of the IDD?
Which principle differs to the FCAs ICOBS rule?
- Distributors must act honestly, fairly and professionally in the best interest of their customers (this one slightly differs to the FCA handbook)
- Distributors must communicate in a way that is clear, fair and not misleading. This includes marketing materials.
- Remuneration of a distributor or its employees must not conflict with the duty to act in the customers best interest
What is an AII
Ancillary insurance intermediary
* Their main profession is not insurance distribution
* Firms only distribute insurance products that are complimentary to the good and services that they do provide as their main profession
Not all AIIs come into the scope of the IDD but those that do are regulated as insurance intermediaries
Why is it important to understand the difference between an advised sale and a non advised sale?
Bceause under the FCA rules, there are different regulatory requirements for each
What is the difference between an advised sale and a non advised sale?
Advised = personal recommendation made to the customer
Non advised = no personal recommendation made to the customer
Rules require any contract suggested to be consistent with the customer’s insurance needs and demands. This means that firms must only offer contracts that meet these needs and demands. What 2 steps are taken to comply with this?
1) Identify the customer’s demands and needs and match them to available products
2) State the customer’s demands and needs to help them make an informed decision whilst highlighting any gaps
Why is it important for a customer to understand the difference between an advised sale and a non advised sale?
So that the customer understands the basis of which they are receiving information and it fulfils the FCA requirement to show the cosnistent fair treatment of all customers
The pre contract disclosure rules in ICOBS require what disclosures?
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1) Whether the firm is an insurer or an intermediary
2) Whether or not it provides advice
3) If the firm is an intermediary:
- Whether it acts for the customer or insurer (and whether this changes over time e/g delegated authorities)
- Shareholding links between the intermediary and any insurers
- Names of insurers with which they place business if advice is not based on a fair and personal analysis of the market
- Names of insurers that could have been approached if advice is not provided
4) Insurers must disclose the kind of remuneration (cash or benefits paid to employees)
5) All organisations must disclose fees payable by the customer in cash terms
What are 2 examples of non advised sales?
- Customer decides or knows the specific product that they want
- Firm offers information on a range of products for the customer to make their own informed decision
What are the key points in a non advised sale?
- Provides factual information, without exaggeration
- Must not lead the customer
- Options and correct information must be given and clearly explained
- All charges must be clearly outlined at the point of sale
What does ‘fair analysis’ of the market mean?
ICOBS: intermediary must consider a sufficiently large number of insurance contracts on offer in the market
They should then use their professional knowledge and skill to establish which be adequate to meet the customers needs
What is an IPID?
Insurance product information document:
must be provided to all customers at new business and renewal. It provides objective and relevant information on the product before the contract is concluded and aims to allow the customer to make an informed decision.
When producing and providing product information, the FCA asks organisations to consider what?
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- Product information is clear and easy for the consumer to understand
- The information needs of its customes and to consider when in the sales process the information would be most useful
- Co-operating with others in the distribution to ensure that the information needs of the customer are met
- Providing information in a targeted and balanced way to ensure it is relevnant
- Ensuring information is honest and fair about the limitations
What does the FCA say about commercial customers about the requirement of an IPID?
The information in an IPID is required but does not have to be in the form of an IPID.
What are the possible consequences for an organisation if a customer consultant uses statements that are inconsistent with either their ‘advised’ or ‘non-advised’ roles?
- Breach of FCA regulations which leads to discipplinary action such as fines (and damage to reputation)
- Provision of poor customer service as the customer consultant has failed to fulfil their role appropriatley and may give the incorrect information or advice
The nature of selling falls into which 2 models?
Transactional selling
Focuses on finding potential customers, the customers are likely to need a standard product or service and are looking for an organisation that can offer it at the right price and quality
Consultative selling
The customer consultant gains a deeper understanding of the challanges facing the customer and tailors a solution to them. Questioning and listening become more important than positioning statements. The purchase decision is often managed through a process.
