Chapter 9 - Underwriting Procedures and Premium Payment Flashcards
Effect of Regulation and Relationships
Process of acquiring information, providing a quote and the subsequent negotiations leading to the final issue of documents come under the jurisdiction of the FCA and its rules. Notably those contained in the Insurance: Conduct of Business Sourcebook (ICOBS) and the application of the Insurance Distribution Directive (IDD).
Alongside these rules there is the requirement for contract certainty.
Contract Certainty Definition
The complete and final agreement of all terms between the insured and insurer by the time they enter into the contract, with contract documentation provided promptly after.
Terms of Business Agreements with Insurers
TOBAs determine the nature of the relationship, authority levels and financial aspects. As well as risk transfer arrangements so if accepted, when monies are collected by the intermediary are treated as paid by the insurer.
BIBA launched a standardised TOBA template compliant with GDPR and benefiting from extensive legal input. Insurers are positive about the introduction but have been slow to accept it.
Terms of Business Agreements with Clients
TOBA will identify the services to be provided by the intermediary, terms of credit, and may incorporate a service-level agreement. SLA is a kind of client charter explaining the standards that the intermediary will operate.
Consumers have a different TOBA then commercial to meet with regulatory requirements.
The Provision of FCA Required Information
FCA rules state certain information about the intermediary must be provided prior to the conclusion of the contract to all clients:
• Name and address of company
• The firm is included in the FSR and can be checked on the FCA website
• Whether it owns more than 10% of the insurer, or the insurer owns more than 10% of it
• Who to write to if the customer has a complaint
• Does it give advice based on a fair analysis of the market?
• Is it under an exclusive contractual obligation to one or more insurers to place business with them?
• If not under such an obligation, does it give more limited advice than fair analysis of the market?
Means of Communication
Information must be on a durable medium, clearly and accurately. If communication is oral, the paper version must be sent immediately after the conclusion of the contract.
Distance Communication
Governed by the Distance Marketing Directive. FCA has a separate set of rules that apply only when there is an organised distance sales or service provision scheme.
Rules do apply where sales are made exclusively under an organisation scheme and where this is the only permitted means of communication.
Provided the clients explicit consent has been given the following restricted information is the minimum that must be given:
• The identity of the person and their link to the firm
• A description of the main characteristics of the financial service
• Total price to be paid including all taxes
• Existence or absence of a right to cancel
Demands and Needs
Demands and needs of the client must be established by the intermediary before providing any recommendation. A proposal form may achieve this. Most intermediaries have developed their own demands and needs analysis forms.
Demands and Needs Suitability
It would be permissible to recommend a policy that does not meet all the clients demands and needs provided that:
• There is no policy that will meet all those needs
• The customer is advised of those needs that are not met by the recommended policy
There is an additional requirement for protection policies is that customers should only buy a policy which they are eligible to claim benefit.
Statement of Demands and Needs
Intermediary must, before the conclusion of a contract, provide the client with a statement, setting out the clients’ demands and needs. Where a personal recommendation has been made the intermediary must explain the reasons for the recommendation.
When the policies are not sold with recommendation from the intermediary the statement and demands can be treated as:
• The statement can be included within the product document stating who it is appropriate for
• A record of their demands and needs as discussed can be given to the customer
• A key features document can be given to the customer
Commission Disclosure
FCA doesn’t currently require mandatory disclosure of commission as part of the presentation of the quote.
If separate fees are to be charged by the intermediary these need to be stated.
If a commercial customer asks specifically for information regarding commission, it must be told in a durable medium. Must include any financial benefit from volume overrides, profit sharing arrangements and the financial benefit of premium financing they have arranged.
Insurance Distribution Directive
IDD came into force on 22/02/2016 and member states had to transpose the Directive into their own legislation by 01/07/2018.
IDD’s aim is to make it easier for firms to trade across borders, strengthen policyholder protection, provide a level playing field and sets out consumer protection provisions.
Key provisions of the directive are:
• Professionalism
• Commission disclosure
• Harmonisation
• New product governance requirements
• Ancillary Insurance Intermediaries
IDD is focused on customers being better informed and firms providing products which meet their needs.
Product Oversight and Governance
FCA ensures that firms place sufficient focus on identifying vulnerable customers and treating them appropriately.
• Firms that have a role in manufacturing an insurance product will need to meet the product governance and oversight requirements
• Products may have more than one manufacturer and firms must set out their mutual responsibilities in a written agreement
• There must be a product approval process
• Firms must identify the target market and ensure the product is compatible with the needs, characteristics and objectives of customers
• Firms selling insurance products are responsible for understanding the products being sold and the target market of customers
Customers’ Best Interest
IDD introduces a rule which requires that all firms act honestly, fairly and professionally in the customers’ best interest. Throughout the distribution process, marketing, remuneration and the sales of products.
Supervision
FCA supervision teams are engaging with firm to focus on how firms are complying with the new rules to ensure that customers receive proper consideration.
