Unit 4 / Section 4 - IDD Flashcards
What is the IDD?
The Insurance Distribution Directive - EU Directive 2016/97
What does the IDD do?
Regulates how insurance products are designed and distributed throughout the EU and harmonises regulation of the insurance market.
It codifies the minimum standards that EU member states must implement, and is known as a ‘harmonising directive’.
How does the IDD regulate insurance products?
- Sets out the information consumers must receive before they sign an insurance contract
- Imposes conduct of business and transparency rules on insurance distributors
- Clarifies the procedures and rules for cross-border insurance business
- Defines the procedures and rules for the supervision and sanctioning of insurance distributors which are non-compliant with IDD
What do delegated regulations from the IDD cover?
- Product oversight and governance requirements for insurance undertakings and insurance distributors
- Information requirements and conduct of business rules applicable to the distribution of insurance-based investment products
What does the IDD stipulate w.r.t. the product approvals process?
Firms must maintain, operate and review a product approvals process for new products, and for changes to existing ones. This must include design, monitoring, review and distribution of insurance products, and for correcting any issues that are detrimental to consumers.
According to the IDD, what 3 things must the product approval process ensure about product design?
- Considers the objectives and individual characteristics of consumers
- Does not adversely affect consumers
- Prevents or mitigates consumer detriment
According to the IDD, what must the product approval process achieve in relation to the target market?
> Identify target markets and the compatible consumers within the target markets.
> Be sufficiently detailed to include the characteristics, complexity and risk profile of the product.
> Identify customers for whom the product is not suitable.
> Product compatibility - includes level of information available to consumers, and their ability to understand it.
> Employees - need sufficient expertise to understand the products sold, and the demands and needs of the targeted consumers.
According to the IDD, why must products be tested before they come to the market?
To ensure they will, over their lifetime, meet the needs of the target market.
If they fail this testing, then they should not be launched.
According to the IDD, why must regular product reviews be undertaken?
To identify those events that could materially affect the main features, risk coverage, or guarantees of the products, and to confirm that they remain the right ones for consumers.
According to the IDD, what must firms consider w.r.t. their distribution channels?
Identify and use the most appropriate way of selling the product, and clear and comprehensive product information should be provided to both sellers and consumers.
According to the IDD, what 3 key things must insurance distributors (intermediaries and agents, for example) ensure is in place?
Arrangements to:
> Prevent and mitigate consumer detriment
> Manage conflicts of interest correctly
> Consider consumers’ demands and needs
When assessing the suitability of products for consumers, why is it important that firms obtain enough information?
So that any product recommendation:
> Meets the consumers’ objectives
> Reflects the consumers’ financial circumstances
> Is appropriate and relevant to the consumers’ knowledge and experience in the financial markets
What records must be retained to demonstrate good conduct throughout all interactions in the relationship with the consumer?
- Suitability assessment results
- Customer recommendations
- Any changes to the suitability assessment over time
- Any changes to the consumer profile
- Any warnings given to consumers (e.g. product inappropriate or if proceeded against recommendations)
What is an IPID?
Insurance Product Information Document
Common design, structure and format used to present consumers with product information which is easy to read and understand, and to help comparisons with different suppliers.
What are the 7 basic content requirements of an IPID?
> Name and company logo of the firm
> Reference to complete pre-contractual and contractual information
> Length of the document (max 2 x A4 sides)
> Presentation and the order of the content
> Plain language
> Headings, and the information content under each heading
> Use of visual icons
