Insurance Distribution Directive Webinar September 2018 04 September 2018 1
Contents Introduction CoB Overview Product Governance and Distribution Selling Knowledge and Competence Next Steps 04 September 2018 2
IDD expectations • IDD requirements, Familiar with: • EU Regulations/Guidelines, and • GFSC issued documents. Working to full • Reviewed Corporate Governance arrangements IDD • Reviewed distribution / selling processes • Good customer outcomes compliance 04 September 2018 3
Key messages Corporate Host state Compliance by 1 st October Governance regulator rules 04 September 2018 4
Conduct of Business A Revised approach to Conduct of Business Supervision 04 September 2018 5
What is Conduct ? Conduct is how people behave. Good conduct is not just about compliance and mitigating risks and/or a tick box approach Consistently good customer outcomes require effective systems and controls, meeting compliance obligations and good disclosure All underpinned by a good conduct culture 04 September 2018 6
Revised Conduct of Business Approach Why • Increased focus internationally and domestically • GFSC’s publication on Approach to Insurance Regulation Paper • Much more than revised TCF requirements How • Industry seminar - overview of categories • Setting expectations and guidance - phased approach • Self-assessment • Sample selection of self-assessments • Feedback • Ongoing reviews 04 September 2018 7
Product Governance and Distribution channels 04 September 2018 8
What is required? The regulations require manufactures to maintain, operate and review a product approval process for newly developed insurance products and for significant adaptations of existing products. 04 September 2018 9
How can this requirement be met by insurers? Product oversight committee in place Clear governance structure and reporting lines Good oversight and upwards reporting Good Management information 04 September 2018 10
How can this requirement be met by distributors of the products? Provide the manufacturer with the data required for the review of the insurance product Sense check that the products being sold meet the needs of the target market Provide management information to insurers in a timely manner Appropriate product selection process Robust training for staff 04 September 2018 11
What are co-manufacturers? When an insurance product is designed and developed by an insurance intermediary and an insurance company acting together with both parties having a decision making role this is known as co- manufacturing 04 September 2018 12
Governance for co-manufacturers • Written agreement in place setting out responsibilities of each party We would expect to see • Joint teams working the following in place together to ensure when firms are acting as consistency and alignment when designing or adapting co-manufacturers of an products insurance product: • Products and relevant documentation approved all both parties 04 September 2018 13
Identifying the target market Defining the target market enables the manufacturer to adapt the features of the product to the needs, characteristics and objectives of the group of customers targeted The granularity of the target market and determination of the appropriate distribution channel should be commensurate with the complexity of the product being offered 04 September 2018 14
Distribution Manufacturers should select distributors that have the necessary knowledge, expertise and competence to understand the features of the product and identified target market Manufactures need to monitor and examine whether their products are being distributed in conformity with their objectives Manufacturers need to provide all the appropriate information on the insurance products, details of approval process, identified target market and suggested distribution strategy to enable the distributor to fully understand the product they intend to distribute 04 September 2018 15
Distribution – selecting the distribution channel Have an approach for assessing the distributors knowledge and understanding of the type of product Does the distributor have all the necessary training and product material? Have the risks of the product being communicated to the distributor If the distributor is producing the promotional material, the manufacturer should verify the accuracy before it is used 04 September 2018 16
Distribution – oversight of the distribution channel Complaints – to understand the root cause Cancellations – for trends – is the product being mis-sold? Through interaction with the distributor is it clear that the product is understood? Onsite visits to larger more significant distributors Internal audits 04 September 2018 17
Insurance Intermediaries - Selling 04 September 2018 18
Protecting the consumer – a risk based approach IBIPs investing in Complex Financial Instruments (MiFID 2) Insurance Based Investment Products RISK PRESCRIPTION All insurance products HONESTY, FAIRNESS, PROFESSIONALISM, CUSTOMER INTERESTS 04 September 2018 19
Protecting the consumer – avoidance of mis-selling All Insurance Products • General principle - Reg. 38S • General information provision - Reg. 38T • Conflict of interest & transparency - Reg. 38U • Demands, needs and information - Reg.38V(1),(5) & IBIPs (8) to (11) • Advice – Reg. 38V(2) to (4) IBIPs investing in • Information to customers e.g. costs & Non – Complex Financial charges, risk warnings – Reg. 38ZE advised Instruments • Assessment of suitability & sales (MiFID 2) appropriateness - advised – Reg. 38ZF (1) to (2) and (7) to (13) Assessment of suitability & appropriateness – 38ZF (3) to (6) Must be advised – Reg. 38ZF (6)(b)(i) 04 September 2018 20
Protecting the consumer – avoidance of mis-selling • The demands and needs test • Standardised insurance product information document • IBIPs – suitability and appropriateness • Information gathering https://eiopa.europa.eu/Publications/Consultations/EIOPA%20Techni cal%20Advice%20on%20the%20IDD.pdf in particular 7.1 • Assessment of appropriateness and suitability statements – including KIDs (PRIIPS) 04 September 2018 21
Knowledge and Competence 04 September 2018 22
New knowledge and competence requirements Sets high standard – based on a benchmark Appropriate in relation to the products offered Continuing Professional and development requirements Onus on Firms to ensure staff meet standards and support staff
Establishing a benchmark Establish a high standard Qualifications; examples from industry Firms need to assess all individuals currently selling or in relevant management position Firms need to establish if staff meet this benchmark
Firm’s assessment of Individuals Meet benchmark? Qualifications and training previously held? Any gaps? Training going forward?
Examples Someone who qualified 20 years ago A new employee qualified in France An information provider versus an advisor of complex life products
Examples of support for new employees Listening in on discussions with clients Peer review of advice Providing support and time for studies Providing a robust induction and training programme
Compliance responsibilities Assess and review compliance with training and competence requirements. This review should be included in the report to the management body.
Ongoing training 15 hours minimum CPD Structured training covering areas in Annex I Covers products offered by firm Understand firm’s internal policies Keep up to date with market and industry developments Firm’s need to document staff CPD and ensure compliance
What does it mean for you? We do not expect firms to be fully compliant day 1 Expect firms to have a plan in place to ensure compliance We rely on firms to assess individuals SICR will collate some information to help us understand this (in due course) We can ask firms for evidence Look at having good customer outcomes
Next Steps 05 September 2018 31
What you need to do Ensure you have mapped your processes against the EU Directives, Regulations and Technical Standards and work to ensure compliance Familiarise yourself with information issued by GFSC Focus on Corporate Governance Ensure compliant with host regulator rules Focus on good customer outcomes 04 September 2018 32
Useful information Dedicated email address: IDD@gfsc.gi Dedicated website page: http://www.fsc.gi/firms/idd 04 September 2018 33
Questions Comments 04 September 2018 34
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