'Introducers' should be subject to UK insurance distribution rules, says Treasury

The Treasury plans confirm that the EU's Insurance Distribution Directive (IDD) will be transposed into UK law despite the country moving towards an exit from EU membership.

As the IDD is a minimum harmonising directive, the government has the option of making its provisions more restrictive, i.e. by 'gold-plating' the legislation, as appropriate for the UK market. Although the government has ‘gold-plated’ the existing 2002 Insurance Mediation Directive (IMD), which the IDD updates, its consultation invites comment from respondents on the appropriateness of continuing to do so for the IDD.

In its proposals for IDD transposition, which are open to consultation until 22 May, the Treasury said it had considered whether to exempt so-called 'introducers' from new UK rules. However, it said that it had decided against the idea. Introducers carry out activities that go beyond "the mere provision of information", it said.

The IDD, amongst other things, sets detailed requirements about the information that 'insurance distributors' must disclose to customers before the conclusion of an insurance contract. The requirements are different depending on whether the business is an insurer, intermediary or ancillary insurance intermediary.

Under the EU framework, which was finalised last year, businesses that merely provide information about insurance products or an insurance intermediary or insurer to potential policyholders are exempt from the IDD regime so long as they do not take any additional steps to assist the customer in concluding an insurance contract.

The Treasury said it had a number of concerns that stopped it from broadening the information-only exemption to account for introducers, including that it might spur cold calling to customers.

"Whilst the government has not seen evidence of consumer detriment where the only activity is providing information, it believes there is sufficient evidence that some firms acting as introducers do more than this, e.g. actively seeking to persuade customers," the Treasury said. "The government believe that such firms should be regulated and is minded not to legislate for a broad exemption for introducers."

"Instead the government intends to amend [the FSMA (Regulated Activities) Order 2001] so that arrangements which involve only the provision of information are out of scope of regulation. This language replicates that used in IDD," it said.

The IDD came into force on 22 February 2016. It updates the IMD, which set out a framework for regulating EU insurance brokers, agents and other intermediaries. EU countries have until before 23 February 2018 to transpose the IDD into national legislation.

In its consultation paper, the Treasury confirmed that it intends for businesses that sell life and liability products as add-ons to a non-insurance product to be subject to the IDD regime. It also said that travel insurance products would be subject to existing stricter UK regulation than IDD requirements, and that the existing regulation of extended warranties for motor vehicles would continue to apply regardless of the cost of premiums.

However, the Treasury said that so-called 'non-use of services’ products, such as insurance cover for the cancellation of tickets to music festivals, theatre performance or for train travel, would be exempt from the new regulations, so long as, like other insurance add-on products, the annual premium does not exceed €600, or €200 if the contract is equal to, or less than, three months in length.

The Treasury proposals also address issues of cross-border regulation and the role of, and interaction between, the Financial Conduct Authority (FCA), as the UK's regulator of insurance distribution, and its European counterparts.