The Insurance Distribution Directive (IDD) will introduce as from the 1st October, 2018 a new regime for those involved in insurance sales, even if selling insurance is not your primary business.
The IDD is designed to strengthen insurance customer protection, and will also apply to all businesses involved in the insurance supply chain, including where insurance is sold alongside other products.
So this will cover, for instance, the proposal and supply of defective title indemnity insurance. In this article I will look at the role adopted by most conveyancers when it comes to acting as a facilitator of indemnity insurance products.
The SRA advised: “All firms should therefore assess their own individual practices and make sure they are… able to comply with the revised rules.” The SRA has yet to issue confirmation of final rule change, though this is expected to be published shortly.
Suppliers of indemnity insurance have also been slow off the mark to provide guidance and revised documentation even though these changes were due to be introduced back in February of this year.
What is meant by insurance distribution activities?
This will cover advising on and proposing contracts of insurance as well as carrying out work preparatory to the conclusion of contracts of insurance. Most conveyancers who facilitate indemnity insurance will fall within the category of “Ancillary Insurance Intermediary’. That is service providers and distributors of goods who distribute insurance products on an ancillary basis.
What are the requirements for engaging in insurance distribution activities as an ancillary insurance intermediate?
There needs to be evidence of registration with the your regulator to undertake such activities.
Those involved need to be of good repute and possess appropriate knowledge and ability to advise on and propose insurance products.
This will entail training on products and on what formalities need to be addressed when engaging with clients. The specific requirements for individuals to undertake 15 hours CPD relating to the provision of Insurance Intermediary Activities do not apply.
A manager must be appointed to ensure compliance and records must also be kept to demonstrate compliance.
What are the rules on remuneration?
The IDD is keen to avoid conflict of interests when it comes to advising and supplying insurance products.
This will therefore prevent a conveyancer from making any arrangement by way of remuneration, sales targets or otherwise that could provide an incentive to the conveyancer or their employees to recommend a particular insurance product to a client when the solicitor could offer a different insurance product which would better meet the client's needs.
This will also mean a conveyancer will to be able to be paid a commission or other advantage for the supply of indemnity insurance without full accountability to the client.
What information needs to be given to the client at the point of the retainer?
The client care agreement will need to be reviewed. Precise and clear information on the what what the conveyancer can do and not do under the IDD needs to be given. The conveyancer’s regulator must be stated and the complaints procedure for dealing with complaints about the provision of and advise on insurance products must be made clear.
What information must be given before the indemnity insurance cover is put into force?
The requirement for a demand and needs statement remains and is extended.
(a) sets out the client's demands and needs on the basis of the information provided by the client;
{b) where a recommendation has been made, explains the reason for recommending that contract of insurance;
(c) reflects the complexity of the insurance contract being proposed;
There is an obligation to also provide the client with objective and relevant information about the insurance product in a comprehensible form to allow that client to make an informed decision while taking into account the complexity of the insurance product and the type of client. This shall be provided by way of a standardised insurance product information document ("IPID") on paper
The IPID
This will be supplied by the indemnity insurance supplier and shall include:
(a) information about the type of insurance;
(b) a summary of the insurance cover, including the main risks insured, the insured sum and, where applicable, the geographical scope and a summary of the excluded risks;
(c) the means of payment of premiums and the duration of payments;
(d) main exclusions where claims cannot be made;
(e) obligations at the start of the contract;
(f) obligations in the event that a claim is made;
(g) the terms of the contract including the start and end dates of the contract; and
(h) the means of terminating the contract.
What obligations are there when recommending to a client which insurance cover to run with?
Where a conveyancer recommends a contract of insurance, the client must be informed this is made on the basis of a fair analysis of the products available within the market. This will involve looking at a sufficiently large number of insurance contracts to enable a recommendation of a product which would be adequate to meet the clients' needs. This will for example involve looking at the extent of the cover, whether the cover has an escalation clause, the rating of the insurer within the market and the conditions of the cover. In other words making sure the client can make an informed decision about the product.
If you are only using one provider of indemnity insurance the time may have come to look to other providers for comparable products or to a provider that can supply you with a list of number of similar products for selection.
Conclusion
In practice if an indemnity policy is required it is often requested by the buyers conveyancer. If this is the case and you are acting for the seller given the above you should be saying it is for the buyers conveyancer to look for the policy and to determine which policy would be suitable for their client. It would not be appropriate nor advisable for the buyer’s conveyancer to allow the buyer to accept a policy put forward by the seller without checking its suitability and carrying out an analysis of the market.
If a policy is required the key is to ensure the client is presented with all of the information required under the IDD and is left to make the decision on which policy designed to address the relevant defect he or she wishes to take out. Providing the appropriate policy required to address the defect is correctly identified one should be looking to only provide general advice to clients on the difference in insurer ratings and the benefits of escalation clauses when proposing insurance options. It should be made clear that cheaper cover may not always be the best option.
MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com
