The Financial Conduct Authority has observed areas of the insurance market which are falling short of requirements under the Insurance Distribution Directive, with the regulator promising to "take action" where it identifies harm.
The IDD is European Union legislation which applied to firms from October 1, 2018, designed to regulate the way insurance products are sold and requiring insurers and intermediaries to exercise "sound judgement in the interests of their customers".
The IDD replaced the Insurance Mediation Directive and affects advisers who sell protection insurance in the UK. It is designed to regulate the way insurance products are sold, including across borders.
The directive sets out the information consumers should receive before they sign an insurance contract and also imposes conduct of business and transparency rules on distributors.
In data released on the eve of the IDD's implementation last year by UnderwriteMe, four out of 10 advisers and mortgage brokers selling protection insurance felt they were not ready for the regulation's deadline.
Speaking at the British Insurance Brokers' Association conference 2019 yesterday (May 16) Karina McTeague, director of general insurance and conduct specialists supervision at the FCA, said the regulator had "regrettably" found areas of the market falling short of the directive.
Ms McTeague said the FCA had observed firms failing to ask appropriate questions to identify a customer’s needs and "overloading" the customer with product information rather than focusing on disclosing the "key, appropriate and relevant" product information.
Ms McTeague warned firms must address "any shortfalls in compliance" quickly, promising the FCA would take action if it became aware of harm occurring.
According to Ms McTeague examples of harm occurring in the market included clients being offered products with limited value and customers paying "potentially excessive prices" due to the renumeration taken by various parties in the distribution chain.
Ms McTeague also took the opportunity to urge intermediaries to communicate with their clients the potential "complexities" associated with the UK's departure from the European Union, whilst praising the action taken so far by the insurance sector in anticipation of Brexit.
She said: "Complexity accompanies much of the discussion on Brexit. However, we expect firms to be able to translate that complexity into communications which their customers can understand.
"As intermediaries, you are often the first point of contact for your customer. Therefore, it is critical to have a clear strategy for communicating with your customers so they fully understand what (if any) the implications are for them."
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