The LMA have also provided some first class guidance for UK Coverholders here. I wait to hear from Lloyd’s as to whether a co-ordinated approach (similar to GDPR compliance) to their in-scope Approved Coverholders is being planned or not.
However, pending this, as a very quick check list, there are I think six keys things for carriers to be doing now, in advance of the 1st October deadline (less than 8 weeks away!).
Step 1 – Establish your Coverholder/MGA business which is in scope
All products distributed in the EEA are in scope, other than those distributed to ‘large risks’ (as defined by the FCA). So, any Coverholder/MGA business or Master Policy arrangements in the EU where you are the lead carrier on this basis (i.e. products distributed to consumer/micro-enterprises/SMEs), is in scope.
Herein, I refer to Coverholder/MGA businesses or Master Policy holders generically as ‘Delegated Authority holders’.
Step 2 – Establish who is the Product Manufacturer – you or your Delegated Authority holder
For each facility, you need to decide (and agree with your agent) who is the ‘Product Manufacturer’.
If your Delegated Authority holder has any involvement in the design (or development) of the product, then the default position will probably be that they are the manufacturer (or at least a joint manufacturer). Who the manufacturer is should be endorsed on the relevant delegated authority contract. Lloyd’s have issued a useful template endorsement for this purpose (LMA5312). If you are joint manufacturers, then it will be necessary to agree how the responsibilities should be divided and this documented.
If your Delegated Authority holder is not involved in the design of the product at all, they will automatically be a Product Distributor, with attendant duties under the legislation.
Step 3 – Ensure that Product Governance Procedures are in place
Product Manufacturers will have strict duties under the legislation to have robust and proportionate product governance procedures in place.
This should not be a huge challenge for Lloyd’s’ Managing Agents, who should have such procedures in place to comply with Conduct Risk Minimum Standards, but may be more so for the actual Delegated Authority holders (and, dare I say it, non-Lloyd’s carriers), who may need to put something in place quickly now.
Similar to checking your Delegated Authority holders have in place sanction checking, financial crime and GDPR compliance procedures, carriers will now need to check they have in place appropriate product governance procedures, as part of the usual due diligence and on-going performance monitoring processes.
Step 4 – Insurance Product Information Document (‘IPID’)
One of these documents will now need to be issued to the product purchaser prior to the conclusion of the contract – most probably at the quotation stage (and of course renewal).
The IPID is a templated key facts/policy summary type document, which is intended to enable customers to easily compare ‘like for like’ products. The format of the IPID is highly standardised and must be followed for consumer business. If an IPID is issued to a commercial customer (not mandatory), it must follow the template. Whilst it is not mandatory to issue an IPID to commercial customers, IPID information does need to be provided pre-contract (not necessarily in the form of an IPID; the intermediary may decide to include some IPID information in other pre-contract documents for such customers).
The Product Manufacturer (or lead Product Manufacturer) is responsible for drafting the IPID and also for ensuring that the Product Distributor receives it and passes it on to the end purchaser. If the Product Manufacturer is the Delegated Authority holder, it would be wise, from a carrier’s own Product Governance point of view, to review and sign it off prior to use.
Step 5 – Ensure that Delegated Authority holder’s staff are sufficiently experienced and informed
Whilst this is likely to have been addressed as part of the Delegated Authority holder due diligence process, there is an additional requirement to ensure that all relevant staff have carried out the minimum level of Continuing Professional Development (“CPD”) and that evidence of this is being centrally recorded and maintained.
Step 6 – Ensure that Product Distributors are sufficiently experienced and informed
This is a tricky one as, unless your delegated authority holder is also a Product Distributor (i.e. where they deal direct), it is hard to know how a carrier can ensure that the intermediaries which your agent uses are complying with their own requirements under IDD.
However, as a minimum, it would be prudent to challenge your Delegated Authority holders on how they select their intermediaries and what they do to ensure they are in compliance with IDD, as part of their own broker due diligence procedure, including the requirement for carrying out and recording minimum levels of CPD.
Other key points
If the Delegated Authority holder deals direct with customers, they will be a Product Manufacturer and a Product Distributor. They will have additional and distinct duties under IDD, i.e. to understand the product, target market, information provided and to be able to explain to their customers, as well as ensuring they are addressing the demands and needs of those parties.
These duties are not new, but the ultimate carrier possibly is at risk of being responsible under IDD for ensuring all parts of the distribution chain are carrying out their respective duties under the legislation.
As always, we are interested to hear your thoughts and comments…
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