New insurance regulations have implications for employers from all industries
Anyone hoping that Brexit would mean a clean break from EU legislation will be severely disappointed because any directives implemented before our departure in March 2019 will be enshrined in UK law on the day we leave.
This means that the Insurance Distribution Directive (IDD), which applies to UK firms with effect from October 1st this year, is here to stay. Furthermore, it potentially has a greater relevance to employers outside the insurance industry than is generally imagined.
The IDD, which replaces the Insurance Mediation Directive, aims to enhance consumer protection when buying insurance and to support competition between insurance distributors by creating a level playing field.
It is possible that some of its measures around disclosure may impact on employee benefits but we are still in the process of getting legal advice on this matter. You can rest assured that we will be in touch with you if this does turn out to be the case but there is currently no great cause for anxiety as we are not expecting the implications to be major.
Of perhaps greater relevance to employers is the fact that they are well placed to enlighten their employees on how the IDD and other regulatory changes are likely to assist with their purchasing of individual ‘general insurance’ policies such as motor, household and travel insurance.
Employers who are proactive in going the extra mile to impart such information should engender loyalty, which is only likely to benefit the overall recruitment and retention jigsaw. By helping to save employees money on their insurance purchases they are also helping to safeguard against financial stress – which is one of the most common causes of workplace stress.
The IDD’s overarching ‘Customers’ best interest’ principle requires that distributors ‘Must always act honestly, fairly and professionally in accordance with the best interests of their customers.’ Furthermore, they must be able to actually demonstrate they are doing so.
The directive includes significant up-front disclosure rules that firms distributing non-investment insurance products will have to make.
These include providing pre-sale information ‘in good time’ before the conclusion of an investment contract, and being clear on the nature and basis of the remuneration they receive – which includes the disclosure of any relevant financial incentive schemes.
Firms must also have measures in place to identify and prevent conflicts of interest, confirm whether they provide a personal recommendation or not and, if cross-selling in a situation where insurance is the primary product, inform the client whether it is possible to buy the elements of the package separately, including the costs and charges of each element.
If such measures sound like the continuation of a somewhat familiar theme this is because the IDD is coming into effect at a time when the Financial Conduct Authority (FCA) has already been placing increased focus on consumer protection with insurance.
For example, in April 2017 it introduced rules intended to increase transparency and engagement in general insurance renewals.
These require firms to disclose last year’s premium at each renewal, so it is easily compared with the new premium offered, and to encourage consumers to check their cover and shop around for the best deal at each renewal.
Firms are also required to identify consumers who have renewed four or more consecutive times and give them an additional message encouraging them to shop around.
A common theme running through the IDD and other new insurance regulations is that they aim to put buyers in a position to make better decisions. Consumers are therefore now more empowered than ever before.
Employers should highlight this to their employees and could do worse than actually give them a gentle nudge in the direction of shopping around to get the best deal.
Indeed, those offering travel insurance via voluntary schemes can even ensure employees get the optimum deals by selecting the best value products on their behalf. They can also save employees’ NI by offering the cover via salary sacrifice.