Regulation 2018: What’s ‘in the post’ for brokers in the coming year?
There are big changes ahead for the UK. But while Brexit commands the column inches, businesses need to be aware of the other legislative and regulatory challenges on the horizon.
To ensure these changes are not overlooked or misunderstood, we have compiled a list of predictions the insurance sector will face in the year ahead.
General Data Protection Regulation (GDPR)
With just six months to go until the General Data Protection Regulation (GDPR) comes into effect, many businesses still lack vital knowledge about the changes. Set to replace the current Data Protection Act from 25 May 2018, this EU regulation will have a global impact. Even after Brexit, the UK is included and any company that processes an EU citizen’s data will need to comply with the regulation.
GDPR will provide a greater level of protection to data subjects, and will demand more from the businesses processing that personal data. The new legislation will require:
●Double opt-in by consumers before companies can collect any data
●More detailed privacy notices sent to clients and prospects
●Personal information to be revoked, amended or deleted on a customer’s request
●Privacy impact assessments to be carried out
●Maximum fines for non-compliance to increase to 2-4% of global group turnover
With insurance being one of the most data-accruing sectors, brokers need to take action:
●Making staff and stakeholders aware of the new law
●Documenting existing data
●Revising privacy notices
●Evaluating procedures surrounding a data breach
●Assessing how consent is obtained and recorded
Senior Managers and Certification regime (SM&CR) extension
Earlier this year, the PRA and FCA announced plans to extend the Senior Managers and Certification regime (SM&R) to insurers from 2018. The aim is to ‘reduce harm to consumers’ and make individuals ‘more accountable for their conduct and competence.’
This extension highlights the evolving regulatory focus towards individual accountability. Key changes include:
●Companies will have to annually certify individuals for their fitness, skills and propriety to carry out their role.
●Conduct rules setting high level standards of behaviour (i.e. acting with integrity and diligence, and treating customers fairly) will be extended to all employees. Additional rules will apply to senior managers.
●Senior individuals will need PRA or FCA approval, new Senior Management Functions will be introduced, and senior managers will be held to account in the event of a regulatory breach.
Policy statements and final rules are due in summer 2108, with the implementation date expected to be the same year.
Until then, firms can:
●Prepare an implementation plan and assign responsibility
●Map the necessary changes to functions and processes
●Get senior management on board
Insurance Distribution Directive (IDD)
Due to replace the Insurance Mediation Directive from 1 October 2018, the Insurance Distribution Directive (IDD) is an EU-wide directive designed to create a level playing field across the sector. IDD is to insurance what MiFID is to investments.
When it comes into force, it will revise and update the EU’s framework for regulating insurance brokers, agents and other intermediaries. The UK intends to implement the IDD regardless of its impending exit from the EU.
Key changes include:
●Wider scope: The new regime will apply to insurers, insurance intermediaries, price comparison websites/aggregators, ancillary insurance intermediaries, and insurance distributors. It will cover around 98% of the market (IMD covers around 48%)
●Greater freedom: There will be simpler cross-border entry to insurance markets across the EU thanks to single information points
●Professional requirements: Stricter requirements regarding the knowledge and competence of insurers and intermediaries will require at least 15 hours of professional training or development a year
●Information and conduct of business: New rules will ensure customers’ best interests are put first and that all information is fair and not misleading. Additional information such as remuneration will also need to be accessible.
●Cross-selling: When an insurance product is offered alongside another service, the distributor must make the customer aware products are available separately.
The proposed changes are significant meaning businesses involved either directly or indirectly in insurance sales will need to modify their processes. The FCA’s rules are ‘near final’, so companies should review processes now to assess how they fit when the new regime comes into effect.
The FCA has outlined its agenda for 2018. Here’s what to expect.
Wholesale market study
Brokers in the wholesale market will be under greater scrutiny from the FCA when the regulator launches a full market study in the sub-sector. The aim is to assess “how effectively competition is working in the markets, including how firms ensure practices do not create market integrity and conduct risks” and to take appropriate action.
The FCA’s main focus will be on whether larger brokers are using their market power to encourage insurers to sign up to additional services. The study will also cover challenges such as cyber risk, complex distribution chains, and forthcoming insurance-linked securities business.
Review of distribution chains
The sector can expect a review of end-to-end relationships in distribution chains. Covering retail, commercial and wholesale and focusing on complex distribution, the review will ensure customers get the best value.
Pricing in retail general insurance
Another FCA-driven review is planned into pricing practices, rating factors, and the systems and data used to inform pricing. This review follows the findings that while big data improves customer outcomes, it can also facilitate businesses charging more to certain types of customers.
The FCA plans to test operational resilience across the sector and has set up industry groups to carry out this work. This cross-sectoral activity will determine how well the industry works to deal with major operational disruption.
The regulator will also work closely with authorities such as the National Cyber Security Centre and National Crime Agency to reduce the risk of consumer data being compromised.
To learn more about how the changing regulatory landscape could impact on your brokerage, contact the team at Stride today.