ICOB 1.7 Guidance on application of the Distance Marketing Regulations and expressions derived from the Distance Marketing Directive
The purpose of ICOB 1.7.2 G and ICOB 1.7.3 G is to provide:
- (1)
guidance on the application of parts of the Distance Marketing Regulations for non-investment insurance contracts and distance non-investment mediation contracts; and
- (2)
guidance on expressions in ICOB derived from the Distance Marketing Directive.
Application of parts of the Distance Marketing Regulations
ICOB implements most of the Distance Marketing Directive for non-investment insurance contracts that are distance contracts and for distance non-investment mediation contracts. However, certain aspects of the Distance Marketing Directive are implemented by provisions of the Distance Marketing Regulations, which apply in addition to ICOB, in particular:
Guidance on expressions derived from the Distance Marketing Directive
ICOB adopts certain expressions derived from the Distance Marketing Directive, as follows:
- (1)
Retail customer
- (a)
The Distance Marketing Directive applies to 'any natural person who is acting for purposes which are outside his trade, business or profession'. In ICOB the term 'retail customer' has been adopted. In practice, private individuals may act in a number of capacities. In the FSA's view, a customer will be a commercial customer and not a retail customer if he is an individual acting, for example:
- (i)
as trustee of a trust such as a housing or NHS trust;
- (ii)
as member of the governing body of a club or other unincorporated association such as a trade body and a student union;
- (iii)
as pension trustee;
- (iv)
as a person taking out, or who has taken out, a non-investment insurance contract relating to property bought under a buy-to-let mortgage;
- (v)
as partner in a partnership when taking out insurance for purposes wholly related to his profession.
- (i)
- (b)
Examples of individuals who would be regarded as retail customers include:
- (a)
- (2)
Distance contract
- (a)
To be a distance contract, a contract must be concluded under an 'organised distance sales or service-provision scheme' run by the contractual provider of the service who, for the purpose of the contract, makes exclusive use (directly or through an insurance intermediary) of one or more means of distance communication up to and including the time at which the contract is concluded. So:
- (i)
the insurance intermediary must have put in place facilities designed to enable a retail customer to deal with it exclusively at a distance, such as facilities for a retail customer to deal with it purely by post, telephone, fax or the Internet. If an insurance intermediary normally operates face-to-face and has no facilities in place enabling a retail customer to deal with it customarily by distance means, the DMD will not apply. A one-off transaction effected exclusively by distance means to meet a particular contingency or emergency will not be a distance contract; and
- (ii)
there must have been no simultaneous physical presence of the insurance intermediary and the retail customer throughout the offer, negotiation and conclusion of the contract. So, for example, contracts offered, negotiated and concluded over the Internet, through a telemarketing operation or by post, will normally be distance contracts. A retail customer may visit the local office of the insurance intermediary in the course of the offer, negotiation or conclusion of a contract with that insurance intermediary. Wherever, in the literal sense, there has been "simultaneous physical presence" of the insurance intermediary and the retail customer at the time of such a visit, any ensuing contract will not be a distance contract.
- (i)
- (b)
The mere fact that an intermediary (acting for the insurance undertaking or for the retail customer) is involved, does not make the sale of a financial product or service a distance contract.
- (a)
- (3)
Conclusion of a contract
- (a)
A contract is concluded when an offer to be bound by the non-investment insurance contract has been accepted. An offer in the course of negotiations (for example, an offer by an insurance undertaking to consider an application) is not an offer to be bound, but is part of a pre-contractual negotiation. A customer will provide all the information an insurance undertaking needs to decide whether to accept a risk and to calculate the premium. The customer may do this orally, in writing or by completing a proposal form. The response by an insurance undertaking, giving a quotation to the customer specifying the premium and the terms, is likely to amount to an offer of the terms on which the insurance undertaking will insure the risk. Agreement by the customer to those terms is likely to be an acceptance which concludes the contract. In other cases where the insurance undertaking requires a signed proposal form (for example, some pure protection contracts), the proposal form may amount to an offer by the customer on which the insurance undertaking decides whether to insure the risk and in such cases the insurance undertaking's response is likely to be the acceptance.
- (b)
Where the parties to a contract agree that insurance cover should commence before all the terms and conditions have been agreed, the customer should be provided with information required by rules in ICOB to be provided before conclusion of the contract to the extent that agreement has been reached.
- (a)
- (4)
Distance non-investment mediation contracts
- (a)
Some of the services which some insurance intermediaries provide will themselves fall within the scope of the Distance Marketing Directive. ICOB 8 applies to an insurance intermediary which enters into a distance non-investment mediation contract with a retail customer. The FSA expects the requirements in ICOB 8 to be relevant in a small minority of cases. ICOB 8 will not apply in the typical case where an insurance intermediary sells an insurance contract to a retail customer on a one-off basis, even if the insurance intermediary is involved in the renewal of that contract and handling claims under it. ICOB 8 will also not apply if an insurance intermediary, in its terms of business, makes clear that it does not, in conducting insurance mediation activities, act contractually on behalf of, or for, its retail customer, in which case the insurance intermediary can proceed on the basis that no distance non-investment mediation contract will arise.
- (b)
ICOB 8 is only relevant if both of the following conditions are satisfied:
- (i)
an insurance intermediary concludes a distance contract with a retail customer covering its insurance mediation activities which is additional to any insurance contract which it is marketing;
- (ii)
the insurance intermediary's distance contract is concluded other than merely as a stage in the effecting or carrying out of an insurance contract by the firm or another person, in other words it has some continuity independent of an insurance contract, as opposed, for example, to being concluded as part of marketing an insurance contract.
- (i)
- (c)
An example of a distance non-investment mediation contract would be a distance contract under which an insurance intermediary agrees to provide advice on a retail customer's insurance needs as and when they arise.
- (a)