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ICOBS 2.5 Acting honestly, fairly and professionally, exclusion of liability, conditions and warranties 1

4The customer’s best interests rule

ICOBS 2.5.-1R

4A firm must act honestly, fairly and professionally in accordance with the best interests of its customer.

[Note: article 17(1) of the IDD]

Exclusion of liability and conditions

  1. (1)

    A firm must not seek to exclude or restrict, or rely on any exclusion or restriction of, any duty or liability it may have to a customer or other policyholder unless it is reasonable for it to do so and the duty or liability arises other than under the regulatory system.1

  2. (2)

    A Solvency II firm must ensure that general and special policy conditions do not include any conditions intended to meet, in an individual case, the particular circumstances of the risk to be covered.1

    [Note: article 187 of the Solvency II Directive]1


The general law, including the Unfair Terms Regulations (for contracts entered into before 1 October 2015) and the CRA, 2also limits the scope for a firm to exclude or restrict any duty or liability to a consumer.

Conditions and warranties in policies


3An insurer must ensure that any condition or warranty included in a policy with a consumer:

  1. (1)

    has operative effect only in relation to the types of crystallised risk covered by the policy that are connected to that condition or warranty; and

  2. (2)

    (for a warranty in a pure protection contract) is material to the risks to which it relates and is drawn to the customer’s attention before the conclusion of the contract.


3ICOBS 2.5.2AR(2) does not apply to a ‘life of another’ contract where the warranty relates to a statement of fact concerning the life to be assured.


3An insurer may choose to draft its conditions and warranties so that they clearly state the particular types of crystallised risks covered by the policy to which they are connected, for the purposes of ICOBS 2.5.2AR(1). Alternatively the insurer may in practice have systems and controls which operate the conditions and warranties in a way that has the same effect.

Reliance on others

  1. (1)

    Where it is compatible with the nature of the obligation imposed by a particular rule, including the customer’s best interests rule,4 and with the Principles, in particular Principles 1 (Integrity), 2 (Skill, care and diligence) and 3 (Management and control), firms may rely on third parties in order to comply with the rules in this sourcebook.

  2. (2)

    For example, where a rule requires a firm to take reasonable steps to achieve an outcome, it will generally be reasonable for a firm to rely on information provided to it in writing by an unconnected authorised person or a professional firm, unless it is aware or ought reasonably to be aware of any fact that would give reasonable grounds to question the accuracy of that information. However, a firm cannot delegate its responsibility under the regulatory system. For example, where a rule imposes an absolute obligation (such as the requirement for an insurer to handle claims promptly and fairly) although a firm could use outsourcing arrangements to fulfil its obligation, it retains regulatory responsibility for achieving the outcome required.

4Other requirements

ICOBS 2.5.4G

4Firms are reminded of their obligations in SYSC 19F.2 to ensure remuneration arrangements do not conflict with their duty to act in the customer’s best interests.

ICOBS 2.5.5G

5Firms are reminded that for non-investment insurance contracts, their obligations under the customer’s best interests rule (and in SYSC 19F.2 and PROD 4) will include consideration of the interests of any policy stakeholder of which the firm should be aware (which, in relation to a multi-occupancy building insurance contract, will include any leaseholder).

Customer’s best interests rule and third-party incentives

ICOBS 2.5.6G
  1. (1)

    5A firm that offers incentives to third parties in connection with a non-investment insurance contract should consider whether doing so conflicts with its obligations under the customer’s best interests rule, including whether this is consistent with the interests of policyholders and any policy stakeholder in relation to a multi-occupancy building insurance contract.

  2. (2)

    A ‘third party incentive’ is a benefit offered to any third party, with a view to that firm, or that person, adopting a particular course of action (for a customer, this includes taking out a particular contract of insurance), or which could be perceived as having that effect. This can include, but is not limited to, cash, cash equivalents, commission, goods, hospitality or training programmes.