ICOBS 4.1 General requirements for insurance intermediaries and insurers

Application: who?

ICOBS 4.1.1 R RP

This chapter4 applies to an insurance intermediary and to an insurer carrying on insurance distribution activities4.

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Interaction with the customer’s best interests rule and Principle 7

ICOBS 4.1.1A G

4To comply with the customer’s best interests rule and Principle 7 (Communications with clients) a firm should include consideration of the information needs of the customer including:

  1. (1)

    what a customer needs in order to understand the relevance of any information provided by the firm; and

  2. (2)

    at which point in the sales process will the information be most useful to the customer to enable them to make an informed decision.

Status disclosure: general information provided by insurance intermediaries or insurers

ICOBS 4.1.2 R RP

In good time before4 the conclusion of an initial contract of insurance and, if necessary, on its amendment or renewal :4

  1. (1)

    a firm must provide the customer with at least the following information:4

    1. (a)

      its identity, address and whether it is an insurance intermediary or an insurance undertaking;4

    2. (b)

      whether it provides a personal recommendation about the insurance products offered;4

    3. (c)

      the procedures allowing customers and other interested parties to register complaints about the firm with the firm and the Financial Ombudsman Service or, if the Financial Ombudsman Service does not apply, information about the out-of-court complaint and redress procedures available for the settlement of disputes between the firm and its customers; and4

  2. (2)

    an insurance intermediary must also provide the customer with the following information:4

    1. (a)

      the fact that it is included in the Financial Services Register (or if it is not on the Financial Services Register, the register in which it has been included) and the means for verifying this;4

    2. (b)

      whether it has a direct or indirect holding representing 10% or more of the voting rights or capital in a given insurance undertaking (that is not a pure reinsurer); 4

    3. (c)

      whether a given insurance undertaking (that is not a pure reinsurer) or its parent undertaking has a direct or indirect holding representing 10% or more of the voting rights or capital in the firm; and4

    4. (d)

      whether it is representing the customer or is acting for and on behalf of the insurer; and4

    [Note: articles 18 and 19(1)(a) and (b) of the IDD4]

  3. (3)

    paragraph (2) does not apply in relation to a connected travel insurance contract.

Status disclosure exemption: introducers

ICOBS 4.1.3 R RP

A firm whose contact with a customer is limited to effecting introductions (see PERG 5.6) need only provide its identity,4 address and whether it is a member of the same group as the firm to which it makes the introduction.

ICOBS 4.1.4 G RP

If a firm goes further than putting a customer in contact with another person (for example, by advising the customer4 on a particular policy available from the firm) the full status disclosure requirements will apply.

ICOBS 4.1.5 R RP

[deleted]4

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Scope of service: insurance intermediaries

ICOBS 4.1.6 R RP
  1. (1)

    Where an insurance intermediary proposes or advises on a contract of insurance then in good time before4 the conclusion of an initial contract of insurance (other than a connected travel insurance contract) and, if necessary, on its amendment or renewal an insurance intermediary4 must provide the customer with at least information on whether the firm4:

    2
    1. (a)

      gives a personal recommendation4, on the basis of a fair and personal4 analysis; or

    2. (b)

      is under a contractual obligation to conduct insurance distribution4exclusively with one or more insurance undertakings, in which case it must provide the names of those insurance undertakings4; or

    3. (c)
      1. (i)

        is not under a contractual obligation to conduct insurance distribution exclusively with one or more insurance undertakings; and4

      2. (ii)

        does not give a personal recommendation on the basis of a fair and personal analysis;4

      in which case it must provide its customer with the name of those insurance undertakings with which the insurance intermediary may and does conduct business.4

  2. (2)

    [deleted]4

    33

[Note: article 19(1)(c) of the IDD4]

ICOBS 4.1.7 R RP

Where the firm has given information in ICOBS 4.1.6R(1)(b) and (c), then in good time before the4 conclusion of an initial contract of insurance with a consumer a firm must also4 state whether it is giving:4

  1. (1)

    a personal recommendation but not on the basis of a fair and personal analysis;4

  2. (2)

    other advice on the basis of a fair analysis of the market;4

  3. (3)

    other advice not on the basis of a fair analysis of the market; or4

  4. (4)

    just information.4

Guidance on using panels to advise on the basis of a fair analysis

ICOBS 4.1.8 G RP
  1. (1)

    One way a firm may give advice on a fair analysis basis is by using ‘panels’ of insurance undertakings which are sufficient to enable the firm to give advice on a fair analysis basis and are reviewed regularly.

  2. (2)

    A firm which provides a service based on a fair analysis of the market (or from a sector of the market) should ensure that its analysis of the market and the available contracts is kept adequately up-to-date. For example, a firm should update its selection of contracts if aware that a contract has generally become available offering an improved product feature, or a better premium, compared with its current selection. The update frequency will depend on the extent to which new contracts are made available on the market. A firm is also required to ensure that the analysis is of a sufficiently large number of contracts of insurance available on the market (see ICOBS 5.3.3R).4

  3. (3)

    The panel selection criteria will be important in determining whether the panel is sufficient to meet the ‘fair analysis’ criteria. Selection should be based on product features, premiums and services offered to customers, not solely on the benefit offered to the firm.

  4. (4)

    Where a firm also provides personal recommendations based on a fair and personal analysis, paragraphs (1) to (3) may also be relevant to that part of the service which involves a fair analysis of the market.4

ICOBS 4.1.9 R RP

[deleted]4

ICOBS 4.1A Means of communication to customers

Application

ICOBS 4.1A.1 R

1This section applies to all information required to be provided to a customer in this chapter and in other chapters or sections where stated.

Means of communication to customers; non-telephone sales

ICOBS 4.1A.2 R
  1. (1)

    1A firm must communicate information to a customer using any of the following:

    1. (a)

      paper; or

    2. (b)

      a durable medium other than paper; or

    3. (c)

      a website (where it does not constitute a durable medium) where the website conditions are satisfied.

  2. (2)

    The firm must communicate the information in (1):

    1. (a)

      in a clear and accurate manner, comprehensible to the customer;

    2. (b)

      in an official language of the State of the risk or in any other language agreed by the parties; and

    3. (c)

      free of charge.

    [Note: article 23(1), (2), (4) and (5) of the IDD]

ICOBS 4.1A.3 R

1Where the information is communicated using a durable medium other than paper or by means of a website, the firm must, upon request and free of charge, also send the customer a paper copy.

[Note: article 23(3) of the IDD]

ICOBS 4.1A.4 R

1A firm must ensure that a customer’s choice or consent to receive the information by means of a website (whether a durable medium or where the website conditions are satisfied) is an active and informed choice or consent.

ICOBS 4.1A.5 G
  1. (1)

    1For the purposes of ICOBS 4.1A.4R for example an option to allow a change to the e-mail address to be used or an option to allow information to be provided by means of a website should be presented in a way that is clear, fair and not misleading.

  2. (2)

    The following are examples of circumstances not evidencing active or informed choice or consent:

    1. (a)

      a pre-ticked box (suggesting that option has been selected) which appears in a more prominent place than an un-ticked box allowing another option to be selected; and

    2. (b)

      the customer electing to be informed by a website without being first given other options.

ICOBS 4.1A.6 R

1On renewal of a policy a firm may rely on a customer’s previous choice or consent as appropriate where:

  1. (1)

    there is evidence that the customer has regular access to the internet;

  2. (2)

    the provision of information in that medium is appropriate in the context in which the business between the firm and the customer is carried on; and

  3. (3)

    the customer is made aware, for example in the renewal documentation, of the option to receive the information on paper in a way that is clear, fair and not misleading.

Means of communications to customers: telephone sales

ICOBS 4.1A.7 R

1In the case of telephone selling:

  1. (1)

    the information must be given in accordance with the distance marketing disclosure rules (see ICOBS 3.1.14R); and

  2. (2)

    if prior to the conclusion of the contract the information is provided:

    1. (a)

      orally; or

    2. (b)

      on a durable medium other than paper;

    the firm must also provide the information to the customer in accordance with ICOBS 4.1A.2R immediately after the conclusion of the contract of insurance.

[Note: article 23(7) of the IDD]

ICOBS 4.2 Additional requirements for protection policies for insurance intermediaries and insurers

Application: what?

ICOBS 4.2.1 R RP

This section applies in relation to a pure protection contract or a payment protection contract for a consumer.

Ensuring customers can make an informed decision

ICOBS 4.2.2 G RP

[deleted]2

ICOBS 4.2.3 G RP

[deleted]2

Disclosing the limits of the service provided

ICOBS 4.2.4 R RP
  1. (1)

    In a sale that does not involve a personal recommendation, a firm must take reasonable steps to ensure a customer (C) understands that C is2 responsible for deciding whether a policy meets C’s2 demands and needs.

  2. (2)

    [deleted]2

  3. (3)

    If a firm anticipates providing, or provides, information on any main characteristic of a policy orally during a non-advised sale, taking reasonable steps includes explaining the customer's responsibility orally.

  4. (4)

    A policy's main characteristics include its significant benefits, its significant exclusions and limitations, its duration and price information.

Status disclosure for insurers

ICOBS 4.2.5 R RP
  1. (1)

    Prior to the conclusion of an initial contract and, if necessary, on its amendment or renewal, an insurer must disclose to the customer at least:

    1. (a)

      the statutory status disclosure statement (see GEN 4);

    2. (b)

      whose policies it offers; and

    3. (c)

      whether it is providing a personal recommendation or information.

  2. (2)

    [deleted]2

ICOBS 4.2.6 G RP

Insurers are reminded that they are not permitted to carry out business which does not directly arise from their insurance business2 (see the restriction of business in INSPRU 1.5.13R and rule 9 of the PRA Rulebook2: Solvency II firms: Conditions Governing Business).

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ICOBS 4.3 Remuneration disclosure

Remuneration disclosure: insurance intermediaries

ICOBS 4.3.-7 R

1In good time before the conclusion of the initial contract of insurance and, if necessary, on its amendment or renewal an insurance intermediary must provide the customer with information:

  1. (1)

    on the nature of the remuneration received in relation to the contract of insurance:

  2. (2)

    about whether in relation to the contract it works on the basis of:

    1. (a)

      a fee, that is remuneration paid directly by the customer; or

    2. (b)

      a commission of any kind, that is the remuneration included in the premium; or

    3. (c)

      any other type of remuneration, including an economic benefit of any kind offered or given in connection with the contract; or

    4. (d)

      on the basis of a combination of any type of remuneration set out above in (a), (b) and (c).

[Note: article 19(1)(d) and (e) of the IDD]

Remuneration disclosure: insurers

ICOBS 4.3.-6 R

1In good time before the conclusion of a contract of insurance, an insurance undertaking must provide its customer with information on the nature of the remuneration received by its employees in relation to the contract of insurance.

[Note: article 19(4) of the IDD]

Remuneration disclosure: general

ICOBS 4.3.-5 R

1The remuneration referred to in this section includes remuneration that is not guaranteed or which is contingent on meeting certain targets.

ICOBS 4.3.-4 G

1The information required to be disclosed by ICOBS 4.3.-7R and ICOBS 4.3.-6R includes the type of remuneration and, taking into account the clear, fair and not misleading rule (ICOBS 2.2.2R), should also include the source of the remuneration.

ICOBS 4.3.-3 G

1When considering what information to provide about the remuneration, a firm should include all remuneration which the insurance intermediary or the employee of an insurance undertaking receives, or may receive in relation to the distribution of the contract of insurance. This includes remuneration:

  1. (1)

    provided indirectly by the insurer or another firm within the distribution chain; or

  2. (2)

    provided by way of a bonus (whether financial or non-financial) paid to the firm by the insurer or another firm, or provided by the firm to its employees, where this bonus is contingent on the achievement of a target to which the distribution of the particular contract of insurance could contribute. For example, this can include cash bonuses paid for achieving a sales target and additional annual leave for achieving a high customer service score on sales calls, profit share arrangements, overriders or other enhanced commissions.

ICOBS 4.3.-2 R

1If any payments, other than ongoing premiums and scheduled payments, are made by the customer under the contract of insurance after its conclusion, a firm must make the disclosures under this section, for each such payment.

[Note: articles 19(3) and (5) of the IDD]

ICOBS 4.3.-1 G

1Examples of the type of payments made are those for mid-term adjustments, administration fees and cancellation fees.

Fee disclosure: additional requirements

ICOBS 4.3.1 R RP
  1. (1)

    Where a fee is payable, the firm must inform1 its customer of the amount of the fee1.

  2. (2)

    The information in (1)1 must be given before the customer incurs liability to pay the fee, or before conclusion of the contract of insurance1, whichever is earlier.

  3. (3)

    To the extent that it is not possible for an amount to1 be given, a firm must give the basis for its1 calculation.

[Note: articles 19(2) and (5) of the IDD]1

ICOBS 4.3.2 R RP

1The fee disclosure requirement extends to all such fees that may be charged during the life of a policy.

[Note: article 19(3) of the IDD]

ICOBS 4.4 Commission disclosure for commercial customers

Commission disclosure rule

ICOBS 4.4.1 R RP
  1. (1)

    An insurance intermediary must, on a commercial customer's request, promptly disclose the commission that it and any associate receives in connection with a policy.

  2. (2)

    Disclosure must be in cash terms (estimated, if necessary) and in writing or another durable medium. To the extent this is not possible, the firm must give the basis for calculation.

ICOBS 4.4.2 G RP

An insurance intermediary should include all forms of remuneration from any arrangements it may have. This includes arrangements for sharing profits, for payments relating to the volume of sales, and for payments from premium finance companies in connection with arranging finance.

ICOBS 4.4.3 G RP
  1. (1)

    The commission disclosure rule is additional to the general law on the fiduciary obligations of an agent in that it applies whether or not the insurance intermediary is an agent of the commercial customer.

  2. (2)

    In relation to contracts of insurance, the essence of these fiduciary obligations is generally a duty to account to the agent’s principal. But where a customer employs an insurance intermediary by way of business and does not remunerate him, and where it is usual for the firm to be remunerated by way of commission paid by the insurer out of premium payable by the customer, then there is no duty to account but if the customer asks what the firm's remuneration is, it must tell him.

ICOBS 4.6 Commission disclosure for pure protection contracts sold with retail investment products

ICOBS 4.6.1 G RP

1The rules in this section:

  1. (1)

    address the risk that a consumer believes that a firm's remuneration for its pure protection service is included in its adviser charge, where this is not the case; and

  2. (2)

    enable the consumer to evaluate a firm'sadviser charge in the light of any additional remuneration received by the firm for the pure protection service it provides.

ICOBS 4.6.2 R RP

A firm which agrees an adviser charge with a consumer and provides an associated pure protection service to that consumer must:

  1. (1)

    in good time before the provision of its services, take reasonable steps to ensure that the consumer understands:

    1. (a)

      how the firm is remunerated for its pure protection service; and

    2. (b)

      if applicable, that the firm will receive commission in relation to its pure protection service in addition to the firm'sadviser charge;

  2. (2)

    as close as practicable to the time that it makes the personal recommendation or arranges the sale of the pure protection contract, comply with the following disclosure requirements, substituting pure protection contract for references to packaged product:

    1. (a)

      COBS 6.4.3 R, or COBS 6.4.4A R and COBS 6.4.4B R; and

    2. (b)

      COBS 6.4.5 R.

ICOBS 4.6.3 G RP

A pure protection service is unlikely to be associated with an adviser charge for the purposes of ICOBS 4.6.2 R if the firm agreed the adviser charge with the consumer 12 months or more before the provision of the pure protection service.

ICOBS 4.6.4 G RP

A pure protection service is not associated with an adviser charge for the purposes of ICOBS 4.6.2 R if the adviser charge is agreed with the consumer by a firm or an appointed representative and the pure protection service is provided to that consumer by another firm or appointed representative. However, if a firm or an appointed representative refers a consumer with whom it is agreeing an adviser charge to another firm or appointed representative for the provision of a pure protection service, it should consider its obligation to communicate with the consumer in a way that is clear, fair and not misleading in the context of the guidance in ICOBS 4.6.1 G.

ICOBS 4.6.5 R RP

If a firm expects to provide, or provides, information about its adviser charge orally, it must also provide the information required by ICOBS 4.6.2R (1)(a) and ICOBS 4.6.2R (1)(b) orally.

ICOBS 4 Annex 1 Initial disclosure document [deleted]

G

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