Content Options

Content Options

PROD 4.3 Distribution of insurance products

1

PROD 4.3.1R

Where a firm distributes insurance products which it does not manufacture it must have in place adequate arrangements to obtain the information in PROD 4.2.29R from the manufacturer.

[Note: sixth sub-paragraph of article 25(1) of the IDD]

PROD 4.3.2R

Where a firm distributes insurance products which it does not manufacture, it must have in place adequate arrangements to understand:

  1. (1)

    the characteristics of each insurance product; and

  2. (2)

    the identified target market of each insurance product.

[Note: sixth sub-paragraph of article 25(1) of the IDD]

PROD 4.3.2AR

3In relation to a non-investment insurance product, the arrangements in PROD 4.3.2R must enable the distributor to understand:

  1. (1)

    the outcome of the value assessment required by PROD 4.2.14AR and, where relevant, PROD 4.2.14BR; and

  2. (2)

    any identified group of customers for whom the insurance product is not expected to provide fair value.

PROD 4.3.3R

A distributor must take all reasonable steps to obtain the information in PROD 4.2.29R when distributing insurance products manufactured by any person to which 2product governance requirements in PROD 4.22 requirements of the IDD POG Regulation2 do not apply.

PROD 4.3.4G

To comply with PROD 4.3.2R, distributors should put in place effective arrangements to ensure that they obtain sufficient, adequate and reliable information from the manufacturer about the insurance products to ensure that they will be distributed in accordance with the characteristics, objectives and needs of the target market.

PROD 4.3.5UK

210(1) Insurance distributors shall have in place product distribution arrangements containing appropriate measures and procedures to obtain from the manufacturer all appropriate information on the insurance products they intend to offer to their customers and to fully comprehend those insurance products, taking into account the level of complexity and the risks related to the products as well as the nature, scale and complexity of the relevant business of the distributor.

[Note: first sub-paragraph of article 10(1) of the IDD POG Regulation]

PROD 4.3.6UK

2EU 10(2) The product distribution arrangements shall:

  1. (a) aim to prevent and mitigate customer detriment;

  2. (b) support a proper management of conflicts of interest;

  3. (c) ensure that the objectives, interests and characteristics of customers are duly taken into account.

[Note: article 10(2) of the IDD POG Regulation]

PROD 4.3.6AR
  1. (1)

    3In relation to a non-investment insurance product, the product distribution arrangements in PROD 4.3.2R must enable the distributor to identify:

    1. (a)

      the value that the insurance product is intended to provide to the customer; and

    2. (b)

      the impact that the distribution arrangements (including any remuneration it, or another person in the distribution chain to which it belongs, receives) has on the overall value of the insurance product to the customer.

  2. (2)

    Any distribution strategy set up or applied by the distributor must be consistent with the aim of providing fair value to the customer.

  3. (3)

    For the purposes of (1) and (2) a firm must consider at least the following:

    1. (a)

      the benefits the product is intended to provide to the customer;

    2. (b)

      the characteristics, objectives, interests and needs of the target market;

    3. (c)

      the interaction between the price paid by the customer and the extent and quality of any services the distributor (or any person connected to it) provides;

    4. (d)

      whether any remuneration it receives in relation to the insurance product would result in the product ceasing to provide fair value to the customer;

    5. (e)

      any potential detrimental effect on the intended value where the insurance product is to be distributed as part of a package with, or as part of the same agreement which provides, another product or service; and

    6. (f)

      where the distribution strategy involves offering, or arranging for the customer to be offered, retail premium finance, the firm must ensure that, taking into account the costs (including any charges/interest) of the retail premium finance, the customer does not pay a price that means, if seen as a package, the customer will not receive fair value.

PROD 4.3.6BG
  1. (1)

    3Where a distributor intends to distribute a non-investment insurance product alongside:

    1. (a)

      one or more other non-investment insurance products (whether from the same or another manufacturer); or

    2. (b)

      any other additional product,

    then the distributor should be able to demonstrate these arrangements are consistent with the aim of providing fair value to a customer and any package does not have a detrimental effect on the intended value of any non-investment insurance product.

  2. (2)

    For the purposes of (1), where more than one non-investment insurance product is part of a package, a distributor should consider at least whether the products:

    1. (a)

      have consistent target markets; and

    2. (b)

      provide cover in respect of the same risk and subject matter which could result in duplicate cover that could detrimentally affect the intended value of each individual product.

  3. (3)

    A distributor should ensure they have obtained, and taken account of, all relevant information from a manufacturer in relation to any non-investment insurance product in the package in order to understand the value, the relevant target market and any other relevant characteristic of that product.

  4. (4)

    The arrangements a distributor is required to have in place under PROD 4.3 are separate from the processes and arrangements the firm should have in place at the point of sale, including to comply with the customer’s best interests rule and to determine whether a product being proposed is consistent with the demands and needs of a particular customer.

PROD 4.3.6CG

3When assessing the impact that the distribution arrangements may have, a distributor should consider the effects of any retail premium finance it offers to customers including the relationship between:

  1. (1)

    the total price a customer would pay for the retail premium finance (including any charges for the credit whether in the APR or otherwise and fees); and

  2. (2)

    the quality of that retail premium finance including any relevant factors and features. For example, any benefit that such a customer could have from using retail premium finance, including the ability to spread the cost of a non-investment insurance contract instead of paying up front, taking into account the higher overall price the customer will have to pay.

PROD 4.3.6DG

3The following evidential provision provides examples of arrangements the FCA considers will breach PROD 4.3.6AR.

PROD 4.3.6EE
  1. (1)

    3A firm’s distribution arrangements including any distribution strategy it sets up, should not result in:

    1. (a)

      the firm receiving a level of remuneration which does not bear a reasonable relationship to the firm’s actual costs, or their contribution, level of involvement or the benefit added by them, to the arrangements for the distribution of the product, including where the firm provides little or no benefit beyond that which the customer would receive if they obtained the insurance product through another distribution channel;

    2. (b)

      the firm having remuneration arrangements which give an incentive to propose or recommend an insurance product which either does not meet the customer’s needs (or not as well as another product would) or is not in accordance with the customer’s best interests rule;

    3. (c)

      where the insurance product is distributed as part of a package, the overall price of the package not bearing a reasonable relationship to the overall benefits provided by the package; or

    4. (d)

      the level of any remuneration (for which the firm is responsible for setting) not being reasonably reflective of the costs actually incurred.

  2. (2)

    Contravention of any of (1) may be relied upon as tending to establish contravention of PROD 4.3.6AR.

PROD 4.3.7UK

210(3) The product distribution arrangements shall ensure that the insurance distributors obtain from the manufacturer the information to be communicated under Article 8(2).

[Note: article 10(3) of the IDD POG Regulation]

PROD 4.3.8UK

210(4) Any specific distribution strategy set up or applied by insurance distributors shall be in accordance with the distribution strategy set up and the target market identified by the manufacturer.

[Note: article 10(4) of the IDD POG Regulation]

PROD 4.3.9UK

210(5) The insurance distributors’ body or structure responsible for insurance distribution shall endorse and be ultimately responsible for establishing, implementing and reviewing the product distribution arrangements and continuously verify internal compliance with those arrangements.

[Note: article 10(5) of the IDD POG Regulation]

PROD 4.3.10UK

210(6) Insurance distributors shall regularly review their product distribution arrangements to ensure that those arrangements are still valid and up to date. They shall amend product distribution arrangements where appropriate. Insurance distributors that have set up or apply a specific distribution strategy shall, where appropriate, amend that strategy in view of the outcome of the review of the product distribution arrangements. When reviewing their product distribution arrangements, insurance distributors shall verify that the insurance products are distributed to the identified target market.

Insurance distributors shall determine the appropriate intervals for the regular review of their product distribution arrangements, thereby taking into account the size, scale and complexity of the different insurance products involved. To support product reviews carried out by manufacturers, insurance distributors shall upon request provide manufacturers with relevant sales information, including, where appropriate, information on the regular reviews of the product distribution arrangements.

[Note: article 10(6) of the IDD POG Regulation]

PROD 4.3.10AR

3A firm must review its product distribution arrangements in relation to a non-investment insurance product at least every 12 months.

PROD 4.3.10BR

3For the purposes of PROD 4.3.10UK, a distributor must provide on request to a manufacturer of a non-investment insurance product:

  1. (1)

    information on the distributor’s remuneration in connection with the distribution of the insurance product;

  2. (2)

    information on any ancillary product or service that the distributor provides to the customer (including insurance add-ons, non-insurance additional products and retail premium finance), which may affect the manufacturer’s intended value of the insurance product; and

  3. (3)

    confirmation that the distribution arrangements are consistent with the obligations of the firm under the FCA Handbook including in particular in SYSC 10 (Conflicts of interest) and SYSC 19F.2 (IDD remuneration incentives).

PROD 4.3.11UK

211 Insurance distributors becoming aware that an insurance product is not in line with the interests, objectives and characteristics of its identified target market or becoming aware of other product-related circumstances that may adversely affect the customer shall promptly inform the manufacturer and, where appropriate, amend their distribution strategy for that insurance product.

[Note: article 11 of the IDD POG Regulation]

PROD 4.3.11AR
  1. (1)

    3For a non-investment insurance product, a distributor must take appropriate remedial and mitigating action, including to amend its product distribution arrangements, where it identifies:

    1. (a)

      the insurance product (or, where relevant, the package) is not providing fair value for customers; or

    2. (b)

      any aspects of a product or package that may mean it does not offer fair value; or

    3. (c)

      the distribution arrangements including remuneration structures may mean the customer is not being provided with fair value.

  2. (2)

    The actions which the distributor takes for (1) must:

    1. (a)

      aim to mitigate the situation and prevent further occurrences of any possible harm to customers, including, where appropriate, amending the distribution strategy for that product (and, where relevant, the package); and

    2. (b)

      include informing any relevant manufacturers promptly about any concerns they have and any action the distributor is taking.

PROD 4.3.11BG

3For the purposes of PROD 4.3.11AR the steps a distributor may need to take include, but are not limited to:

  1. (1)

    amending its remuneration structures;

  2. (2)

    amending the distribution arrangements;

  3. (3)

    improving the quality of, or ceasing, any service or benefits it provides;

  4. (4)

    where the failure to provide fair value is due to the costs or quality of additional products, renegotiating the terms of the current arrangements relating to the additional products, or selecting alternative providers or distributors of them, in order to provide for a fair outcome;

  5. (5)

    ceasing to distribute certain insurance products (or where relevant, packages), or ceasing to use certain distribution channels;

  6. (6)

    contacting existing customers to inform them of the issues and of the measures being taken to rectify them; and

  7. (7)

    providing redress to customers.

PROD 4.3.12G

Manufacturers and distributors should take appropriate action in order to avert the risk of consumer detriment when they consider that the insurance product is not, or is no longer, aligned with the interests, objectives and characteristics of the identified target market.

[Note: recital 12 to the IDD POG Regulation]

PROD 4.3.13UK

212 Relevant actions taken by insurance distributors in relation to their product distribution arrangements shall be duly documented, kept for audit purposes and made available to the Financial Conduct Authority upon request.

[Note: article 12 of the IDD POG Regulation]

PROD 4.3.14UK

210(1) Insurance distributors shall set out the product distribution arrangements in a written document and make it available to their relevant staff.

[Note: second sub-paragraph of article 10(1) of the IDD POG Regulation]