In this chapter of our Annual Insurance Review 2019, we look at the main developments in 2018 and expected issues in 2019 for regulatory.
Key developments in 2018
2018 represented a significant shift in the regulatory landscape in the UK insurance market.
Rules implemented this year affecting the insurance market have both increased the amount of regulation and made it more prescriptive in nature. This, together with seemingly more energetic regulators and the introduction of new rules on individual accountability in late 2018 and 2019, means that regulatory compliance will be critical both at a firm and an individual level. This increased regulation and other key developments, such as Brexit, are impacting the structure of the market and firms' policies, systems, strategies and business plans. The full effect of this is likely to be felt throughout the course of next year and beyond.
2018 was to begin with the implementation of the insurance distribution directive (IDD) but, given the amount of work required at a regulator and firm level, this was deferred until October. This delay was welcomed by many as an opportunity to focus on the implementation of GDPR, the European General Data Protection Regulation, which came into force in May.
IDD was implemented in October, introducing some significant changes affecting insurers, brokers (retail and wholesale) and other market participants. Among the changes are: revised pre-contract disclosure rules including remuneration disclosures for brokers, other distributors and insurers; new product information rules such as a requirement for consumers to receive a standardised information document (the IPID) and commercial customers to receive a policy summary; a new product governance regime setting out prescriptive rules on how products should be designed, approved, tested and distributed; requirements for employees involved in distribution to be of good repute and carry out professional training; and a new obligation for firms to act in the customer's best interests – an example of rule-based regulation to work alongside the existing, and similar, principle to treat customers fairly.
What to look out for in 2019
Depending on the outcome of Brexit, 2019 may bring less in the way of regulatory change for the insurance market in comparison with 2018. There are still a few significant items to look out for, including the Financial Conduct Authority's (FCA) Interim Report to its Wholesale Insurance Brokers Market Study, due in the first quarter of the year, and the Lloyd's study into broker remuneration practices, which is expected to be completed in 2019. So far, there are no real clues as to the likely outcome of these studies so it remains a matter of speculation as to the impact they may have.
One key development, spanning late 2018 and 2019, is the FCA's Senior Managers and Certification Regime (SM&CR). This places an increased level of personal accountability and obligations on almost all personnel working in the insurance market. It demands that all staff not only have a clear understanding of their role in the business but also that they comply with new conduct rules. A higher level of conduct rules applies to more senior employees. The new SM&CR will represent an enhancement and development for insurers already subject to the Senior Insurance Managers Regime. Brokers and other firms regulated only by the FCA (including FCA-regulated managing general agents) on the other hand will be less familiar and will need to comply by December 2019.
Authored by Rob Paine.
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