The SRA handbook was updated on 1st October 2018 to reflect new financial service rules.  The rules were implemented to ensure compliance with the Insurance distribution directive (IDD), a new European directive that replaced the Insurance mediation directive (IMD). The directive was introduced primarily to ensure that there is consistency to all distributors of insurance products.   Its primary aim is to further strengthen protection for consumers, particularly in respect of the information provided to them concerning the transaction(s). These new rules will impact law firms who participate in the distribution of insurance. Consequently, new working processes are required to be implemented.

At Lockton, we are aware that a number of our clients have already made changes to comply with the new requirements.  Law firms providing probate, personal injury and conveyancing are those most likely to be effected by the recent rule changes.  A number of those firms will be facilitating insurance such as ATE or defective title insurance and, likely be the most populous of coverages, as well as additional insurances that law firms can advise or arrange for their clients.

It is of course of fundamental importance that such changes are made. Not only from the perspective of fulfilling all regulatory responsibilities, but also ensuring practices are that of a level expected by your clients. The SRA has requested that all firms who undertake insurance mediation activities ensure the following:

  • If you propose to continue or begin to undertake insurance distribution activities you need to notify the SRA who will then provide the FCA with the relevant information to include you on the FCA register. . As part of the notification to the SRA, a firm must provide  details of the firm's insurance distribution officer (this person must be of management level within the business).

  •  In addition to ensuring an insurance distribution officer is in place, there is a requirement that all relevant persons within both the management and staff who are involved in insurance distribution activities hold the appropriate knowledge and have the ability to perform their duties. The FCA requests that firms that are authorised in respect of insurance distribution must have the necessary knowledge of:

    • The terms and conditions of policies offered

    • The Laws covering the distribution of insurance products

    • Claims and complaints handling requirements

    • How to assess a customer's needs

In light of FCA requirements, Law firms must make sure they have in place correct procedures to:

  • Obtain information about insurance products a firm feels are suitable for a client

  • Understand the key features of the insurance product and who the product is being marketed for

The new IDD has also put greater requirements on firms concerning the information you must provide to your client when undertaking insurance distribution activities on their behalf.  For instance, there is now a requirement for you to disclose to your clients the nature and the basis of the remuneration you receive in relation to the Insurance product. If you collect a fee from your client for insurance activities, this must all be explicitly specified. There is also now a requirement when providing information to your client that it enables the recipient to store information addressed to them in a way accessible for future reference, and most perhaps most importantly in a way that is fair, clear and not misleading.

The IDD now all insists that all firms must act honestly, fairly, professionally and in the best interests of the client, retaining all documentary evidence to support that the firm is meeting this requirement.

If you are undertaking Insurance distribution activities, it is a pre-requisite that you have professional indemnity insurance in place. The details of any insurance work should be specified on a firms proposal form, in light of the IDD changes, it will be prudent to liaise with your insurance advisor to ensure such activities are covered under your policy.

The implementation of further regulatory requirement creates additional work for firms who are impacted by them, it is vitally important that the changes required are considered and implemented if they haven't been already. Should you have any questions on the IDD, please do not hesitate to contact your Lockton representative or myself directly.