The Insurance Distribution Directive requirements has meant that the FCA has introduced a completely new section to its handbook, called PROD, which can be found via this link: https://www.handbook.fca.org.uk/handbook/PROD/4/1.html?date=2018-10-01
PROD stipulates the rules surrounding product governance: including the design, approval, testing and identifying the target market of products, assessing distribution channels and monitoring product performance. The rules are intended to ensure that firms are offering products that are designed with the consumer in mind and provide appropriate protection for consumers.
The new requirements are essentially to protect consumers, but they have also been introduced to assign responsibility and accountability to all parties involved in the manufacturing and distribution of products. With this in mind there are a few questions Dealer Groups should ask/take in to account:
• Your choice of insurer (decisions such as this will impact solo-regulated firms, and hold individuals accountable when the new SM&CR comes into force from December 2019)
• The financial strength and condition of that insurer
• Does your Professional Indemnity insurer have any exclusions for your selected choice of product provider
The parties involved, the manufacturer (insurer), the Administrator (Assurity Solutions) and the client are all involved in the manufacture of the product. This means that the parties will have to sign a co-manufacturer agreement; stipulating which element of the product manufacture responsibilities each party is responsible for:
• Designing a product to be compatible with the needs, characteristics and objectives of the target market, through a proportionate and appropriate product approval process which is documented as set out in PROD 4
• Drafting and/or approving the policy documentation.
• Identifying the target market including, where relevant, identifying groups of customers for whom the product is compatible.
• Creating the ‘sales model’ and detailing all relevant information as to how sales will be carried out / monitored on an ongoing basis including ensuring the product is distributed to the target market and that all appropriate information on products is provided to the customer.
• Setting the Retail Selling Price charged to insureds provided that such Retail Selling Price shall at all times be “fair” within Principle 6 of the FCA’s Principles for Business.
• Monitoring and regularly reviewing the product, as a minimum ensuring the product remains consistent with the needs of the target market and the distribution strategy remains appropriate.
PROD also requires manufacturers and/or the administrator to provide their distributors (clients) with all appropriate information on the insurance products, the identified target market and the suggested distribution strategy, including information on the main features and characteristics of the insurance products, their risks and costs, including implicit costs, and any circumstances which might cause a conflict of interest to the detriment of the customer.
If you wish to discuss, or would like further information in relation to PROD, please feel free to subscribe to receive regular Insights from Peak Consultants or get in touch.