GIGI 3.4 Product disclosure (ICOB 5)
Introduction
The rules differentiate between the information to be provided to commercial customers and to retail customers. The rules cover:
- (1)
the responsibilities of insurance companies and intermediaries in terms of producing and delivering product information (ICOB 5.2);
- (2)
providing information to retail and commercial customers (ICOB 5.3 and ICOB 5.4);
- (3)
the form and content of the information provided (ICOB 5.5);
- (4)
white labelling (ICOB 5.6); and
- (5)
record keeping (ICOB 5.7).
What are the responsibilities of insurance companies and intermediaries?
If both the insurance company and intermediary are authorised and are operating from a permanent place of business in the UK, the insurance company will normally produce most of the product information and the intermediary will be required to give it to the customer (ICOB 5.2.2 R). However, if the insurance company whose contract you are selling does not operate from a permanent place of business in the UK, you will be responsible for producing the information and giving it to the customer.
An insurance company we regulate must enable you to comply with our rules (e.g. to provide information to the customer before the conclusion of the contract) by giving you the information that it prepares in good time to allow you to meet those standards (ICOB 5.2.12 R).
Retail customer information
What information do you have to give retail customers when selling insurance?
ICOB 5.3 sets out the information that you have to give to a retail customer before and after conclusion of a contract, mid-term and on renewal. This includes information about the terms of the contract, price, cancellation rights and claims handling. ICOB 5.3 needs to be read with ICOB 5.5, which gives more details about the content of such information, in particular the policy summary and price information.
We distinguish between different types of sale. The information that needs to be given in each case is shown in the table below. The types of sale are:
- (1)
non-distance sales - where there is some face-to-face contact between you and the customer, even if some of the negotiations take place by telephone, fax etc (see ICOB 5.3.1 R to ICOB 5.3.5 G);
- (2)
distance sales where you are able to provide information to the customer in a durable medium before the contract is concluded, for example, post and e-mail (see ICOB 5.3.6 R (1)); and
- (3)
distance sales where you are unable to provide information to the customer in a durable medium before the contract is concluded, for example, by telephone (see ICOB 5.3.6 R (2) to ICOB 5.3.8 R).
Product information requirements for different mediums of sale with retail customers:
Before conclusion of the contract |
After conclusion of the contract |
Non-distance sales (ICOB 5.3.1 R to ICOB 5.3.5 G) |
|
Policy summary Price Directive-required information Draw attention orally to policy summary and the section on exclusions |
Policy document Claims information Cancellation information, where applicable Compensation scheme - extent and level of cover* |
Distance sales - where information can be provided in a durable medium before contract conclusion (ICOB 5.3.6 R (1)) |
|
Policy summary Price Directive-required information Policy document Claims information Cancellation information, where applicable Compensation information, where applicable, if not already in policy summary* |
No additional information |
Distance sales where information cannot be provided in a durable medium before contract conclusion (ICOB 5.3.6 R (2) to ICOB 5.3.8 R) |
|
Name of insurance undertaking Type of insurance and cover Significant features and benefits Significant or unusual exclusions or limitations Total price Possibility that taxes or costs may exist that are not payable via the intermediary Cancellation information Where to notify a claim The nature of other information available on request (for telephone sales only) |
Policy summary Price Directive-required information Policy document Claims information Cancellation information Compensation information, where applicable, if not already included in policy summary* |
* The policy summary must state whether or not there is a compensation scheme. The extent and level of cover can be included in the policy summary or be provided separately. |
|
Where our rules require you to give the name of the insurance undertaking, you only need to disclose the first-named undertaking before conclusion of a coinsured policy. If the policy is insured at Lloyd's, it is sufficient to use 'The association of underwriters known as Lloyd's' or similar wording. You need to give details of all the insurers after conclusion. For Lloyd's syndicates it is sufficient detail to identify the syndicates - for example, the Lloyd's agreed abbreviation.
What information do you have to give a retail customer on renewal of his policy?
Before a policy is due for renewal, unless you have a good reason to believe that your retail customer will not want to renew the policy, you must give the retail customer information about changes to the policy, information on price and cancellation and tell him that he can ask for a new policy document if he wishes. This information has to be given to the customer 21 days before his policy expires, or you must tell the customer 21 days before expiry that you no longer deal with the insurance company or it is not willing to renew. Examples of situations when you could assume the customer would not want to renew are short term travel policies and creditor insurance tied to a loan, where the insurance ends at the same time as the loan. The rules on renewals for retail customers are covered in ICOB 5.3.15 R to ICOB 5.3.23 G.
The situation is different for a policy with monthly renewal - see ICOB 5.3.16 R. See also ICOB 6.1.3 G for guidance on when such a policy exists.
What do you have to do if there is a mid-term change?
A retail customer must be told about changes to any term or condition of the contract before the change takes effect, and you must explain to him the implications of any change. This includes changes to the premium, unless the change is in line with previously agreed terms of the contract, for example, a periodic percentage increase. The information must usually be given to the retail customer in a durable medium before the changes takes effect, but if the change has been requested by the retail customer himself, you can if necessary just explain the implications orally and give him the information in a durable medium promptly afterwards. These rules are in ICOB 5.3.24 R to ICOB 5.3.28 G.
Information for commercial customers
What information do you have to give commercial customers when selling insurance?
You must always give your commercial customer information about a contract before the conclusion of that contract, unless the contract relates to a large risk. The amount of detail given can vary depending on the customer's knowledge, experience and ability - the rules simply say that it must be sufficient to allow the customer to make an informed decision. In addition, you must tell your commercial customer the amount of the premium and any fees and certain additional information required under various European directives (ICOB 5.4.1 R).
After the contract is concluded you must give the commercial customer the policy document promptly (ICOB 5.4.5 R) (as previously mentioned, the rules require insurance companies to give you documents in time for you to comply with rules such as this one). The requirement to give the commercial customer a policy document promptly after conclusion also applies (unlike the pre-conclusion requirements) to commercial customers insuring large risks.
These rules are set out in ICOB 5.4.1 R to ICOB 5.4.7 G.
What happens with group policies sold to commercial and retail customers?
If you sell a group policy to a commercial or retail customer and members of the group have a direct right to claim under that policy, you must, promptly after the conclusion of the contract, give:
- (1)
the retail customer in all cases; and
- (2)
the commercial customer, where there are members of the group policy who are capable of being retail customers;
a policy document and policy summary. And you must inform the customer that they should provide the policy summary to each policyholder who is capable of being a retail customer and tell them a copy of the policy document is available on request.
ICOB 5.3.29 R to ICOB 5.3.30 G apply where a retail customer takes out a group policy, and ICOB 5.4.8 R to ICOB 5.4.9 G where a commercial customer takes out a group policy.
What do you have to do when renewing a commercial customer's policy?
A commercial customer must be given renewal terms 'in good time' before expiry of his policy, or be told that you no longer deal with the insurance company or it is not willing to renew, unless you have reason to believe that the customer does not want to renew the policy (ICOB 5.4.10 R to ICOB 5.4.14 R). As explained in ICOB 5.2.13 G, we consider 'in good time' to mean that the customer should receive the information early enough to be useful to him.
Other aspects of the rules
What does the policy summary have to contain and who do you have to give it to?
You will need to give a policy summary to all retail customers and also to a commercial customer who takes out a group policy where there are members of the group policy who are capable of being retail customers. The policy summary will usually be produced by the insurance company. The policy summary contains key information a retail customer should read before deciding whether or not to take out a policy. So we require it to be a separate document or - if it is part of another document - to be in a prominent place and clearly identifiable as important information for the customer. It must also include the key facts logo (ICOB 5.5.5 R).
The policy summary can only include the information set out in our rules. This includes the key facts logo, the main features of the policy, and significant and unusual exclusions or limitations. It also has to include signposting from the significant and unusual exclusions or limitations to the policy document, in case the customer wants more information. These rules are in ICOB 5.5.1 R to ICOB 5.5.13 G.
What directive information do you have to give to retail and commercial customers?
The information that you must give the customer as required under various European directives is summarised in ICOB 5.5.20 R. This sometimes duplicates information you have to give customers under other rules in ICOB 5 or in ICOB 4 (Advising and selling standards). ICOB 5.5.17 G explains that you do not have to give information twice unless this is required by a specific rule.
What does the policy document consist of?
The 'policy document' is all the contract terms and conditions, including the terms specific to a particular customer. It is defined as "a policy in a durable medium", and a policy is "a contract of insurance ... or any instrument evidencing such a contract". As explained in ICOB 5.5.27 R to ICOB 5.5.28 G, the terms and conditions can be set out in more than one document, but must be given to the customer at the same time. Our rules require a policy document to be given to the customer before the contract is concluded in the case of distance contracts falling under ICOB 5.3.6 R (1). Provided the full terms and conditions are given to the retail customer before conclusion in or with a document providing evidence of the contract, for example, a cover note, the policy booklet can be provided after conclusion.
What does the statement of price rule require?
The statement of price rule requires you to identify separately certain components of the total price as well as the total price that the customer will pay (see ICOB 5.5.14 R). For example, you must disclose the amount of premium and fees separately.
You will need to give an exact amount for the components of the total price and for the total price as well. You may show the basis of calculation of the amount instead, but only if it is not possible to give an exact amount. For example, if a creditor insurance policy is financed by a loan agreement and it is possible to state the total amount payable in line with the Consumer Credit Act 1974 requirements to show the total price, you will need to state the total price as well as the interest amount payable on the premium.
What rules are there on white labelling?
You may want to make your own brand the main one on documents you give the customer, and to have prominence over the insurance company's name. This is known as white labelling. ICOB 5.6 gives guidance on what is acceptable under our rules.
Our rules do not allow you to give the customer only your firm's name and not that of the insurance company. ICOB 4.2 (status information) and the product information rules in ICOB 5 require the customer to be told of the identity of both the insurance company and the intermediary, and the policy summary must give only the name of the insurance company, and not your firm's name. However, as long as you comply with the rules on financial promotions (ICOB 3) and the general rule that communications with customers must be clear, fair and not misleading (ICOB 2.2.3 R), the way that information is presented to the customer is not specifically regulated by us.