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  2. Point in time
    2007-07-06

ICOB 4.4 Statement of demands and needs

ICOB 4.4.1R
  1. (1)

    Unless ICOB 4.4.2 R applies, where an insurance intermediary arranges for a customer to enter into a non-investment insurance contract (including at renewal), it must, before the conclusion of that contract, provide the customer with a statement that:

    1. (a)

      sets out the customer's demands and needs;

    2. (b)

      confirms whether or not the insurance intermediary has personally recommended that contract; and

    3. (c)

      where a personal recommendation has been made, explains the reasons for personally recommending that contract.

  2. (2)

    The statement in (1) must reflect the complexity of the contract of insurance proposed.

  3. (3)

    Unless (4) applies, the statement in (1) must be provided in a durable medium.

  4. (4)

    An insurance intermediary may provide the statement in (1) orally if:

    1. (a)

      the customer requests it; or

    2. (b)

      the customer requires immediate cover;

    but in both cases the insurance intermediary must provide the information in (1) immediately after the conclusion of the contract, in a durable medium.

Exemptions

ICOB 4.4.2R
  1. (1)

    Commercial customers

    1. (a)

      ICOB 4.4.1 R(1) does not apply to an insurance intermediary that is an insurer when dealing with a commercial customer, unless the insurer makes a personal recommendation to that commercial customer.

    2. (b)

      If an insurance intermediary that is an insurer makes a personal recommendation to a commercial customer, it need not provide the commercial customer with a statement of demands and needs, provided that:

      1. (i)

        it has obtained the consent of the commercial customer not to receive the statement of demands and needs; and

      2. (ii)

        it has explained to the commercial customer the consequences of giving that consent before it is given.

  2. (1A)

    2Non-advised sales by insurers to retail customers

    1. (a)

      ICOB 4.4.1R (1) does not apply to an insurance intermediary that is an insurer when dealing with a retail customer, unless the insurer makes a personal recommendation to that retail customer.

    2. (b)

      Where ICOB 4.4.1R (1) does not apply under (a), the insurer must provide the retail customer with a statement that confirms the insurer has not personally recommended that contract.

    3. (c)

      Unless (d) or (e) applies, the statement in (b) must be provided in a durable medium before the conclusion of the contract (including at renewal).

    4. (d)

      If the customer requests the statement in (b) orally or requires immediate cover, the insurer may provide the statement orally provided that it does so before the conclusion of the contract and provides the statement in a durable medium immediately after the conclusion of the contract.

    5. (e)

      Where a contract is concluded by telephone, the statement in (b) must be provided immediately after the conclusion of the contract in a durable medium.

  3. (2)

    Telephone salesWhere a contract is concluded by telephone with a customer, the statement of demands and needs:

    1. (a)

      must be provided immediately after the conclusion of the contract in a durable medium;

    2. (b)

      may also be provided orally before the contract is concluded.

  4. (3)

    Notwithstanding (1) and (1A), an insurer must ensure that its appointed representative complies with the requirements of this section (unless acting as the insurer's third party processor).

ICOB 4.4.3G
  1. (1)

    An insurance intermediary may provide the demands and needs statement as part of another document, such as an application form.

  2. (2)

    For quick quotes (see ICOB 4.2.1 G(3)), there is no requirement for the insurance intermediary to provide a demands and needs statement, but one must be provided before contract conclusion.

  3. (3)

    A statement of demands and needs is, by definition, relevant to (and generated by) the specific circumstances of the customer. However, the degree of knowledge of the customer's circumstances that is required will vary from case to case.

Demands and needs statement for non-advised sales

ICOB 4.4.4G

ICOB 4.4.3 G gives an insurance intermediary flexibility as to the format of the demands and needs statement. Some examples of approaches that may be appropriate where the insurance intermediary has not made a personal recommendation include:

  1. (1)

    providing a demands and needs statement as part of an application form, so that the demands and needs statement is made dependent upon the customer providing personal information on the application form. For instance, the application form might include a statement along the lines of:'If you answer 'yes' to questions a, b and c your demands and needs are those of a pet owner who wishes and needs to ensure that the veterinary needs of your pet are met now and in the future';

  2. (2)

    producing a demands and needs statement in product documentation that will be appropriate for anyone wishing to buy the product. For example, 'This product meets the demands and needs of those who wish to ensure that the veterinary needs of their pet are met now and in the future'; and

  3. (3)

    giving a customer a record of all his demands and needs that have been discussed.

ICOB 4.4.4AG

1Where a firm has not made a personal recommendation and provides key features as an alternative to a policy summary under ICOB 5.5.4 R, that constitutes provision of a statement of demands and needs.

Demands and needs statement when a personal recommendation is made

ICOB 4.4.5G
  1. (1)

    Where a personal recommendation has been made the demands and needs statement will need to record the reasons for the personal recommendation as well as the customer's demands and needs.

  2. (2)

    In accordance with ICOB 4.4.7 R, the demands and needs statement is the record that the insurance intermediary must maintain to demonstrate that he has given a suitable personal recommendation. Accordingly, the statement will need to contain sufficient information to act as this record.

  3. (3)

    ICOB 4.4.6 G contains guidance on the content of the statement of demands and needs required by ICOB 4.4.1 R(1).

ICOB 4.4.6G

Guidance on the content of the statement of demands and needs required by ICOB 4.4.1 R(1)

This table belongs to ICOB 4.4.5 G(3).

Introduction

(1)

Where relevant, the statement should explain simply and clearly why the personal recommendation is viewed as suitable, having regard to the customer's demands and needs.

Style and Presentation

(2)

The style and presentation of the statement is left for the insurance intermediary to decide, so that he can design a statement which works best for the market in which he transacts business. A statement is more likely to be effective if it demonstrates these features:

(a)

simplicity and plain English: when technical terms need to be incorporated, they should be explained, if the customer is unlikely to understand their meaning; and

(b)

concise and clear messages: lengthy explanations and extensive statements are likely to reduce the effectiveness of the statement, and make the customer less likely to read the statement properly.

(3)

An insurance intermediary should take the following into account when constructing a statement following a personal recommendation:

(a)

the statement should explain why the customer's demands and needs combine to make the recommended contract suitable for the customer. It should not merely state what contract is being recommended with no link to the customer's demands and needs; and

(b)

an insurance intermediary that offers contracts from more than one insurance undertaking should include a statement of why a particular insurance undertaking has been recommended; reasons may include contract features not available anywhere else, price, or service levels.

Record keeping where a personal recommendation is made

ICOB 4.4.7R
  1. (1)

    An insurance intermediary that makes a personal recommendation to a customer must, if the customer acts on the personal recommendation by concluding the non-investment insurance contract with that insurance intermediary:

    1. (a)

      unless ICOB 4.4.2 R(1)(b) applies, retain a copy of the statement required by ICOB 4.4.1 R(1); or

    2. (b)

      if ICOB 4.4.2 R(1)(b) applies, make and retain, in a durable medium, a record of the reasons for the personal recommendation.

  2. (2)

    Both the copy of the statement in (1)(a) and the record in (1)(b) must be retained for a minimum period of three years from the date on which the personal recommendation was made.

ICOB 4.4.8G

The effect of ICOB 4.4.7 R(1) is that if the customer does not act on the personal recommendation, the insurance intermediary need not retain a copy of the statement.