1. (1)

   The definition of insurance intermediary includes an insurer when the insurer is carrying on insurance mediation activities, for example when, through its sales force, it advises on or arranges its own non-investment insurance contracts or those of another insurer.

2. (2)

   For the limited application of this chapter to authorised professional firms in respect of their non-mainstream regulated activities, see ICOB 1.2.10 R(3) and ICOB 1.2.10 R(4).

When a contract of insurance is renewed, the parties enter into a new contract of insurance, even if the terms and conditions of the new contract are identical to the old one. ICOB 4 therefore applies to the renewed contract of insurance as it would to the original contract of insurance, unless stated otherwise in ICOB 4.2.20 R.

1. (1)

   This chapter amplifies Principle 6 (Customer's interests), Principle 7 (Communications with clients) and Principle 9 (Customers: relationships of trust). Principle 6 requires a firm to pay due regard to the interests of its customers and treat them fairly. Principle 7 requires a firm to pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading. Principle 9 requires a firm to take reasonable care to ensure the suitability of its advice.

2. (2)

   This chapter also implements articles 12 and 13 of the Insurance Mediation Directive for non-investment insurance contracts (which means that, in respect of communications by telephone, it follows the approach in article 3 of the Distance Marketing Directive).

3. (3)

   This chapter also implements article 9 of the DMD for non-investment insurance contracts concluded by distance means.

The purpose of this chapter is to ensure that:

1. (1)

   customers are adequately informed about the nature of the service that they have received from an insurance intermediary in relation to non-investment insurance contracts. In particular, insurance intermediaries need to make clear to customers the scope and type of the products and insurance undertakings on which their service is based;

2. (2)

   where a personal recommendation is made it is suitable for a customer's demands and needs. The nature of the steps an insurance intermediary will need to take to ensure that the customer receives a personal recommendation that is suitable will vary depending on the demands and needs of the customer, the type of non-investment insurance contract being offered, and the type of customer (retail customer or commercial customer);

3. (3)

   customers receive a statement of their demands and needs and the reasons for any personal recommendation made by an insurance intermediary;

4. (4)

   the charges that an insurance intermediary imposes on a retail customer are not excessive;

5. (5)

   if requested by a commercial customer, the insurance intermediary discloses its commission; and

6. (6)

   retail customers are not charged for non-investment insurance contracts concluded by distance means without their prior consent.

1. (1)

   ICOB 4.2.2 R to ICOB 4.2.14 R set out the status disclosure requirements that an insurance intermediary must meet to comply with the IMD.

2. (2)

   The rules in ICOB 4.2 state the timing by which status disclosure information must be given to the customer, in accordance with the IMD and the DMD. The insurance intermediary may provide information to the customer earlier than the time specified in the rules. For example, an insurance intermediary who is also providing services in connection with packaged products or regulated mortgage contracts may wish to combine the information required by ICOB 4.2 with the status disclosure requirements in COB or MCOB, and provide the information to the customer on initial contact, using the combined initial disclosure document in ICOB 4 Annex 2 R.

3. (3)

   For certain types of general insurance contract, such as motor insurance, it is customary for a customer to contact various insurance intermediaries for quick quotes which he can then compare. In these circumstances, it is not necessary for the insurance intermediary to give the status disclosure information at the time that the quick quote is provided, if the quote cannot be accepted (and a contract cannot be formed) without the insurance intermediary obtaining further information from the customer.

4. (4)

   The rules in ICOB 4.2 do not specify the format in which information must be provided to the customer. An insurance intermediary may use the initial disclosure document in ICOB 4 Annex 1 G, the combined initial disclosure document in ICOB 4 Annex 2 R, a terms of business letter, or another document to provide information to the customer.

1. (1)

   The insurance intermediary may, if it so chooses, make the customer aware that he is able to receive the information in ICOB 4.2.8 R orally, in accordance with ICOB 4.2.2 R(2), or (in the case of telephone communications) that the more limited information requirements of ICOB 4.2.2 R(3) may apply.

2. (2)

   If the customer requires immediate cover and the non-investment insurance contract is concluded over the telephone, the insurance intermediary may take advantage of either of the exemptions in ICOB 4.2.2 R(2) or ICOB 4.2.2 R(3), subject to the customer giving his explicit consent.

1. (1)

   The requirement in ICOB 4.2.2 R(1) can be met by use of the initial disclosure document set out in ICOB 4 Annex 1 G. Alternatively, in circumstances where the insurance intermediary has reasonable grounds to be satisfied that the services which it is likely to provide will, in addition to relating to non-investment insurance contracts, also relate to regulated mortgage contracts, regulated lifetime mortgage contracts or packaged products, the insurance intermediary may use the combined initial disclosure document set out in ICOB 4 Annex 2 R.

2. (2)

   Subject to ICOB 4.2.5 R, an insurance intermediary may use all or part of the wording and format of the initial disclosure document at ICOB 4 Annex 1 G (though if it chooses to omit any of the information required by ICOB 4.2.8 R, the insurance intermediary must still provide this information to the customer in a durable medium before the conclusion of the non-investment insurance contract in accordance with ICOB 4.2.2 R). This flexibility does not apply if an insurance intermediary uses the combined initial disclosure document (see ICOB 4.2.7 R), because the COB and MCOB rules require that the wording and the format of the document must not be changed.

3. (3)

   The combined initial disclosure document must be given in accordance with the rules in COB and MCOB. In particular (and in contrast with the initial disclosure document set out in ICOB 4 Annex 1 G), it will need to be provided on initial contact.

As article 33 of the Regulated Activities Order makes clear, the activity of introducing falls within article 25(2) of the Regulated Activities Order (Arranging deals in investments). ICOB 4.2.9 R applies in the limited circumstances where the arrangements made are confined to putting the customer in contact with another person. If the insurance intermediary goes further, for example by advising the customer on a particular contract of insurance which can be obtained from that person, ICOB 4.2.2 R applies.

1. (1)

   If an insurance intermediary holds itself out as giving information or advice to customers on certain types of non-investment insurance contracts on the basis of a fair analysis of the market (or any sector of that market), the selection of insurance undertakings the insurance intermediary considers for this purpose will need to be sufficiently large to enable the insurance intermediary to satisfy the requirement in ICOB 4.2.11 R. One way in which this requirement may be satisfied is by the insurance intermediary using 'panels' of insurance undertakings which are sufficient to enable the insurance intermediary to give advice or information on a fair analysis basis and which are reviewed on a regular basis. An insurance intermediary which provides a service based on a fair analysis of the market (or from a sector of the market) should ensure that its analysis of the market and the available non-investment insurance contracts is kept adequately up-to-date. For example, an insurance intermediary would need to update its selection of non-investment insurance contracts if it became aware that a non-investment insurance contract had generally become available offering an improved product feature, or a better premium, when compared with the non-investment insurance contracts currently in the insurance intermediary's selection. The frequency with which the selection of contracts needs to be updated will depend on the extent to which new contracts are made available on the market.

2. (2)

   Where a 'panel' of insurance undertakings is used, the criteria the insurance intermediary uses to select the panel will be important in determining whether the panel is sufficient for the insurance intermediary to provide a service based on a fair analysis of the market. The selection should be based on the product features, premiums and services offered by insurance undertakings to customers, and not solely on the benefit that the insurance undertakings offer to the insurance intermediary.

1. (1)

   An insurance intermediary may provide advice or information on a different basis to the same customer for different types of non-investment insurance contracts. For example, an insurance intermediary may give advice or information on the basis of a fair analysis of the market in respect of motor insurance contracts, but give advice or information only on a single insurance undertaking's contract for home contents insurance. The disclosure at ICOB 4.2.8 R(6) should be based on the service that the insurance intermediaryis providing in relation to a particular non-investment insurance contract for that customer.

2. (2)

   PRU 7.6.13R (Restriction of business to insurance) in practice restricts the business which an insurer can carry on.2

ICOB 4.2.15 R means that fees charged over the life of the contract by the insurance intermediary, including fees for mid-term adjustments, must be disclosed before the non-investment insurance contract is concluded.

1. (1)

   The fees referred to in ICOB 4.2.15 R are fees for mediation services. Fees for non-investment insurance contracts are covered in ICOB 5.5.14 R(3).

2. (2)

   Fees do not include premiums, or commissions that are part of premiums.

An insurance intermediary will normally need to provide updated information within ICOB 4.2.20 R(2) to the customer in a durable medium before the conclusion of the contract, unless an exemption in ICOB 4.2.2 R(2) (oral disclosure) or ICOB 4.2.2 R(3) (telephone sales) applies.

In relation to ICOB 4.3.2 R(3), an insurance intermediary should make clear to the customer what the customer needs to disclose. For example, in relation to private medical insurance, this could include any existing medical condition where relevant, or in relation to motor insurance, any modifications carried out to the vehicle.

An insurance intermediary should base his personal recommendation on what the customer tells him. Subject to ICOB 4.3.2 R(1), ICOB 4.3.2 R(2) and ICOB 4.3.5 R, the insurance intermediary is not required to take into account the customer's existing insurance cover, or details of that cover, if the customer is not able to provide this information.

1. (1)

   Where ICOB 4.3.6 R(2) applies, an insurance intermediary should take into account the cost of the contract when compared to other non-investment insurance contracts that cover a similar range of demands and needs on which the insurance intermediary can provide advice or information.

2. (2)

   In meeting the requirements of ICOB 4.3.6 R, an insurance intermediary need not consider the following:

   1. (a)

      alternatives to non-investment insurance contracts; and

   2. (b)

      the needs of the customer that are not relevant to the type of contract in which the customer is interested.

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.

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.

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.

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).

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.

When determining whether a charge is excessive, an insurance intermediary should consider:

1. (1)

   the amount of its charges for the services or product in question, compared with charges for similar services or products in the market;

2. (2)

   whether the charges are an abuse of the trust that the retail customer has placed in the insurance intermediary; and

3. (3)

   the nature and extent of the disclosure of the charges to the retail customer.

In assessing whether an insurance intermediary's charges are excessive, the FSA will take account of the charges imposed by insurance intermediaries of similar size and that conduct a similar volume of business.

ICOB 4.5.1 R does not apply to premiums, but does cover fees (including any fees that an insurance intermediary charges where it receives no commission from an insurer in respect of the contract of insurance).

ICOB 4.6.1 R does not replace the general law on the fiduciary obligations of an agent. In relation to contracts of insurance the essence of these obligations is generally a duty on the agent to account to his principal. However, in certain circumstances, the duty is one only of disclosure. Where a customer employs an insurance intermediary by way of business and does not remunerate him, and where it is usual for the insurance intermediary to be remunerated by way of commission paid by the insurer out of premium payable by the customer, then if the customer asks what the insurance intermediary's remuneration is, the insurance intermediary must tell him. ICOB 4.6.1 R is additional to this requirement in that it applies whether or not the insurance intermediary is an agent of the commercial customer.

ICOB 4.1.4 R (3) states that ICOB 4.6 does not apply to an insurance intermediary that is an insurer. This means that there is no obligation on an insurer to disclose a commission equivalent to a commercial customer on request.

The disclosures required by ICOB 4.6.1 R should be made in a manner that is clear, fair and not misleading, as required by ICOB 2.2.3 R (Clear, fair and not misleading communication).

If the precise value of commission is not known in advance, the insurance intermediary should estimate the rate likely to apply in relation to the contract of insurance in question.

ICOB 4.6.1 R does not require the disclosure of commission throughout the distribution chain between the insurer and commercial customer; but it does require disclosure of commission paid to any associate, regardless of whether the associate is part of the distribution chain.

1In considering any disclosure of commission under ICOB 4.6.1 R, an insurance intermediary should include all forms of remuneration from any arrangements he may have for remuneration in connection with the non-investment insurance contract (including arrangements for sharing profits, for payments relating to the volume of sales, and for payments from premium finance companies in connection with arranging finance for a non-investment insurance contract).

1An example of a situation where the commission could not be stated in cash terms under ICOB 4.6.1 R is where the insurance intermediary is remunerated under a profit share arrangement or any other similar arrangement under which the insurance intermediary may receive a non-fixed amount not specific to any particular non-investment insurance contract. The commission, to the extent it cannot be indicated in cash terms, should instead be indicated by showing the basis of its calculation.

The prohibition in ICOB 4.7.1 R includes the continuation of insurance after a specified period where the insurance has been free of charge to the retail customer during that period unless the retail customer has agreed before the period expires to pay for the insurance once the period has expired.1