PROD 4.3 Distribution of insurance products

Where a firm distributes insurance products which it does not manufacture it must have in place adequate arrangements to obtain the information in PROD 4.2.29R from the manufacturer.

[Note: sixth sub-paragraph of article 25(1) of the IDD]

Where a firm distributes insurance products which it does not manufacture, it must have in place adequate arrangements to understand:

1. (1)

   the characteristics of each insurance product; and

2. (2)

   the identified target market of each insurance product.

[Note: sixth sub-paragraph of article 25(1) of the IDD]

3In relation to a non-investment insurance product, the arrangements in PROD 4.3.2R must enable the distributor to understand:

1. (1)

   the outcome of the value assessment required by PROD 4.2.14AR and, where relevant, PROD 4.2.14BR; and

2. (2)

   any identified group of customers for whom the insurance product is not expected to provide fair value.

A distributor must take all reasonable steps to obtain the information in PROD 4.2.29R when distributing insurance products manufactured by any person to which 2product governance requirements in PROD 4.2 2 6do not apply.

6A firm must have in place product distribution arrangements containing appropriate measures and procedures to obtain from the manufacturer all appropriate information on the insurance products it intends to offer to its customers and to fully comprehend those insurance products, taking into account the level of complexity and the risks related to the products as well as the nature, scale and complexity of the relevant business of the firm.

[Note: first sub-paragraph of article 10(1) of the IDD POG Regulation]

6The product distribution arrangements required under PROD 4.3.5R must:

1. (1)

   aim to prevent and mitigate customer detriment;

2. (2)

   support a proper management of conflicts of interest;

3. (3)

   ensure that the objectives, interests and characteristics of customers are duly taken into account.

[Note: article 10(2) of the IDD POG Regulation]

1. (1)

   3In relation to a non-investment insurance product, the product distribution arrangements in PROD 4.3.2R must enable the distributor to identify:

   1. (a)

      the value that the insurance product is intended to provide to the customer; and

   2. (b)

      the impact that the distribution arrangements (including any remuneration it, or another person in the distribution chain to which it belongs, receives) has on the overall value of the insurance product to the customer.

2. (2)

   Any distribution strategy set up or applied by the distributor must be consistent with the aim of providing fair value to the customer.

3. (3)

   For the purposes of (1) and (2) a firm must consider at least the following:

   1. (a)

      the benefits the product is intended to provide to the customer;

   2. (b)

      the characteristics, objectives, interests and needs of the target market;

   3. (c)

      the interaction between the price paid by the customer and the extent and quality of any services the distributor (or any person connected to it) provides;

   4. (d)

      whether any remuneration it receives in relation to the insurance product would result in the product ceasing to provide fair value to the customer;

   5. (e)

      any potential detrimental effect on the intended value where the insurance product is to be distributed as part of a package with, or as part of the same agreement which provides, another product or service; and

   6. (f)

      where the distribution strategy involves offering, or arranging for the customer to be offered, retail premium finance, the firm must ensure that, taking into account the costs (including any charges/interest) of the retail premium finance, the customer does not pay a price that means, if seen as a package, the customer will not receive fair value.

1. (1)

   4For the purposes of PROD 4.3.6AR and PROD 4.3.6BR, a firm is not required to take into account product distribution arrangements that relate to the distribution of the product to:

   1. (a)

      a customer who is not habitually resident in the United Kingdom; or

   2. (b)

      where the state of the risk is not the United Kingdom.

2. (2)

   The effect of (1) includes that a firm is not required to assess the impact of a person’s remuneration in relation to the distribution of the product to a customer who is not habitually resident in the United Kingdom, or where the state of the risk is not the United Kingdom, when identifying the impact of the distribution arrangements on the value being provided to the customer.

3. (3)

   5A non-investment insurance product that is used for effecting a multi-occupancy building insurance contract is excluded from (1).

6A firm must ensure that its product distribution arrangements contain the necessary measures to obtain from the manufacturer the information to be communicated under PROD 4.2.30R.

[Note: article 10(3) of the IDD POG Regulation]

6Any specific distribution strategy set up or applied by a firm must be in accordance with the distribution strategy set up and the target market identified by the manufacturer.

[Note: article 10(4) of the IDD POG Regulation]

6The firm’s governing body responsible for insurance distribution activities must endorse and be ultimately responsible for establishing, implementing and reviewing the product distribution arrangements and continuously verify internal compliance with those arrangements.

[Note: article 10(5) of the IDD POG Regulation]

1. (1)

   6A firm must regularly review its product distribution arrangements to ensure that those arrangements are still valid and up to date. The firm must amend product distribution arrangements where appropriate.

2. (2)

   A firm that has set up or applies a specific distribution strategy must, where appropriate, amend that strategy in view of the outcome of the review of the product distribution arrangements. When reviewing its product distribution arrangements, a firm must verify that the insurance products are distributed to the identified target market.

3. (3)

   A firm must determine the appropriate intervals for the regular review of its product distribution arrangements, thereby taking into account the size, scale and complexity of the different insurance products involved.

4. (4)

   To support product reviews carried out by manufacturers, a firm must, upon request, provide manufacturers with relevant sales information, including, where appropriate, information on the regular reviews of the product distribution arrangements.

[Note: article 10(6) of the IDD POG Regulation]

3A firm must review its product distribution arrangements in relation to a non-investment insurance product at least every 12 months.

3For the purposes of PROD 4.3.10R6, a distributor must provide on request to a manufacturer of a non-investment insurance product:

1. (1)

   information on the distributor’s remuneration in connection with the distribution of the insurance product;

2. (2)

   information on any ancillary product or service that the distributor provides to the customer (including insurance add-ons, non-insurance additional products and retail premium finance), which may affect the manufacturer’s intended value of the insurance product; and

3. (3)

   confirmation that the distribution arrangements are consistent with the obligations of the firm under the FCA Handbook including in particular in SYSC 10 (Conflicts of interest) and SYSC 19F.2 (IDD remuneration incentives).

6A firm becoming aware that an insurance product is not in line with the interests, objectives and characteristics of its identified target market or becoming aware of other product-related circumstances that may adversely affect the customer must promptly inform the manufacturer manufacturer and, where appropriate, amend their distribution strategy for that insurance product.

[Note: article 11 of the IDD POG Regulation]

1. (1)

   3For a non-investment insurance product, a distributor must take appropriate remedial and mitigating action, including to amend its product distribution arrangements, where it identifies:

   1. (a)

      the insurance product (or, where relevant, the package) is not providing fair value for customers; or

   2. (b)

      any aspects of a product or package that may mean it does not offer fair value; or

   3. (c)

      the distribution arrangements including remuneration structures may mean the customer is not being provided with fair value.

2. (2)

   The actions which the distributor takes for (1) must:

   1. (a)

      aim to mitigate the situation and prevent further occurrences of any possible harm to customers, including, where appropriate, amending the distribution strategy for that product (and, where relevant, the package); and

   2. (b)

      include informing any relevant manufacturers promptly about any concerns they have and any action the distributor is taking.

6Relevant actions taken by a firm in relation to its product distribution arrangements must be duly documented, kept for audit purposes and made available to the FCA upon request.

[Note: article 12 of the IDD POG Regulation]

6A firm must set out the product distribution arrangements in a written document and make it available to its relevant staff.

[Note: second sub-paragraph of article 10(1) of the IDD POG Regulation]