The Insurance Distribution Directive came into force on 1 October 2018. It impacts on law firms to the extent that they sell insurance products to their clients in relation to activities such as conveyancing (e.g. defective title insurance), personal injury (e.g. after the event insurance) and probate (e.g. missing beneficiary insurance). The IDD replaces the Insurance Mediation Directive (IMD) and imposes some additional requirements on law firms that engage in this activity.
Law firms that are involved in the sale of insurance products, such as those described above, continue to be treated as as “Exempt Professional Firms” (EPFs). Under the new IDD they are now also classified as “Ancilliary Insurance Intermediaries” (AIIs) in relation to this activity. Firms will already be registered with the SRA (which is a Designated Professional Body under the Financial Services and Markets Act 2000), if they have undertaken activities under the old IMD regime, but they will need to review their practices and procedures and make changes to ensure that they comply with the new requirements of the IDD.
The SRA consulted on the required changes to the Handbook and the relevant rules last year. However the final version of the rules together with relevant guidance notes, were only published on the SRA website on 27 September. The links to the SRA Guidance note and the Rules are as follows:
While the new IDD has been on the horizon for some months, and implementation was delayed from 23 February 2018 to 1 October 2018, the last minute publication of both the Guidance note and the new Rules by the SRA appears to have caused a “knock on” delay in firms undertaking a review of what they need to do. There are limited “law firm specific” resources and in our opinion the best option is for firms to set aside some time to examine their existing practices alongside the new Rules. It is Appendix One of the Rules to which firms will need to pay particular attention. Fortunately the Rules are not particularly lengthy and it should not be difficult for firms to identify what needs to be changed or added to the existing procedures they have. To the extent that firms have queries, the Ethics Team at the SRA is offering additional guidance, and in our view that is the appropriate place to start. The “Risk and Compliance Service” of the Law Society has also published an article on the issue, however you have to be a member of the Service to access a copy. If any firms are a member then this could be useful as it is “law firm specific”. The article is available through the following link: http://communities.lawsociety.org.uk/risk-and-compliance/features/insurance-distribution-directive-ready-or-not/5065952.fullarticle
Some firms have queried whether the requirements of the IDD impacts on their own Professional Indemnity Insurance (PII) in any way. This may have been prompted by a reference in the SRA Guidance note to a requirement that firms have qualifying PII. This is no more than the standard Minimum Terms and Conditions cover that all SRA regulated firms already have. PI insurers are already aware that law firms engage in the sale of insurance products with reference to certain areas of practice so this is not a new activity from a risk perspective. The IDD simply involves a change in the rules that govern the process. It is not a new area of work. However we cannot rule out the possibility that at the next renewal PI insurers might seek for confirmation that a firm complies with the IDD. It is therefore important that firms are in a position to give a clear and positive answer on this.