The Insurance Distribution Directive: A Practical Guide
The insurance distribution regime sets the conduct standards for anyone selling, advising on or arranging insurance. It applies to brokers and intermediaries, and equally to firms whose main business is something else and which distribute insurance alongside it — a group that frequently does not realise it is caught.
This guide covers who is in scope, the core obligations, and the areas where firms most often fall short.
Who Is Caught
Insurance distribution covers advising on, proposing, arranging and concluding insurance contracts, and assisting with administration and performance including claims.
Dedicated brokers and intermediaries know they are in scope. The population that gets caught out is ancillary insurance intermediaries — firms whose principal business is not insurance but which distribute it as a complement to what they sell. Motor dealers, travel businesses, retailers offering extended warranty, equipment suppliers bundling cover. Exemptions exist for some limited situations, and they are narrower than firms assume.
The practical test worth applying is whether the business receives any benefit tied to insurance being taken up. If it does, scope should be confirmed rather than presumed.
The Customer’s Best Interests
The foundational obligation is to act honestly, fairly and professionally in accordance with the customer’s best interests. It runs through everything else and it is the standard against which conduct is judged when something has gone wrong.
It also interacts directly with the Consumer Duty, which raised expectations further for retail business. Firms that treated the insurance rules as a disclosure regime have generally found the Duty exposes the gap between disclosing and actually delivering good outcomes.
Demands and Needs
Before a contract is concluded the firm must specify the customer’s demands and needs on the basis of information obtained, and any contract proposed must be consistent with them.
This applies whether or not advice is given, which is the point firms most often miss. A non-advised sale still requires a demands and needs statement.
The failure pattern is familiar: a generic statement that describes the product rather than the customer. “This policy meets your demands and needs for motor insurance” records nothing about the customer and demonstrates nothing. A statement that works reflects what was actually established — the cover sought, the circumstances relevant to it, and why the product fits.
Where the sale is advised, a personal recommendation with an explanation of why the contract best meets the customer’s requirements is also required, and the two documents do different jobs.
Product Information and Disclosure
Customers must receive standardised product information in good time before conclusion, covering the main cover, exclusions, obligations and duration in a clear and accessible form.
Firms must also disclose their own position: identity, whether advice is given, the nature of remuneration, and whether the firm acts for the customer or the insurer. Remuneration disclosure is required in broad terms rather than as a precise figure in all cases, and firms vary considerably in how clearly they handle it.
“In good time before conclusion” is doing real work in that sentence. Documents provided at the point of purchase, or afterwards, do not allow a customer to make an informed decision, and timing is one of the easier things for a reviewer to test.
Product Oversight and Governance
Manufacturers must operate a product approval process, identify a target market, assess risks to that market and review products periodically. Distributors must understand the products they distribute, understand the identified target market, and have distribution arrangements consistent with it.
Distributors frequently treat this as the manufacturer’s obligation. It is not. A distributor that cannot describe the target market for a product it sells, or that has distribution arrangements plainly inconsistent with it, has its own failing regardless of what the manufacturer did.
This connects directly to fair value. A distributor adding remuneration to a product needs to consider whether the product still represents fair value to the customer with that remuneration included, which has been a sustained area of regulatory focus.
Professional and Organisational Requirements
Employees involved in distribution must possess appropriate knowledge and ability, and must complete a minimum of continuing professional training and development each year.
The hours requirement is specific, the content must be relevant to the role, and records must be kept. Firms generally know this and the common failures are mundane: training logged without evidence of what it covered, content that is the same every year regardless of regulatory change, and no link between the training and the individual’s actual role.
This sits alongside the wider competence framework, and our guide to training and competence covers how the two fit together.
Claims and the Point It Matters Most
Distribution obligations do not stop at the sale. Assisting with administration and performance of contracts, including claims, falls within scope, and it is where customers form their view of whether the product was worth having.
Where a firm has any role in the claims journey — notification, assistance, chasing an insurer on a customer’s behalf — the best interests obligation applies to that work as much as to the original sale. Firms that handle sales carefully and treat claims as administration have the proportions the wrong way round.
Claims data is also the most honest evidence available about whether a product performs as the target market was told. A product with a high decline rate or persistent complaints is telling the distributor something about fair value, and a distributor that collects that data without acting on it has identified the problem without responding to it.
Renewals
Renewals carry their own requirements and are the area where distributors most often operate on autopilot.
Demands and needs do not freeze at the point of first sale. A customer’s circumstances change, and a renewal presented on the basis of an assessment made three years ago may no longer be consistent with what they now need. Where the firm has information suggesting the position has moved, acting on it is part of the obligation rather than an optional service.
Price presentation at renewal has been a sustained area of regulatory attention, and firms should be able to explain their approach rather than rely on a system default inherited from an insurer.
Where Firms Fall Short
Five patterns recur in reviews of insurance distributors.
Generic demands and needs statements that describe the product rather than the customer. Information provided too late to inform the decision. Distributors unable to articulate the target market for products they sell. Remuneration disclosure that is technically present and practically invisible. And CPD records that log hours without evidencing relevance.
None of these require expensive remediation. All of them require someone to own the area and test it rather than assume it.
Who Owns It
Insurance distribution compliance sits with the Compliance Oversight function, and the sector-specific knowledge genuinely matters.
Insurance distribution has its own vocabulary, its own product governance expectations and its own supervisory history. A compliance officer from banking or investments will understand the principles and will not know where the sector’s problems have historically been found. For firms recruiting in this space, sector experience is worth weighting heavily — it is one of the clearer cases where the same job title covers genuinely different knowledge.
We recruit compliance leadership for insurance intermediaries through insurance compliance recruitment, on permanent, fractional and interim bases.
Frequently Asked Questions
Do we need a demands and needs statement on non-advised sales?
Yes. The requirement applies whether or not advice is given; what differs is that advised sales additionally require a personal recommendation.
Does this apply if insurance is not our main business?
Frequently yes. Ancillary insurance intermediaries are caught unless a narrow exemption applies, and firms should confirm their position rather than assume.
Do distributors have product governance obligations?
Yes. Distributors must understand the product and its target market and ensure distribution arrangements are consistent with it.
How much CPD is required?
A specified minimum each year, which must be relevant to the role and evidenced. Logged hours without relevant content do not satisfy it.
Hiring for compliance?
We place the people who own this function
Compliance Oversight holders on a permanent, part-time, fractional and interim basis. Tell us what the firm does and we will give you an honest view on what the role actually needs.
Related guides and services
Practice area
Wider compliance
About the author
Adrian Lawrence FCA
Adrian is the founder and Managing Director of FD Capital. A Chartered Accountant and ICAEW Fellow, he became a finance director at 28 and has spent more than 25 years at C-suite level, including as finance director of a listed company and of a private equity backed management buy-out. Every search is run by our specialist team, with Adrian overseeing each mandate.
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