ICOBS Insurance: Conduct of Business sourcebook

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ICOBS 1

Application

ICOBS 1.1

The general application rule

06/01/2008

The general application rule

ICOBS 1.1.1

This sourcebook applies to a firm with respect to the following activities carried on in relation to a non-investment insurance contract from an establishment maintained by it, or its appointed representative, in the United Kingdom:

(1) an insurance mediation activity;
(2) effecting and carrying out contracts of insurance;
(3) managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's;
(4) communicating or approving a financial promotion;
and activities connected with them.

06/01/2008

Modifications to the general application rule

ICOBS 1.1.2

The general application rule is modified in ICOBS 1 Annex 1 according to the type of firm (Part 1), its activities (Part 2), and its location (Part 3).

06/01/2008

ICOBS 1.1.3

The general application rule is also modified in the chapters of this sourcebook for particular purposes, including those relating to the type of firm, its activities or location, and for purposes relating to connected activities.

06/01/2008

Guidance

ICOBS 1.1.4

Guidance on the application provisions is in ICOBS 1 Annex 1 (Part 4).

06/01/2008

ICOBS 1 Annex 1

Application (see ICOBS 1.1.2 R)

06/01/2008

Part 1: Who?

Modifications to the general application rule according to type of firm

Third party processors

1.1

(1)

This rule applies where a firm (or its appointed representative) ("A") has outsourced insurance mediation activities to a third party processor.

(2)

Any rule in this sourcebook which requires the third party processor, when acting as such, to disclose its identity to a customer must be read as applying to the third party processor only to the extent that it applies to A and as requiring disclosure of A's identity.

Managing agents

2.1

(1)

References to an insurer apply equally to a managing agent unless the context requires otherwise.

(2)

A managing agent must give effect to the policy that a consumer must, where required by this sourcebook, be offered cancellation rights.

(3)

References to managing agents in this sourcebook relate to their functions in managing the obligations of a member in his capacity as such.

Authorised professional firms

3.1

This sourcebook (except for ICOBS 4.6) does not apply to an authorised professional firm with respect to its non-mainstream regulated activities except for:

(1)

the provisions on communications to clients and financial promotions (see ICOBS 2.2);

(2)

the e-commerce provisions (ICOBS 3.2);

(3)

status disclosure requirements in relation to complaints procedures (see ICOBS 4.1); and

(4)

provisions implementing articles 12 and 13 of the Insurance Mediation Directive (see ICOBS 4.1, ICOBS 5.2 and ICOBS 5.3.3 R), except to the extent that the firm is subject to equivalent rules of its designated professional body approved by the FSA.

3.2

Compliance with provisions of the Distance Marketing Directive is dealt with in the Professional Firms sourcebook (see PROF 5.4).

Appointed representatives

4.1

(1)

An insurer must ensure that its appointed representative complies with this sourcebook as it applies to an insurance intermediary.

(2)

However, if the appointed representative is acting as the insurer's third party processor then:

(a)

this rule is subject to the third party processors rule (see paragraph 1.1R); and

(b)

the insurer is not required to ensure that the appointed representative complies with the rules in this sourcebook on commission disclosure (see ICOBS 4.4) or, unless they apply to an insurer, the rules on statements of demands and needs (see ICOBS 5.2).

4.2

The cancellation requirements in chapter 7 do not apply to a distance contract entered into by an appointed representative to provide mediation services. Regulations 9 (Right to cancel) to 13 (Payment for services provided before cancellation) of the Distance Marketing Regulations apply instead.

Service companies

5.1

This sourcebook does not apply to a service company, except for the provisions on communications to clients and financial promotions (see ICOBS 2.2).

Lloyd's

6.1

The Society must ensure that no member carries on motor vehicle liability insurance business at Lloyd's unless a claims representative has been appointed to act for that member in each EEA State other than the United Kingdom, with responsibility for handling and settling a claim by an injured party. Otherwise, this sourcebook does not apply to the Society.

Part 2: What?

Modifications to the general application rule according to activities

Reinsurance

1.1

This sourcebook does not apply to activities carried on in relation to a reinsurance contract.

[Note: article 12(4) of the Insurance Mediation Directive]

Contracts of large risks

2.1

Subject to Part 3 of this Annex, this sourcebook does not apply to an insurance intermediary mediating a contract of large risks:

(1)

where the risk is located outside the European Economic Area; or

(2)

for a commercial customer where the risk is located within the European Economic Area.

[Note: article 12(4) of the Insurance Mediation Directive]

2.2

Principle 7 continues to apply so a firm should provide evidence of cover promptly after inception of a policy to its customer. In respect of a group policy, a firm should provide information to its customer to pass on to other policyholders and should tell the customer that he should give the information to each policyholder.

Pure protection contracts: election to apply COBS rules

3.1

(1)

This sourcebook does not apply in relation to a pure protection contract to the extent that a firm has elected to comply with the Conduct of Business sourcebook (COBS) in respect of such business.

(2)

Within the scope of such an election, a firm must comply with the rest of the Handbook, treating the pure protection contract as a life policy and a designated investment, and not as a non-investment insurance contract.

(3)

A firm must make, and retain indefinitely, a record in a durable medium of such an election (and any reversal or amendment). The record must include the effective date and a precise description of the part of the firm's business to which the election applies.

Chains of insurance intermediaries

4.1

Where there is a chain of insurance intermediaries between the insurer and the customer, this sourcebook applies only to the insurance intermediary in contact with the customer.

Part 3: Where?

Modifications to the general rule of application according to location

EEA territorial scope rule: compatibility with European law

1.1

(1)

The territorial scope of this sourcebook is modified to the extent necessary to be compatible with European law (see Part 4 for guidance on this).

(2)

This rule overrides any other rule in this sourcebook.

1.2

In addition to the EEA territorial scope rule, the effect of the E-Commerce Directive on territorial scope is applied in the fields covered by the 'derogations' in the Annex to that Directive other than the 'insurance derogation' in the fourth indent (see paragraph 8 of Part 4 for guidance on this).

[Note: article 3(3) of, and Annex to, the E-Commerce Directive]

Exemption for insurers: business with non-EEA customers via non-UK intermediaries

2.1

This sourcebook does not apply to an insurer if:

(1)

the intermediary (whether or not an insurance intermediary) in contact with the customer is not established in the United Kingdom; and

(2)

the customer is not habitually resident in, and, if applicable, the State of the risk is outside, an EEA State.

Exemption for insurers: business with non-UK EEA customers

3.1

A rule in this sourcebook which goes beyond the minimum required by EU legislation does not apply to an insurer if the customer is habitually resident in (and, if applicable, the State of the risk is) an EEA State other than the United Kingdom, to the extent that the EEA State in question imposes measures of like effect.

Part 4: Guidance

The main extensions and restrictions to the general application rule

1.1

The general application rule is modified in Parts 1 to 3 of this Annex and in certain chapters of this sourcebook.

1.2

The provisions of the Single Market Directives and other directives also extensively modify the general application rule, particularly in relation to territorial scope. However, for the majority of circumstances, the general application rule is likely to apply.

The Single Market Directives and other directives

2.1

This guidance provides a general overview only and is not comprehensive.

2.2

When considering the impact of a directive on the territorial application of a rule, a firm will first need to consider whether the relevant situation involves a non-UK element. The EEA territorial scope rule is unlikely to apply if a UK firm is doing business from a UK establishment for a client located in the United Kingdom in relation to a UK product. However, if there is a non-UK element, the firm should consider whether:

(1)

it is subject to the directive;

(2)

the business it is performing is subject to the directive; and

(3)

the particular rule is within the scope of the directive.

If the answer to all three questions is 'yes', the EEA territorial scope rule may change the effect of the general application rule.

2.3

When considering a particular situation, a firm should also consider whether two or more directives apply.

Insurance Mediation Directive: effect on territorial scope

3.1

The Insurance Mediation Directive's scope covers most firms carrying on most types of insurance mediation. The rules in this sourcebook within the Directive's scope are those that require the provision of pre-contract information or the provision of advice on the basis of a fair analysis (see ICOBS 4 (Information about the firm, its services and remuneration), ICOBS 5.2 (Statement of demands and needs), ICOBS 5.3.3 R (Advice on the basis of a fair analysis) and ICOBS 6 (Product information)).

3.2

The rules implementing the minimum information and other requirements in articles 12 and 13 of the Directive are set out in ICOBS 4.1 (General requirements for insurance intermediaries), ICOBS 5.2 (Statement of demands and needs) and ICOBS 5.3.3 R (Advice on the basis of a fair analysis).

3.3

In the FSA's view, the responsibility for these minimum requirements rests with the Home State, but a Host State is entitled to impose additional requirements within the Directive's scope in the 'general good'. (See recital 19 to and article 12(5) of the Insurance Mediation Directive.) Accordingly, the general rules on territorial scope are modified so that:

(1)

for a UK firm providing passported activities through a branch in another EEA State under the Directive, the rules implementing the Directive's minimum requirements apply, but the territorial scope of the additional rules within the Directive's scope is not modified;

(2)

for an EEA firm providing passported activities under the Directive in the United Kingdom, the rules implementing the Directive's minimum requirements do not apply, but the additional rules within the Directive's scope have their unmodified territorial scope unless the Home State imposes measures of like effect; and

(3)

an EEA firm acting as the principal of an appointed representative is required to ensure that its appointed representative complies with this sourcebook as it applies to a UK firm that is an authorised person.

Non-Life Directives: effect on territorial scope

4.1

The Non-Life Directives' scope covers insurers authorised under those Directives conducting general insurance business.

4.2

The rules in this sourcebook within the Directives' scope are those requiring the provision of pre-contract information or information during the term of the contract concerning the insurer or the insurance contract (see ICOBS 2.2 (Communications to clients and financial promotions), ICOBS 4 (Information about the firm, its services and remuneration), ICOBS 6 (Product information) and ICOBS 8 (Claims handling) except ICOBS 8.2 (Motor vehicle liability insurers)).

4.3

The Directives specify minimum information requirements and permit EEA States to adopt additional mandatory rules. (See article 7 of the Second Non-Life Directive)

4.4

If the State of the risk is an EEA State, the Directives provide that the applicable information rules shall be determined by that state. Accordingly, if the State of the risk is the United Kingdom, the relevant rules in this sourcebook apply. Those rules do not apply if the State of the risk is another EEA State. The territorial scope of other rules, in particular the financial promotion rules, is not affected since the Directives explicitly permit EEA States to apply rules, including advertising rules, in the 'general good'. (See articles 28 and 41 of the Third Non-Life Directive)

Consolidated Life Directive: effect on territorial scope

5.1

The Consolidated Life Directive's scope covers long-term insurers authorised under that Directive conducting long-term insurance business.

5.2

The rules in this sourcebook within the Directive's scope are the cancellation rules (see ICOBS 7) and those rules requiring the provision of pre-contract information or information during the term of the contract concerning the insurer or the contract of insurance (see ICOBS 2.2 (Communications to clients and financial promotions), ICOBS 4 (Information about the firm, its services and remuneration), ICOBS 6 (Product information) and ICOBS 8 (Claims handling) except ICOBS 8.2 (Motor vehicle liability insurers)).

5.3

The Directive specifies minimum information and cancellation requirements and permits EEA States to adopt additional information requirements that are necessary for a proper understanding by the policyholder of the essential elements of the commitment.

5.4

If the State of the commitment is an EEA State, the Directive provides that the applicable information rules and cancellation rules shall be determined by that state. Accordingly, if the State of the commitment is the United Kingdom, the relevant rules in this sourcebook apply. Those rules do not apply if the State of the commitment is another EEA State. The territorial scope of other rules, in particular the financial promotion rules, is not affected since the Directive explicitly permits EEA States to apply rules, including advertising rules, in the 'general good'. (See articles 33, 35, 36 and 47 of the Consolidated Life Directive)

Motor Insurance Directives: effect on territorial scope

6.1

The scope of the Fourth Motor Insurance Directive and Fifth Motor Insurance Directive covers insurers conducting motor vehicle liability insurance business. The rules in this sourcebook within the Directives' scope are those regarding the appointment of claims representatives and handling of claims by injured parties (see ICOBS 8.4).

6.2

The Directives require a motor vehicle liability insurer to appoint a claims representative in each EEA State other than its Home State. They specify minimum requirements regarding function and powers of claims representatives in handling claims and regarding the settlement of claims by injured parties.

6.3

The Directives' provisions apply to motor vehicle liability insurers for which the United Kingdom is the Home State. (See article 4 of the Fourth Motor Insurance Directive).

Distance Marketing Directive: effect on territorial scope

7.1

In broad terms, a firm is within the Distance Marketing Directive's scope when conducting an activity relating to a distance contract with a consumer. The rules in this sourcebook within the Directive's scope are those requiring the provision of pre-contract information (see ICOBS 2.2 ((Communications to clients and financial promotions), ICOBS 4 (Information about the firm, its services and remuneration) and ICOBS 6 (Product information)), the cancellation rules (see ICOBS 7) and the other specific rules implementing the Directive (see ICOBS 3.1).

7.2

In the FSA's view, the Directive places responsibility for requirements within the Directive's scope on the Home State except in relation to business conducted through a branch, in which case the responsibility rests with the EEA State in which the branch is located (this is sometimes referred to as a 'country of origin' or 'country of establishment' basis). (See article 16 of the Distance Marketing Directive)

7.3

This means that relevant rules in this sourcebook will, in general, apply to a firm conducting business within the Directive's scope from an establishment in the United Kingdom (whether the firm is a national of the United Kingdom or of any other EEA State or non-EEA state).

7.4

Conversely, the territorial scope of the relevant rules in this sourcebook is modified as necessary so that they do not apply to a firm conducting business within the Directive's scope from an establishment in another EEA State if the firm is a national of the United Kingdom or of any other EEA State.

7.5

In the FSA's view:

(1)

the 'country of origin' basis of the Directive is in line with that of the E-Commerce Directive; (see recital 6 to the Distance Marketing Directive)

(2)

for business within the scope of both the Distance Marketing Directive and the Consolidated Life Directive, the territorial application of the Distance Marketing Directive takes precedence; in other words, the rules requiring pre-contract information and cancellation rules derived from the Consolidated Life Directive apply on a 'country of origin' basis rather than being based on the State of the commitment; (see articles 4(1) and 16 of the Distance Marketing Directive noting that the Distance Marketing Directive was adopted after the Consolidated Life Directive)

(3)

for business within the scope of both the Distance Marketing Directive and the Insurance Mediation Directive, the minimum information and other requirements in the Insurance Mediation Directive continue to be those applied by the Home State, but the minimum requirements in the Distance Marketing Directive and any additional pre-contract information requirements are applied on a 'country of origin' basis. (The basis for this is that the Insurance Mediation Directive was adopted after the Distance Marketing Directive and is not expressed to be subject to it.)

Electronic Commerce Directive: effect on territorial scope

8.1

The E-Commerce Directive's scope covers every firm carrying on an electronic commerce activity. Every rule in this sourcebook is within the Directive's scope.

8.2

A key element of the Directive is the ability of a person from one EEA State to carry on an electronic commerce activity freely into another EEA State. Accordingly, the territorial application of the rules in this sourcebook is modified so that they apply at least to a firm carrying on an electronic commerce activity from an establishment in the United Kingdom with or for a person in the United Kingdom or another EEA State.

8.3

Conversely, a firm that is a national of the United Kingdom or another EEA State, carrying on an electronic commerce activity from an establishment in another EEA State with or for a person in the United Kingdom, need not comply with the rules in this sourcebook. (See article 3(1) and (2) of the E-Commerce Directive)

8.4

The effect of the Directive on this sourcebook is subject to the 'insurance derogation', which is the only 'derogation' in the Directive that the FSA has adopted for this sourcebook. The derogation applies to an insurer that is authorised under, and carrying on an electronic commerce activity within, the scope of the Insurance Directives and permits EEA States to continue to apply their advertising rules in the 'general good'.

8.5

Where the derogation applies, the rules on financial promotion continue to apply for incoming electronic commerce activities (unless the firm's 'country of origin' applies rules of like effect), but do not apply for outgoing electronic commerce activities. (See article 3(3) and Annex, fourth indent of the E-Commerce Directive; Annex to European Commission Discussion Paper MARKT/2541/03)

8.6

In the FSA's view, the Directive's effect on the territorial scope of this sourcebook (including the use of the 'insurance derogation'):

(1)

is in line with the Distance Marketing Directive;

(2)

overrides that of any other Directive discussed in this Annex to the extent that it is incompatible.

8.7

The 'derogations' in the Directive may enable other EEA States to adopt a different approach to the United Kingdom in certain fields. (See recital 19 to the Insurance Mediation Directive, recital 6 to the Distance Marketing Directive, article 3 of, and the Annex to, the E-Commerce Directive)

Export chapter as

ICOBS 2

General matters

ICOBS 2.1

Client categorisation

06/01/2008

Introduction

ICOBS 2.1.1

Different provisions in this sourcebook may apply depending on the type of person with whom a firm is dealing:

(1) A policyholder includes anyone who, upon the occurrence of the contingency insured against, is entitled to make a claim directly to the insurance undertaking.
(2) Only a policyholder or a prospective policyholder who makes the arrangements preparatory to him concluding a contract of insurance (directly or through an agent) is a customer. In this sourcebook, customers are either consumers or commercial customers.
(3) A consumer is any natural person who is acting for purposes which are outside his trade or profession.
(4) A commercial customer is a customer who is not a consumer.

06/01/2008

Customer to be treated as consumer when status uncertain

ICOBS 2.1.2

If it is not clear in a particular case whether a customer is a consumer or a commercial customer, a firm must treat the customer as a consumer.

06/01/2008

Customer covered in both a private and business capacity

ICOBS 2.1.3

If a customer is acting in the capacity of both a consumer and a commercial customer in relation to a particular contract of insurance, the customer is a commercial customer.

06/01/2008

Customer classification examples

ICOBS 2.1.4

In practice, private individuals may act in a number of capacities. The following table sets out a number of examples of how an individual acting in certain capacities should, in the FSA's view, be categorised.

Customer classification examples

Capacity

Classification

Personal representatives, including executors, unless they are acting in a professional capacity, for example, a solicitor acting as executor.

Consumer

Private individuals acting in personal or other family circumstances, for example, as trustee of a family trust.

Consumer

Trustee of a trust such as a housing or NHS trust.

Commercial customer

Member of the governing body of a club or other unincorporated association such as a trade body and a student union.

Commercial customer

Pension trustee.

Commercial customer

Person taking out a policy covering property bought under a buy-to-let mortgage.

Commercial customer

Partner in a partnership when taking out insurance for purposes related to his profession.

Commercial customer

06/01/2008

ICOBS 2.2

Communications to clients and financial promotions

06/01/2008

Application

ICOBS 2.2.1

In addition to the general application rule for this sourcebook, this section applies to the communication, or approval for communication, to a person in the United Kingdom of a financial promotion of a non-investment insurance contract unless it can lawfully be communicated by an unauthorised communicator without approval.

06/01/2008

Clear, fair and not misleading rule

ICOBS 2.2.2

When a firm communicates information, including a financial promotion, to a customer or other policyholder, it must take reasonable steps to communicate it in a way that is clear, fair and not misleading.

06/01/2008

Approving financial promotions

ICOBS 2.2.3

(1) Before a firm approves a financial promotion it must take reasonable steps to ensure that the financial promotion is clear, fair and not misleading.
(2) If, subsequently, a firm becomes aware that a financial promotion is not clear, fair and not misleading, it must withdraw its approval and notify any person that it knows to be relying on its approval as soon as reasonably practicable.

06/01/2008

Pricing claims: guidance on the clear, fair and not misleading rule

ICOBS 2.2.4

(1) This guidance applies in relation to a financial promotion that makes pricing claims, including financial promotions that indicate or imply that a firm can reduce the premium, provide the cheapest premium or reduce a customer's costs.
(2) Such a financial promotion should:

(a) be consistent with the result reasonably expected to be achieved by the majority of customers who respond, unless the proportion of those customers who are likely to achieve the pricing claims is stated prominently;
(b) state prominently the basis for any claimed benefits and any significant limitations; and
(c) comply with other relevant legislative requirements, including The Control of Misleading Advertisements Regulations 1988.

06/01/2008
Future version of ICOBS 2.2.4 after 01/01/2011

ICOBS 2.3

Inducements

06/01/2008

ICOBS 2.3.1

(1) Principle 8 requires a firm to manage conflicts of interest fairly, both between itself and its customers and between a customer and another client. This principle extends to soliciting or accepting inducements where this would conflict with a firm's duties to its customers. A firm that offers such inducements should consider whether doing so conflicts with its obligations under Principles 1 and 6 to act with integrity and treat customers fairly.
(2) An inducement is a benefit offered to a firm, or any person acting on its behalf, with a view to that firm, or that person, adopting a particular course of action. This can include, but is not limited to, cash, cash equivalents, commission, goods, hospitality or training programmes.

06/01/2008

ICOBS 2.4

Record-keeping

06/01/2008

ICOBS 2.4.1

(1) The Senior Management Arrangements, Systems and Controls sourcebook contains high-level record-keeping requirements (see SYSC 3.2.20 R). These require firms to take reasonable care to make and retain adequate records of matters and dealings which are the subject of requirements and standards under the regulatory system, which includes this sourcebook.
(2) This sourcebook does not generally have detailed record-keeping requirements: firms will need to decide what records they need to keep in line with the high-level record-keeping requirements and their own business needs.
(3) Firms should bear in mind the need to deal with requests for information from the FSA as well as queries and complaints from customers which may require evidence of matters such as:

(a) the reasons for personal recommendations;
(b) what documentation has been provided to a customer; and
(c) how claims have been settled and why.

06/01/2008
Future version of ICOBS 2.4.1 after 01/10/2011

ICOBS 2.5

Exclusion of liability and reliance on others

06/01/2008

Exclusion of liability

ICOBS 2.5.1

A firm must not seek to exclude or restrict, or rely on any exclusion or restriction of, any duty or liability it may have to a customer or other policyholder unless it is reasonable for it to do so and the duty or liability arises other than under the regulatory system.

06/01/2008

ICOBS 2.5.2

The general law, including the Unfair Terms Regulations, also limits the scope for a firm to exclude or restrict any duty or liability to a consumer.

06/01/2008

Reliance on others

ICOBS 2.5.3

(1) Where it is compatible with the nature of the obligation imposed by a particular rule and with the Principles, in particular Principles 1 (Integrity), 2 (Skill, care and diligence) and 3 (Management and control), firms may rely on third parties in order to comply with the rules in this sourcebook.
(2) For example, where a rule requires a firm to take reasonable steps to achieve an outcome, it will generally be reasonable for a firm to rely on information provided to it in writing by an unconnected authorised person or a professional firm, unless it is aware or ought reasonably to be aware of any fact that would give reasonable grounds to question the accuracy of that information. However, a firm cannot delegate its responsibility under the regulatory system. For example, where a rule imposes an absolute obligation (such as the requirement for an insurer to handle claims promptly and fairly) although a firm could use outsourcing arrangements to fulfil its obligation, it retains regulatory responsibility for achieving the outcome required.

06/01/2008

Export chapter as

ICOBS 3

Distance communications

ICOBS 3.1

Distance marketing

06/01/2008

Application

ICOBS 3.1.1

This section applies to a firm that carries on any distance marketing activity from an establishment in the United Kingdom, with or for a consumer in the United Kingdom or another EEA State.

06/01/2008

Guidance on the Distance Marketing Directive

ICOBS 3.1.2

Guidance on expressions derived from the Distance Marketing Directive and on the Directive's application in the context of insurance mediation activity can be found in ICOBS 3 Annex 1 G.

06/01/2008

The distance marketing disclosure rules

ICOBS 3.1.3

A firm must provide a consumer with the distance marketing information (ICOBS 3 Annex 2 R) in good time before conclusion of a distance contract.

[Note: article 3(1) of the Distance Marketing Directive]

06/01/2008

ICOBS 3.1.4

The rules setting out the responsibilities of insurers and insurance intermediaries for producing and providing information apply to requirements in this section to provide information (see ICOBS 6.1.1 R).

06/01/2008

ICOBS 3.1.5

A firm must ensure that the distance marketing information, the commercial purpose of which must be made clear, is provided in a clear and comprehensible manner in any way appropriate to the means of distance communication used, with due regard, in particular, to the principles of good faith in commercial transactions, and the legal principles governing the protection of those who are unable to give their consent, such as minors.

[Note: article 3(2) of the Distance Marketing Directive]

06/01/2008

ICOBS 3.1.6

When a firm makes a voice telephony communication to a consumer, it must make its identity and the purpose of its call explicitly clear at the beginning of the conversation.

[Note: article 3(3)(a) of the Distance Marketing Directive]

06/01/2008

ICOBS 3.1.7

A firm must ensure that the information on contractual obligations to be communicated to a consumer during the pre-contractual phase is in conformity with the contractual obligations which would result from the law presumed to be applicable to the distance contract if that contract is concluded.

[Note: article 3(4) of the Distance Marketing Directive]

06/01/2008

Terms and conditions, and form

ICOBS 3.1.8

A firm must communicate to the consumer all the contractual terms and conditions and the information referred to in the distance marketing disclosure rules in writing or another durable medium available and accessible to the consumer in good time before conclusion of any distance contract.

[Note: article 5(1) of the Distance Marketing Directive]

06/01/2008

ICOBS 3.1.9

A firm will provide or communicate information or contractual terms and conditions to a consumer if another person provides or communicates it to the consumer on its behalf.

06/01/2008

Commencing performance of the distance contract

ICOBS 3.1.10

The performance of the distance contract may only begin after the consumer has given his approval.

[Note: article 7(1) of the Distance Marketing Directive]

06/01/2008

Exception: distance contract as a stage in the provision of another service

ICOBS 3.1.11

This section does not apply to a distance contract to act as insurance intermediary, if the distance contract is concluded merely as a stage in the provision of another service by the firm or another person.

[Note: recital 19 to the Distance Marketing Directive]

06/01/2008

Exception: successive operations

ICOBS 3.1.12

In the case of a distance contract comprising an initial service agreement, followed by successive operations or a series of separate operations of the same nature performed over time, the rules in this section only apply to the initial agreement.

[Note: article 1(2) of the Distance Marketing Directive]

06/01/2008

ICOBS 3.1.13

If there is no initial service agreement but the successive operations or separate operations of the same nature performed over time are performed between the same contractual parties, the distance marketing disclosure rules will only apply:

(1) when the first operation is performed; and
(2) if no operation of the same nature is performed for more than a year, when the next operation is performed (the next operation being deemed to be the first in a new series of operations).

[Note: recital 16 and article 1(2) of the Distance Marketing Directive]

06/01/2008

Exception: voice telephony communications

ICOBS 3.1.14

(1) In the case of a voice telephony communication, and subject to the explicit consent of the consumer, only the abbreviated distance marketing information (ICOBS 3 Annex 3 R) needs to be provided during that communication.
(2) However, unless another exemption applies (such as the exemption for means of distance communication not enabling disclosure) a firm must still provide the distance marketing information (ICOBS 3 Annex 2 R) in writing or another durable medium available and accessible to the consumer in good time before conclusion of any distance contract.

[Note: articles 3(3)(b) and 5(1) of the Distance Marketing Directive]

06/01/2008

Exception: Means of distance communication not enabling disclosure

ICOBS 3.1.15

A firm may provide the distance marketing information (ICOBS 3 Annex 2 R) and the contractual terms and conditions in writing or another durable medium immediately after the conclusion of a distance contract, if the contract has been concluded at a consumer's request using a means of distance communication that does not enable the provision of that information in that form in good time before conclusion of any distance contract.

[Note: article 5(2) of the Distance Marketing Directive]

06/01/2008

Consumer's right to request paper copies and change the means of communication

ICOBS 3.1.16

At any time during the contractual relationship the consumer is entitled, at his request, to receive the contractual terms and conditions on paper. The consumer is also entitled to change the means of distance communication used unless this is incompatible with the contract concluded or the nature of the service provided.

[Note: article 5(3) of the Distance Marketing Directive]

06/01/2008

Unsolicited services

ICOBS 3.1.17

(1) A firm must not enforce, or seek to enforce, any obligations under a distance contract against a consumer, in the event of an unsolicited supply of services, the absence of reply not constituting consent.
(2) This rule does not apply to the tacit renewal of a distance contract.

[Note: article 9 of the Distance Marketing Directive]

06/01/2008

Mandatory nature of consumer's rights

ICOBS 3.1.18

If a consumer purports to waive any of the consumer's rights created or implied by the rules in this section, a firm must not accept that waiver, nor seek to rely on or enforce it against the consumer.

[Note: article 12 of the Distance Marketing Directive]

06/01/2008

ICOBS 3.1.19

If a firm proposes to enter into a distance contract with a consumer that will be governed by the law of a country outside the EEA, the firm must ensure that the consumer will not lose the protection created by the rules in this section if the distance contract has a close link with the territory of one or more EEA States.

[Note: articles 12 and 16 of the Distance Marketing Directive]

06/01/2008

ICOBS 3.2

E-Commerce

06/01/2008

Application

ICOBS 3.2.1

This section applies to a firm carrying on an electronic commerce activity from an establishment in the United Kingdom, with or for a person in the United Kingdom or another EEA State.

06/01/2008

Information about the firm and its products or services

ICOBS 3.2.2

A firm must make at least the following information easily, directly and permanently accessible to the recipients of the information society services it provides:

(1) its name;
(2) the geographic address at which it is established;
(3) the details of the firm, including its e-mail address, which allow it to be contacted and communicated with in a direct and effective manner;
(4) an appropriate statutory status disclosure statement (GEN 4 Annex 1 R), together with a statement which explains that it is on the FSA register and includes its FSA register number;
(5) if it is a professional firm, or a person regulated by the equivalent of a designated professional body in another EEA State:

(a) the name of the professional body (including any designated professional body) or similar institution with which it is registered;
(b) the professional title and the EEA State where it was granted;
(c) a reference to the applicable professional rules in the EEA State of establishment and the means to access them; and

(6) where the firm undertakes an activity that is subject to VAT, its VAT number.

[Note: article 5(1) of the E-Commerce Directive]

06/01/2008

ICOBS 3.2.3

If a firm refers to price, it must do so clearly and unambiguously, indicating whether the price is inclusive of tax and delivery costs.

[Note: article 5(2) of the E-Commerce Directive]

06/01/2008

ICOBS 3.2.4

A firm must ensure that commercial communications which are part of, or constitute, an information society service, comply with the following conditions:

(1) the commercial communication must be clearly identifiable as such;
(2) the person on whose behalf the commercial communication is made must be clearly identifiable;
(3) promotional offers must be clearly identifiable as such, and the conditions that must be met to qualify for them must be easily accessible and presented clearly and unambiguously; and
(4) promotional competitions or games must be clearly identifiable as such, and the conditions for participation must be easily accessible and presented clearly and unambiguously.

[Note: article 6 of the E-Commerce Directive]

06/01/2008

ICOBS 3.2.5

An unsolicited commercial communication sent by e-mail by a firm established in the United Kingdom must be identifiable clearly and unambiguously as an unsolicited commercial communication as soon as it is received by the recipient.

[Note: article 7(1) of the E-Commerce Directive]

06/01/2008

Requirements relating to the placing and receipt of orders

ICOBS 3.2.6

A firm must (except when otherwise agreed by parties who are not consumers):

(1) give an ECA recipient the following information, clearly, comprehensibly and unambiguously, and prior to the order being placed by the recipient of the service:

(a) the different technical steps to follow to conclude the contract;
(b) whether or not the concluded contract will be filed by the firm and whether it will be accessible;
(c) the technical means for identifying and correcting input errors prior to the placing of the order; and
(d) the languages offered for the conclusion of the contract;

(2) indicate any relevant codes of conduct to which it subscribes and provide information on how those codes can be consulted electronically;
(3) (when an ECA recipient places an order through technological means), acknowledge the receipt of the recipient's order without undue delay and by electronic means (an order and an acknowledgement of receipt are deemed to be received when the parties to whom they are addressed are able to access them); and
(4) make available to an ECA recipient appropriate, effective and accessible technical means allowing the recipient to identify and correct input errors prior to the placing of an order.

[Note: articles 10(1) and (2) and 11(1) and (2) of the E-Commerce Directive]

06/01/2008

ICOBS 3.2.7

Contractual terms and conditions provided by a firm to an ECA recipient must be made available in a way that allows the recipient to store and reproduce them.

[Note: article 10(3) of the E-Commerce Directive]

06/01/2008

Exception: contract concluded by e-mail

ICOBS 3.2.8

The requirements relating to the placing and receipt of orders do not apply to contracts concluded exclusively by exchange of e-mail or by equivalent individual communications.

[Note: article 10(4) and 11(3) of the E-Commerce Directive]

06/01/2008

ICOBS 3 Annex 1

Guidance on the Distance Marketing Directive

06/01/2008

This Annex belongs to ICOBS 3.1.2 G

Q1. What is a distance contract?

To be a distance contract, a contract must be concluded under an 'organised distance sales or service-provision scheme' run by the contractual provider of the service who, for the purpose of the contract, makes exclusive use (directly or otherwise) of one or more means of distance communication up to and including the time at which the contract is concluded.

So:

• the firm must have put in place facilities designed to enable a consumer to deal with it exclusively at a distance; and

• there must have been no simultaneous physical presence of the firm and the consumer throughout the offer, negotiation and conclusion of the contract. So, for example, contracts offered, negotiated and concluded over the internet, through a telemarketing operation or by post, will normally be distance contracts.

Q2. What about a firm that normally operates face-to-face but occasionally uses distance means?

If a firm normally operates face-to-face and has no facilities in place enabling a consumer to deal with it customarily by distance means, there will be no distance contract. A one-off transaction effected exclusively by distance means to meet a particular contingency or emergency will not be a distance contract.

Q3. What is meant by "simultaneous physical presence"?

A consumer may visit the firm's local office in the course of the offer, negotiation or conclusion of a contract. Wherever, in the literal sense, there has been "simultaneous physical presence" of the firm and the consumer at the time of such a visit, any ensuing contract will not be a distance contract.

Q4. Does the mere fact that an intermediary is involved make the sale of a product or service a distance contract?

No.

Q5. When is a contract concluded?

A contract is concluded when an offer to be bound by it has been accepted. An offer in the course of negotiations (for example, an offer by an insurer to consider an application) is not an offer to be bound, but is part of a pre-contractual negotiation.
A consumer will provide all the information an insurer needs to decide whether to accept a risk and to calculate the premium. The consumer may do this orally, in writing or by completing a proposal form. The response by an insurer, giving a quotation to the consumer specifying the premium and the terms, is likely to amount to an offer of the terms on which the insurer will insure the risk. Agreement by the consumer to those terms is likely to be an acceptance which concludes the contract.
In other cases where the insurer requires a signed proposal form (for example, some pure protection contracts), the proposal form may amount to an offer by the consumer on which the insurer decides whether to insure the risk and in such cases the insurer's response is likely to be the acceptance.

Q6. What if the contract has not been concluded but cover has commenced?

Where the parties to a contract agree that insurance cover should commence before all the terms and conditions have been agreed, the consumer should be provided with information required to be provided before conclusion of the contract to the extent that agreement has been reached.

Q7. How does the Directive apply to insurance intermediaries' services?

The FSA expects the Distance Marketing Directive to apply to insurance intermediaries' services only in the small minority of cases where:

• the firm concludes a distance contract with a consumer covering its insurance mediation activities which is additional to any insurance contract which it is marketing; and

• that distance contract is concluded other than merely as a stage in the effecting or carrying out of an insurance contract by the firm or another person: in other words it has some continuity independent of an insurance contract, as opposed, for example, to being concluded as part of marketing an insurance contract.

Q8. Can you give examples of when the Directive would and would not apply to insurance intermediaries' services?

The rules implementing the Distance Marketing Directive will not apply in the typical case where an insurance intermediary sells an insurance contract to a consumer on a one-off basis, even if the insurance intermediary is involved in the renewal of that contract and handling claims under it.
Nor will the Directive apply if an insurance intermediary, in its terms of business, makes clear that it does not, in conducting insurance mediation activities, act contractually on behalf of, or for, the consumer.
An example of when the Distance Marketing Directive would apply would be a distance contract under which an insurance intermediary agrees to provide advice on a consumer's insurance needs as and when they arise.

Q9. When would the exception for successive operations apply?

We consider that the renewal of a policy falls within the scope of this exception. So, the distance marketing disclosure rules would only apply in relation to the initial sale of a policy, and not to subsequent renewals provided that the new policy is of the same nature as the initial policy. However, unless there is an initial service agreement in place, the exclusion would only apply where the renewal takes place no later than one year after the initial policy was taken out or one year after its last renewal. If the policy terms have changed, firms will need to consider what information should be disclosed about those changes in accordance with the requirement to disclose appropriate information about a policy (see ICOBS 6.1.5 R), as well as ensuring their effectiveness under contract law.

06/01/2008

ICOBS 3 Annex 2

Distance marketing information

06/01/2008

This Annex belongs to ICOBS 3.1.3 R

Distance marketing information

The firm

(1)

The name and the main business of the firm, the geographical address at which it is established and any other geographical address relevant for the consumer's relations with the firm.

(2)

Where the firm has a representative established in the consumer's EEA State of residence, the name of that representative and the geographical address relevant for the consumer's relations with the representative.

(3)

When the consumer's dealings are with any professional other than the firm, the identity of that professional, the capacity in which he is acting with respect to the consumer, and the geographical address relevant for the consumer's relations with that professional.

(4)

An appropriate statutory status disclosure statement (GEN 4), a statement that the firm is on the FSA Register and its FSA registration number.

The financial service

(5)

A description of the main characteristics of the service the firm will provide.

(6)

The total price to be paid by the consumer to the firm for the financial service, including all related fees, charges and expenses, and all taxes paid through the firm or, when an exact price cannot be indicated, the basis for the calculation of the price enabling the consumer to verify it.

(7)

Where relevant, notice indicating that the financial service is related to instruments involving special risks related to their specific features or the operations to be executed or whose price depends on fluctuations in the financial markets outside the firm's control and that past performance is no indicator of future performance.

(8)

Notice of the possibility that other taxes or costs may exist that are not paid through the firm or imposed by it.

(9)

Any limitations on the period for which the information provided is valid, including a clear explanation as to how long a firm's offer applies as it stands.

(10)

The arrangements for payment and for performance.

(11)

Details of any specific additional cost for the consumer for using a means of distance communication.

The distance contract

(12)

The existence or absence of a right to cancel under the cancellation rules (ICOBS 7) and, where there is such a right, its duration and the conditions for exercising it, including information on the amount which the consumer may be required to pay (or which may not be returned to the consumer) in accordance with those rules, as well as the consequences of not exercising the right to cancel.

(13)

The minimum duration of the contract, in the case of services to be performed permanently or recurrently.

(14)

Information on any rights the parties may have to terminate the contract early or unilaterally under its terms, including any penalties imposed by the contract in such cases.

(15)

Practical instructions for exercising any right to cancel, including the address to which any cancellation notice should be sent.

(16)

The EEA State or States whose laws are taken by the firm as a basis for the establishment of relations with the consumer prior to the conclusion of the contract.

(17)

Any contractual clause on law applicable to the contract or on the competent court, or both.

(18)

In which language, or languages, the contractual terms and conditions and the other information in this Annex will be supplied, and in which language, or languages, the firm, with the agreement of the consumer, undertakes to communicate during the duration of the contract.

Redress

(19)

How to complain to the firm, whether complaints may subsequently be referred to the Financial Ombudsman Service and, if so, the methods for having access to it, together with equivalent information about any other applicable named complaints scheme.

(20)

Whether compensation may be available from the compensation scheme, or any other named compensation scheme, if the firm is unable to meet its liabilities, and information about any other applicable named compensation scheme.

[Note: Recitals 21 and 23 to, and article 3(1) of, the Distance Marketing Directive]

06/01/2008

ICOBS 3 Annex 3

Abbreviated distance marketing information

06/01/2008

This Annex belongs to ICOBS 3.1.14 R

Abbreviated distance marketing information

(1)

The identity of the person in contact with the consumer and his link with the firm.

(2)

A description of the main characteristics of the financial service.

(3)

The total price to be paid by the consumer to the firm for the financial service including all taxes paid through the firm or, when an exact price cannot be indicated, the basis for the calculation of the price enabling the consumer to verify it.

(4)

Notice of the possibility that other taxes or costs may exist that are not paid through the firm or imposed by it.

(5)

The existence or absence of a right to cancel in accordance with the cancellation rules (ICOBS 7) and, where the right to cancel exists, its duration and the conditions for exercising it, including information on the amount the consumer may be required to pay (or which may not be returned to the consumer) on the basis of those rules.

(6)

That other information is available on request and what the nature of that information is.

[Note: article 3(3)(b) of the Distance Marketing Directive]

06/01/2008

Export chapter as

ICOBS 4

Information about the firm, its services and remuneration

ICOBS 4.1

General requirements for insurance intermediaries

06/01/2008

Application: who?

ICOBS 4.1.1

This section applies to an insurance intermediary.

06/01/2008

Status disclosure: general

ICOBS 4.1.2

Prior to the conclusion of an initial contract of insurance and, if necessary, on its amendment or renewal, a firm must provide the customer with at least:

(1) its name and address;
(2) the fact that it is included in the FSA Register and the means for verifying this;
(3) whether it has a direct or indirect holding representing more than 10% of the voting rights or capital in a given insurance undertaking (that is not a pure reinsurer);
(4) whether a given insurance undertaking (that is not a pure reinsurer) or its parent undertaking has a direct or indirect holding representing more than 10% of the voting rights or capital in the firm; and
(5) the procedures allowing customers and other interested parties to register complaints about the firm with the firm and the Financial Ombudsman Service or, if the Financial Ombudsman Service does not apply, information about the out-of-court complaint and redress procedures available for the settlement of disputes between the firm and its customers.

[Note: article 12(1) of the Insurance Mediation Directive]

06/01/2008

Status disclosure exemption: introducers

ICOBS 4.1.3

A firm whose contact with a customer is limited to effecting introductions (see PERG 5.6) need only provide its name and address and whether it is a member of the same group as the firm to which it makes the introduction.

06/01/2008

ICOBS 4.1.4

If a firm goes further than putting a customer in contact with another person (for example, by advising him on a particular policy available from the firm) the full status disclosure requirements will apply.

06/01/2008

Status disclosure exemption: connected travel insurance

ICOBS 4.1.5

In relation to a connected travel insurance contract, a firm need only provide the procedures allowing customers and other interested parties to register complaints about the firm with the firm and the Financial Ombudsman Service or, if the Financial Ombudsman Service does not apply, information about the out-of-court complaint and redress procedures available for the settlement of disputes between the firm and its customers.

01/01/2009
Past version of ICOBS 4.1.5 before 01/01/2009

Scope of service

ICOBS 4.1.6

(1) Prior to the conclusion of an initial contract of insurance (other than a connected travel insurance contract) and, if necessary, on its amendment or renewal, a firm must tell the customer whether:

(a) it gives advice on the basis of a fair analysis of the market; or
(b) it is under a contractual obligation to conduct insurance mediation business exclusively with one or more insurance undertakings; or
(c) it is not under a contractual obligation to conduct insurance mediation business exclusively with one or more insurance undertakings and does not give advice on the basis of a fair analysis of the market.

(2) A firm that does not advise on the basis of a fair analysis of the market must inform its customer that he has the right to request the name of each insurance undertaking with which the firm may and does conduct business. A firm must comply with such a request.

[Note: article 12(1) of the Insurance Mediation Directive]

01/01/2009
Past version of ICOBS 4.1.6 before 01/01/2009

ICOBS 4.1.7

Prior to conclusion of an initial contract of insurance with a consumer a firm must state whether it is giving a personal recommendation or information.

06/01/2008

Guidance on using panels to advise on the basis of a fair analysis

ICOBS 4.1.8

(1) One way a firm may give advice on a fair analysis basis is by using 'panels' of insurance undertakings which are sufficient to enable the firm to give advice on a fair analysis basis and are reviewed regularly.
(2) A firm 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 contracts is kept adequately up-to-date. For example, a firm should update its selection of contracts if aware that a contract has generally become available offering an improved product feature, or a better premium, compared with its current selection. The update frequency will depend on the extent to which new contracts are made available on the market.
(3) The panel selection criteria will be important in determining whether the panel is sufficient to meet the 'fair analysis' criteria. Selection should be based on product features, premiums and services offered to customers, not solely on the benefit offered to the firm.

06/01/2008

Means of communication to customers

ICOBS 4.1.9

(1) All information to be provided to a customer in accordance with this chapter must be communicated:

(a) on paper or on any other durable medium available and accessible to the customer;
(b) in a clear and accurate manner, comprehensible to the customer; and
(c) in an official language of the State of the commitment or in any other language agreed by the parties.

(2) The information may be provided orally where the customer requests it, or where immediate cover is necessary.
(3) In the case of telephone selling, the information may be given in accordance with the distance marketing disclosure rules (see ICOBS 3.1.14 R).
(4) If the information is provided orally, it must be provided to the customer in accordance with (1) immediately after the conclusion of the contract of insurance.

[Note: article 13 of the Insurance Mediation Directive]

06/01/2008

ICOBS 4.2

Additional requirements for protection policies for insurance intermediaries and insurers

06/01/2008

Application: what?

ICOBS 4.2.1

This section applies in relation to a pure protection contract or a payment protection contract for a consumer.

06/01/2008

Ensuring customers can make an informed decision

ICOBS 4.2.2

In considering a customer's information needs for the purposes of Principle 7, a firm should have regard to the importance of information for a customer's purchasing decision when deciding when and how to give it.

06/01/2008

ICOBS 4.2.3

If a firm provides elements of status disclosure information orally as part of an interactive dialogue, it should do so for all elements of the information. In the case of telephone selling, the information may be given in accordance with the distance marketing disclosure rules (see ICOBS 3.1.14 R).

06/01/2008

Disclosing the limits of the service provided

ICOBS 4.2.4

(1) In a sale that does not involve a personal recommendation, a firm must take reasonable steps to ensure a customer understands he is responsible for deciding whether a policy meets his demands and needs.
(2) If this is done orally, the information must be provided to the customer in writing or any other durable medium no later than immediately after the conclusion of the contract.
(3) If a firm anticipates providing, or provides, information on any main characteristic of a policy orally during a non-advised sale, taking reasonable steps includes explaining the customer's responsibility orally.
(4) A policy's main characteristics include its significant benefits, its significant exclusions and limitations, its duration and price information.

06/01/2008

Status disclosure for insurers

ICOBS 4.2.5

(1) Prior to the conclusion of an initial contract and, if necessary, on its amendment or renewal, an insurer must disclose to the customer at least:

(a) the statutory status disclosure statement (see GEN 4);
(b) whose policies it offers; and
(c) whether it is providing a personal recommendation or information.

(2) If this is done orally, the disclosure must be provided in writing or any other durable medium no later than immediately after the conclusion of the contract.

06/01/2008

ICOBS 4.2.6

Insurers cannot carry on an insurance mediation activity in respect of a third party's products unless they can show a natural fit or necessary connection between their insurance business and the third party's products (see the restriction of business in INSPRU 1.5.13 R).

06/01/2008

ICOBS 4.3

Fee disclosure

06/01/2008

ICOBS 4.3.1

(1) A firm must provide its customer with details of the amount of any fees other than premium monies for an insurance mediation activity.
(2) The details must be given before the customer incurs liability to pay the fee, or before conclusion of the contract, whichever is earlier.
(3) To the extent that an actual fee cannot be given, a firm must give the basis for calculation.

06/01/2008

ICOBS 4.3.2

The fee disclosure requirement extends to all such fees that may be charged during the life of a policy.

06/01/2008

ICOBS 4.4

Commission disclosure for commercial customers

06/01/2008

Commission disclosure rule

ICOBS 4.4.1

(1) An insurance intermediary must, on a commercial customer's request, promptly disclose the commission that it and any associate receives in connection with a policy.
(2) Disclosure must be in cash terms (estimated, if necessary) and in writing or another durable medium. To the extent this is not possible, the firm must give the basis for calculation.

06/01/2008

ICOBS 4.4.2

An insurance intermediary should include all forms of remuneration from any arrangements it may have. This includes arrangements for sharing profits, for payments relating to the volume of sales, and for payments from premium finance companies in connection with arranging finance.

06/01/2008

ICOBS 4.4.3

(1) The commission disclosure rule is additional to the general law on the fiduciary obligations of an agent in that it applies whether or not the insurance intermediary is an agent of the commercial customer.
(2) In relation to contracts of insurance, the essence of these fiduciary obligations is generally a duty to account to the agent's principal. But where a customer employs an insurance intermediary by way of business and does not remunerate him, and where it is usual for the firm to be remunerated by way of commission paid by the insurer out of premium payable by the customer, then there is no duty to account but if the customer asks what the firm's remuneration is, it must tell him.

06/01/2008

ICOBS 4.5

Initial disclosure document

06/01/2008

ICOBS 4.5.1

Using an initial disclosure document (see ICOBS 4 Annex 1G) or combined initial disclosure document satisfies the status disclosure, scope of service and fee disclosure requirements if it is used in accordance with its notes and provided to the customer at the correct time.

06/01/2008

ICOBS 4 Annex 1

Initial disclosure document

06/01/2008

This annex consists only of one or more forms. Forms are to be found through the following address:

Initial disclosure document - icob4_annex1.pdf

Export chapter as

ICOBS 5

Identifying client needs and advising

ICOBS 5.1

General

06/01/2008

Eligibility to claim benefits: general insurance contracts and pure protection contracts

ICOBS 5.1.1

(1) In line with Principle 6, a firm should take reasonable steps to ensure that a customer only buys a policy under which he is eligible to claim benefits.
(2) If, at any time while arranging a policy, a firm finds that parts of the cover apply, but others do not, it should inform the customer so he can take an informed decision on whether to buy the policy.

06/01/2008

Eligibility to claim benefits: payment protection contracts

ICOBS 5.1.2

A firm arranging a payment protection contract must:

(1) take reasonable steps to ensure that the customer only buys a policy under which he is eligible to claim benefits; and
(2) if, at any time while arranging the policy, it finds that parts of the cover do not apply, inform the customer so he can take an informed decision on whether to buy the policy.

06/01/2008

ICOBS 5.1.3

For a typical payment protection contract the reasonable steps required in the first part of the eligibility rule are likely to include checking that the customer meets any qualifying requirements for different parts of the policy.

06/01/2008

Disclosure of material facts

ICOBS 5.1.4

A firm should bear in mind the restriction on rejecting claims for non-disclosure (). Ways of ensuring a customer knows what he must disclose include:

(1) explaining the duty to disclose all circumstances material to a policy, what needs to be disclosed, and the consequences of any failure to make such a disclosure; or
(2) ensuring that the customer is asked clear questions about any matter material to the insurance undertaking.

06/01/2008

ICOBS 5.2

Statement of demands and needs

06/01/2008

Application: who? what?

ICOBS 5.2.1

This section applies to:

(1) an insurance intermediary in relation to any policy (other than a connected travel insurance contract); and
(2) an insurer when it has given a personal recommendation to a consumer on a payment protection contract or a pure protection contract.

01/01/2009
Past version of ICOBS 5.2.1 before 01/01/2009

Statement of demands and needs

ICOBS 5.2.2

(1) Prior to the conclusion of a contract, a firm must specify, in particular on the basis of information provided by the customer, the demands and the needs of that customer as well as the underlying reasons for any advice given to the customer on that policy.
(2) The details must be modulated according to the complexity of the policy proposed.

[Note: article 12(3) of the Insurance Mediation Directive]

06/01/2008

Means of communication to customers

ICOBS 5.2.3

(1) A statement of demands and needs must be communicated:

(a) on paper or on any other durable medium available and accessible to the customer;
(b) in a clear and accurate manner, comprehensible to the customer; and
(c) in an official language of the State of the commitment or in any other language agreed by the parties.

(2) The information may be provided orally where the customer requests it, or where immediate cover is necessary.
(3) In the case of telephone selling, the information may be given in accordance with the distance marketing disclosure rules (see ICOBS 3.1.14 R).
(4) If the information is provided orally, it must be provided to the customer in accordance with (1) immediately after the conclusion of the contract of insurance.

[Note: article 13 of the Insurance Mediation Directive]

06/01/2008

Statement of demands and needs: non-advised sales

ICOBS 5.2.4

The format of a statement of demands and needs is flexible. Examples of approaches that may be appropriate where a personal recommendation has not been given include:

(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) 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";
(3) giving a customer a record of all his demands and needs that have been discussed; and
(4) providing a key features document.

06/01/2008

ICOBS 5.3

Advised sales

06/01/2008

Suitability

ICOBS 5.3.1

A firm must take reasonable care to ensure the suitability of its advice for any customer who is entitled to rely upon its judgment.

06/01/2008

Suitability guidance for protection policies

ICOBS 5.3.2

In taking reasonable care to ensure the suitability of advice on a payment protection contract or a pure protection contract a firm should:

(1) establish the customer's demands and needs. It should do this using information readily available and accessible to the firm and by obtaining further relevant information from the customer, including details of existing insurance cover; it need not consider alternatives to policies nor customer needs that are not relevant to the type of policy in which the customer is interested;
(2) take reasonable care to ensure that a policy is suitable for the customer's demands and needs, taking into account its level of cover and cost, and relevant exclusions, excesses, limitations and conditions; and
(3) inform the customer of any demands and needs that are not met.

06/01/2008

Advice on the basis of a fair analysis

ICOBS 5.3.3

If an insurance intermediary informs a customer that it gives advice on the basis of a fair analysis, it must give that advice on the basis of an analysis of a sufficiently large number of contracts of insurance available on the market to enable it to make a recommendation, in accordance with professional criteria, regarding which contract of insurance would be adequate to meet the customer's needs.

[Note: article 12(2) of the Insurance Mediation Directive]

06/01/2008

Export chapter as

ICOBS 6

Product Information

ICOBS 6.1

General

06/01/2008

Responsibilities of insurers and insurance intermediaries

ICOBS 6.1.1

An insurer is responsible for producing, and an insurance intermediary for providing to a customer, the information required by this chapter and by the distance communication rules (see ICOBS 3.1). However, an insurer is responsible for providing information required on mid-term changes, and an insurance intermediary is responsible for producing price information if it agrees this with an insurer.

06/01/2008

ICOBS 6.1.2

If there is no insurance intermediary, the insurer is responsible for producing and providing the information.

06/01/2008

ICOBS 6.1.3

An insurer must produce information in good time to enable the insurance intermediary to comply with the rules in this chapter, or promptly on an insurance intermediary's request.

06/01/2008

ICOBS 6.1.4

These general rules on the responsibilities of insurers and insurance intermediaries are modified by ICOBS 6 Annex 1 if one of the firms is not based in the United Kingdom, and in certain other situations.

06/01/2008

Ensuring customers can make an informed decision

ICOBS 6.1.5

A firm must take reasonable steps to ensure a customer is given appropriate information about a policy in good time and in a comprehensible form so that the customer can make an informed decision about the arrangements proposed.

06/01/2008

ICOBS 6.1.6

The appropriate information rule applies pre-conclusion and post-conclusion, and so includes matters such as mid-term changes and renewals. It also applies to the price of the policy.

06/01/2008

ICOBS 6.1.7

The level of information required will vary according to matters such as:

(1) the knowledge, experience and ability of a typical customer for the policy;
(2) the policy terms, including its main benefits, exclusions, limitations, conditions and its duration;
(3) the policy's overall complexity;
(4) whether the policy is bought in connection with other goods and services;
(5) distance communication information requirements (for example, under the distance communication rules less information can be given during certain telephone sales than in a sale made purely by written correspondence (see ICOBS 3.1.14 R)); and
(6) whether the same information has been provided to the customer previously and, if so, when.

06/01/2008

ICOBS 6.1.8

In determining what is "in good time", a firm should consider the importance of the information to the customer's decision-making process and the point at which the information may be most useful. Distance communication timing requirements are also relevant (for example, the distance communication rules enable certain information to be provided post-conclusion in telephone and certain other sales (see ICOBS 3.1.14 R and ICOBS 3.1.15 R)).

06/01/2008

ICOBS 6.1.9

Cancellation rights do not affect what information it is appropriate to give to a customer in order to enable him to make an informed purchasing decision.

06/01/2008

ICOBS 6.1.10

A firm dealing with a consumer may wish to provide information in a policy summary or as a key features document (see ICOBS 6 Annex 2).

06/01/2008

Providing evidence of cover

ICOBS 6.1.11

Under Principle 7 a firm should provide evidence of cover promptly after inception of a policy. Firms will need to take into account the type of customer and the effect of other information requirements, for example those under the distance communication rules (ICOBS 3.1).

06/01/2008

Group policies

ICOBS 6.1.12

Under Principle 7, a firm that sells a group policy should provide appropriate information to the customer to pass on to other policyholders. It should tell the customer that he should give the information to each policyholder.

06/01/2008

Price disclosure: connected goods or services

ICOBS 6.1.13

(1) If a policy is bought by a consumer in connection with other goods or services a firm must, before conclusion of the contract, disclose its premium separately from any other prices and whether buying the policy is compulsory.
(2) In the case of a distance contract, disclosure of whether buying the policy is compulsory may be made in accordance with the timing requirements under the distance communication rules (see ICOBS 3.1.8 R, ICOBS 3.1.14 R and ICOBS 3.1.15 R).

06/01/2008
Future version of ICOBS 6.1.13 after 01/01/2013

Exception to the timing rules: distance contracts and voice telephony communications

ICOBS 6.1.14

Where a rule in this chapter requires information to be provided in writing or another durable medium before conclusion of a contract, a firm may instead provide that information in accordance with the distance communication timing requirements (see ICOBS 3.1.14 R and ICOBS 3.1.15 R).

06/01/2008

ICOBS 6.2

Pre-contract information: general insurance contracts

06/01/2008

Application: what?

ICOBS 6.2.1

This section applies in relation to a general insurance contract.

06/01/2008

Non-life insurance directive disclosure requirements

ICOBS 6.2.2

Before a general insurance contract is concluded, a firm must inform a customer who is a natural person of:

(1) the law applicable to the contract where the parties do not have a free choice, or the fact that the parties are free to choose the law applicable and, in the latter case, the law the firm proposes to choose; and
(2) the arrangements for handling policyholders' complaints concerning contracts including, where appropriate, the existence of a complaints body (usually the Financial Ombudsman Service), without prejudice to the policyholders' right to take legal proceedings.

[Note: article 31 of the Third Non-Life Directive]

06/01/2008

ICOBS 6.2.3

(1) If the insurance undertaking is an EEA firm, the firm must inform the customer, before any commitment is entered into, of the EEA State in which the head office or, where appropriate, the branch with which the contract is to be concluded, is situated.
(2) Any documents issued to the customer must convey the information required by this rule.

[Note: article 43(2) of the Third Non-Life Directive]

06/01/2008

ICOBS 6.2.4

The contract or any other document granting cover, together with the insurance proposal where it is binding upon the customer, must state the address of the head office, or, where appropriate, of the branch of the insurance undertaking which grants the cover.

[Note: article 43(2) of the Third Non-Life Directive]

06/01/2008

Disclosure of cancellation right

ICOBS 6.2.5

(1) A firm must provide a consumer with information on the right to cancel a policy.
(2) The information to be provided on the right to cancel is:

(a) its existence;
(b) its duration;
(c) the conditions for exercising it;
(d) information on the amount which the consumer may be required to pay if he exercises it;
(e) the consequences of not exercising it; and
(f) the practical instructions for exercising it.

(3) The information must be provided in good time before conclusion of the contract and in writing or another durable medium.

06/01/2008

ICOBS 6.3

Pre- and post-contract information: pure protection contracts

06/01/2008

Life insurance directive disclosure requirements

ICOBS 6.3.1

(1) Before a pure protection contract is concluded, a firm must inform a customer of the information in the table below.
(2) The information must be communicated in a clear and accurate manner, in writing, and in an official language of the State of the commitment or in another language agreed by the parties.

Information to be communicated before conclusion

(1)

The name of the insurance undertaking and its legal form.

(2)

The name of the EEA State in which the head office and, where appropriate, the agency or branch concluding the contract is situated.

(3)

The address of the head office and, where appropriate, of the agency or branch concluding the contract.

(4)*

Definition of each benefit and each option.

(5)*

Term of the contract.

(6)*

Means of terminating the contract.

(7)*

Means of payment of premiums and duration of payments.

(8)*

Information on the premiums for each benefit, both main benefits and supplementary benefits, where appropriate.

(9)

Arrangements for application of the cancellation period.

(10)

General information on the tax arrangements applicable to the type of policy.

(11)

The arrangements for handling complaints concerning contracts by policyholders, lives assured or beneficiaries under contracts including, where appropriate, the existence of a complaints body (usually the Financial Ombudsman Service), without prejudice to the right to take legal proceedings.

(12)

The law applicable to the contract where the parties do not have a free choice or, where the parties are free to choose the law applicable, the law the insurance undertaking proposes to choose.

Note: The rule on mid-term changes applies to items marked with an asterisk (see ICOBS 6.3.3 R).

[Note: Annex III(A) to the Consolidated Life Directive]

06/01/2008

ICOBS 6.3.2

If the contract is concluded with a commercial customer by telephone, the information in this section may be provided immediately after conclusion.

06/01/2008

Mid-term changes

ICOBS 6.3.3

In addition to the policy conditions, both general and special, a customer must, throughout the term of a pure protection contract, receive:

(1) any change in the name of the insurance undertaking, its legal form or the address of its head office and, where appropriate, of the agency or branch which concluded the contract; and
(2) all the information marked '*' in the table of information to be communicated before conclusion, in the event of a change in the policy conditions or amendment of the law applicable to the contract.

[Note: Annex III(B) to the Consolidated Life Directive]

06/01/2008

ICOBS 6.4

Pre- and post-contract information: protection policies

06/01/2008

Application: what?

ICOBS 6.4.1

This section applies in relation to a payment protection contract or a pure protection contract except as otherwise stated.

06/01/2008

Oral sales: ensuring customers can make an informed decision

ICOBS 6.4.2

(1) If a firm provides information orally during a sales dialogue with a customer on a main characteristic of a policy, it must do so for all the policy's main characteristics.
(2) A firm must take reasonable steps to ensure that the information provided orally is sufficient to enable the customer to take an informed decision on the basis of that information, without overloading the customer or obscuring other parts of the information.

06/01/2008

ICOBS 6.4.3

(1) A policy's main characteristics include its significant benefits, its significant exclusions and limitations, its duration and price information.
(2) A significant exclusion or limitation is one that would tend to affect the decision of customers generally to buy. In determining what exclusions or limitations are significant, a firm should particularly consider the exclusions or limitations that relate to the significant features and benefits of a policy and factors which may have an adverse effect on the benefit payable under it. Another type of significant limitation might be that the contract only operates through certain means of communication, e.g. telephone or internet.

06/01/2008

Policy summary

ICOBS 6.4.4

A firm must provide a consumer with a policy summary in good time before the conclusion of a contract.

06/01/2008

Payment protection contracts: importance of reading documentation

ICOBS 6.4.5

(1) A firm must draw a consumer's attention to the importance of reading payment protection contract documentation before the end of the cancellation period to check that the policy is suitable for the consumer.
(2) This must be done orally if a firm provides information orally on any main characteristic of a policy.

06/01/2008

Price information: general

ICOBS 6.4.6

A firm must provide price information in a way calculated to enable the customer to relate it to a regular budget.

06/01/2008

ICOBS 6.4.7

Price information is likely also to include at least the total premium (or the basis for calculating it so that the customer can verify it) and, where relevant:

(1) for policies of over one year with reviewable premiums, the period for which the quoted premium is valid, and the timing of reviews;
(2) other fees, administrative charges and taxes payable by the customer through the firm; and
(3) a statement identifying separately the possibility of any taxes not payable through the firm.

06/01/2008

ICOBS 6.4.8

Price information should be given in writing or another durable medium in good time before conclusion of the contract. This is in addition to any requirement or decision to provide the information orally. In the case of a distance contract concluded over the telephone, it may be provided in writing or another durable medium no later than immediately after conclusion.

06/01/2008

Price information: premiums paid using a non-revolving credit agreement

ICOBS 6.4.9

(1) This rule applies when a premium will be paid using a credit agreement other than a revolving credit agreement.
(2) A firm must provide price information in a way calculated to enable the customer to understand the additional repayments that relate to the purchase of the policy, and the total cost of the policy.
(3) Price information must reflect any difference between the duration of the policy and that of the credit agreement.
(4) A firm must explain to a customer, as applicable, that the premium will be added to the amount provided under the credit agreement and that interest will be payable on it.

06/01/2008

Price information: policies sold in connection with revolving credit arrangements

ICOBS 6.4.10

(1) This guidance applies to policies bought as secondary products to revolving credit agreements (such as store cards or credit cards).
(2) Price information should be given in a way calculated to enable a typical customer to understand the typical cumulative cost of taking out the policy. This does not require oral disclosure where there is a sales dialogue with a customer. However, consistent with Principle 7, a firm should ensure that this element of price information is not undermined by any information given orally.

06/01/2008

Mid-term changes

ICOBS 6.4.11

(1) Throughout the term of a policy, a firm must provide a customer with information about any change to:

(a) the premium, unless the change conforms to a previously disclosed formula; and
(b) any term of the policy, together with an explanation of any implications of the change where necessary.

(2) This information must be provided in writing or another durable medium in good time before the change takes effect or, if the change is at the customer's request, as soon as is practicable provided the firm explains the implications of the change before it takes effect.

06/01/2008

ICOBS 6.4.12

(1) When explaining the implications of a change, a firm should explain any changes to the benefits and significant or unusual exclusions arising from the change.
(2) Firms will need to consider whether mid-term changes are compatible with the original policy, in particular whether it reserves the right to vary premiums, charges or other terms. Firms also need to ensure that any terms which reserve the right to make variations are not themselves unfair under the Unfair Terms Regulations.

06/01/2008

ICOBS 6 Annex 1

Responsibilities of insurers and insurance intermediaries in certain situations

06/01/2008

This annex belongs to ICOBS 6.1.4 R

The table in this annex modifies the general rules on the responsibilities of insurers and insurance intermediaries for producing and providing to a customer the information required by this chapter.

Situation

Insurance intermediary's responsibility

Insurer's responsibility

(1)

Insurance intermediary operates from UK establishment
Insurer does not operate from UK establishment

Production and providing

None

(2)

Insurance intermediary does not operate from UK establishment, is not authorised, is selling connected contracts or is authorised professional firm carrying on non-mainstream regulated activities
Insurer operates from UK establishment
Customer habitually resident in the EEA

None

Production and providing (but no policy summary is required unless the insurance intermediary does not operate from a UK establishment)

(3)

As (2) but customer habitually resident outside the EEA and insurer not in contact with the customer

None

(4)

As (2) but customer habitually resident outside the EEA and insurer in contact with the customer

None

Production and providing

(5)

Insurance intermediary does not operate from UK establishment
Insurer does not operate from UK establishment

None

Production and providing

06/01/2008

ICOBS 6 Annex 2

Policy summary for consumers

06/01/2008

This annex belongs to ICOBS 6.1.10 G and ICOBS 6.4.4 R

Format

1.1

(1)

A policy summary must be in writing or another durable medium.

(2)

A policy summary must be in a separate document, or within a prominent separate section of another document clearly identifiable as containing key information that the consumer should read.

1.2

The quality and presentation standard of a policy summary should be consistent with that used for other policy documents.

Content

2.1

A policy summary must contain the information in the table below and no other information.

Policy summary content

• Keyfacts logo in a prominent position at the top of the policy summary. Further requirements regarding the use of the logo and the location of specimens are set out in GEN 5.1 and GEN 5 Annex 1 G.

• Statement that the policy summary does not contain the full terms of the policy, which can be found in the policy document.

• Name of the insurance undertaking.

• Type of insurance and cover.

• Significant features and benefits.

• Significant or unusual exclusions or limitations, and cross-references to the relevant policy document provisions.

• Duration of the policy.

• A statement, where relevant, that the consumer may need to review and update the cover periodically to ensure it remains adequate.

• Price information (optional).

• Existence and duration of the right of cancellation (other details may be included).

• Contact details for notifying a claim.

• How to complain to the insurance undertaking and that complaints may subsequently be referred to the Financial Ombudsman Service (or other applicable named complaints scheme).

• That, should the insurance undertaking be unable to meet its liabilities, the consumer may be entitled to compensation from the compensation scheme (or other applicable compensation scheme), or that there is no compensation scheme. Information on the extent and level of cover and how further information can be obtained is optional.

2.2

A policy summary should properly describe the policy but, in line with Principle 7, should not overload the consumer with detail.

Significant or unusual exclusions or limitations

3.1

(1)

A significant exclusion or limitation is one that would tend to affect the decision of consumers generally to buy. An unusual exclusion or limitation is one that is not normally found in comparable contracts.

(2)

In determining what exclusions or limitations are significant, a firm should, in particular, consider the exclusions or limitations that relate to the significant features and benefits of a policy and factors which may have an adverse effect on the benefit payable under it.

(3)

Another type of significant limitation might be that the contract only operates through certain means of communication, e.g. telephone or internet.

Examples of significant or unusual exclusions or limitations

• Deferred payment periods

• Exclusion of certain conditions, diseases or pre-existing medical conditions

• Moratorium periods

• Limits on the amounts of cover

• Limits on the period for which benefits will be paid

• Restrictions on eligibility to claim such as age, residence or employment status

• Excesses

Key features document as an alternative to a policy summary

4.1

A firm may provide a document that has the contents of a key features document instead of a policy summary. The document must include contact details for notifying a claim but need not include the title 'key features of the [name of product]'.

06/01/2008

Export chapter as

ICOBS 7

Cancellation

ICOBS 7.1

The right to cancel

06/01/2008

The right to cancel

ICOBS 7.1.1

A consumer has a right to cancel, without penalty and without giving any reason, within:

(1) 30 days for a contract of insurance which is, or has elements of, a pure protection contract or payment protection contract; or
(2) 14 days for any other contract of insurance or distance contract.

[Note: article 6(1) of the Distance Marketing Directive in relation to a distance contract and article 35 of the Consolidated Life Directive in relation to a pure protection contract]

06/01/2008

ICOBS 7.1.2

A firm may provide longer or additional cancellation rights voluntarily, but if it does these should be on terms at least as favourable to the consumer as those in this chapter, unless the differences are clearly explained.

06/01/2008

Exceptions to the right to cancel

ICOBS 7.1.3

The right to cancel does not apply to:

(1) a travel and baggage policy or similar short-term policy of less than one month's duration;
(2) a policy the performance of which has been fully completed by both parties at the consumer's express request before the consumer exercises his right to cancel;
(3) a pure protection contract of six months' duration or less which is not a distance contract;
(4) a pure protection contract effected by the trustees of an occupational pension scheme, an employer or a partnership to secure benefits for the employees or the partners in the partnership;
(5) a general insurance contract which is neither a distance contract nor a payment protection contract, sold by an intermediary who is an unauthorised person (other than an appointed representative); and
(6) a connected contract which is not a distance contract.

[Note: articles 6(2)(b) and (c) of the Distance Marketing Directive and 35(1) and (2) of the Consolidated Life Directive]

06/01/2008

ICOBS 7.1.4

A 'similar short-term policy' is any policy where the event or activity being insured is less than one month's duration. 'Duration' refers to the period of cover rather than the period of the contract.

06/01/2008

Start of the cancellation period

ICOBS 7.1.5

The cancellation period begins either:

(1) from the day of the conclusion of the contract, except in respect of a pure protection contract where the time limit begins when the customer is informed that the contract has been concluded; or
(2) from the day on which the consumer receives the contractual terms and conditions and any other pre-contractual information required under this sourcebook, if that is later than the date referred to above.

[Note: article 35 of the Consolidated Life Directive and article 6(1) of the Distance Marketing Directive]

06/01/2008

Exercising a right to cancel

ICOBS 7.1.6

If a consumer exercises the right to cancel he must, before the expiry of the relevant deadline, notify this following the practical instructions given to him. The deadline shall be deemed to have been observed if the notification, if on paper or another durable medium, is dispatched before the deadline expires.

[Note: article 6(1) and (6) of the Distance Marketing Directive]

06/01/2008

ICOBS 7.2

Effects of cancellation

06/01/2008

Termination of contract

ICOBS 7.2.1

By exercising the right to cancel, the consumer withdraws from the contract and the contract is terminated.

06/01/2008

Payment for the service provided before cancellation

ICOBS 7.2.2

(1) When a consumer exercises the right to cancel he may only be required to pay, without any undue delay, for the service actually provided by the firm in accordance with the contract.
(2) The amount payable must not:

(a) exceed an amount which is in proportion to the extent of the service already provided in comparison with the full coverage of the contract; and
(b) in any case be such that it could be construed as a penalty.

(3) A firm must not require a consumer to pay any amount:

(a) unless it can prove that the consumer was duly informed about the amount payable; or
(b) if it commenced the performance of the contract before the expiry of the cancellation period without the consumer's prior request.

(4) A consumer cannot be required to pay any amount when exercising the right to cancel a pure protection contract.
(5) A consumer cannot be required to pay any amount when exercising the right to cancel a payment protection contract unless a claim is made during the cancellation period and settlement terms are subsequently agreed.

[Note: article 7(1), (2) and (3) of the Distance Marketing Directive]

06/01/2008

ICOBS 7.2.3

The amount payable may include:

(1) any sums that a firm has reasonably incurred in concluding the contract, but should not include any element of profit;
(2) an amount for cover provided (i.e. a proportion of the policy's exposure that relates to the time on risk);
(3) a proportion of the commission paid to an insurance intermediary sufficient to cover its costs; and
(4) a proportion of any fees charged by an insurance intermediary which, when aggregated with any commission to be repaid, would be sufficient to cover its costs.

06/01/2008

ICOBS 7.2.4

In most cases, the FSA would expect the proportion of a policy's exposure that relates to the time on risk to be a pro rata apportionment. However, where there is material unevenness in the incidence of risk, an insurer could use a more accurate method. The sum should be reasonable and should not exceed an amount commensurate to the risk incurred.

06/01/2008

ICOBS 7.2.5

An insurer and an insurance intermediary should take reasonable steps to ensure that double recovery of selling costs is avoided, particularly where the contract for the insurance intermediary's services is a distance contract, or where both commission and fees are recouped by the insurer and insurance intermediary respectively.

06/01/2008

Firm's obligation on cancellation

ICOBS 7.2.6

(1) A firm must, without any undue delay and no later than within 30 days, return to a consumer any sums it has received from him in accordance with the contract, except as specified in this section.
(2) This period shall begin from the day on which the firm receives the notification of cancellation.

[Note: article 7(4) of the Distance Marketing Directive]

06/01/2008

Consumer's obligation on cancellation

ICOBS 7.2.7

(1) A firm is entitled to receive from a consumer any sums and/or property he has received from the firm without any undue delay and no later than within 30 days.
(2) This period shall begin from the day on which the consumer dispatches the notification of cancellation.

[Note: article 7(5) of the Distance Marketing Directive]

06/01/2008

ICOBS 7.2.8

If an insurer has made a charge for services provided, the sums and property to be returned by a consumer should not include any money or property provided in settling a claim.

06/01/2008

Set off

ICOBS 7.2.9

Any sums payable under this section are owed as simple contract debts and may be set off against each other.

06/01/2008

Automatic cancellation of an attached distance contract

ICOBS 7.2.10

A consumer's notice to cancel a distance contract may also operate to cancel any attached contract which is also a distance financial services contract. This is unless the consumer gives notice that cancellation of the contract is not to operate to cancel the attached contract. (See the Distance Marketing Regulations.) Where relevant, this should be disclosed to the consumer along with other information on cancellation.

06/01/2008

Export chapter as

ICOBS 8

Claims handling

ICOBS 8.1

Insurers: general

06/01/2008

ICOBS 8.1.1

An insurer must:

(1) handle claims promptly and fairly;
(2) provide reasonable guidance to help a policyholder make a claim and appropriate information on its progress;
(3) not unreasonably reject a claim (including by terminating or avoiding a policy); and
(4) settle claims promptly once settlement terms are agreed.

06/01/2008

ICOBS 8.1.2

A rejection of a consumer policy holder's claim is unreasonable, except where there is evidence of fraud, if it is for:

(1) non-disclosure of a fact material to the risk which the policyholder could not reasonably be expected to have disclosed; or
(2) non-negligent misrepresentation of a fact material to the risk; or
(3) breach of warranty or condition unless the circumstances of the claim are connected to the breach and unless (for a pure protection contract):

(a) under a 'life of another' contract, the warranty relates to a statement of fact concerning the life to be assured and, if the statement had been made by the life to be assured under an 'own life' contract, the insurer could have rejected the claim under this rule; or
(b) the warranty is material to the risk and was drawn to the customer's attention before the conclusion of the contract.

06/01/2008

ICOBS 8.2

Motor vehicle liability insurers

06/01/2008

Application: who? what?

ICOBS 8.2.1

(1) This section applies to a motor vehicle liability insurer.
(2) The rules in this section relating to the appointment of claims representatives apply in relation to claims by injured parties resulting from accidents occurring in an EEA State other than the injured party's EEA State of residence which are caused by the use of vehicles insured through an establishment in, and normally based in, an EEA State other than the injured party's EEA State of residence.
(3) The rules in this section relating to claims handling apply in respect of claims arising from any accident caused by a vehicle normally based in the United Kingdom.

[Note: article 1 of the Fourth Motor Insurance Directive and article 4(4)(4e) of the Fifth Motor Insurance Directive]

06/01/2008
Future version of ICOBS 8.2.1 after 01/01/2011

Requirement to appoint claims representatives

ICOBS 8.2.2

A firm must have a claims representative in each EEA State other than the United Kingdom (see threshold condition 2A).

06/01/2008

Conditions for appointing claims representatives

ICOBS 8.2.3

A firm must ensure that each claims representative:

(1) is responsible for handling and settling a claim by an injured party;
(2) is resident or established in the EEA State where it is appointed;
(3) collects all information necessary in connection with the settlement of a claim and takes the measures necessary to negotiate its settlement;
(4) possesses sufficient powers to represent the firm in relation to an injured party and to meet an injured party's claim in full; and
(5) is capable of examining cases in the official language(s) of the EEA State of residence of the injured party.

[Note: article 4(1), (4) and (5) of the Fourth Motor Insurance Directive]

06/01/2008
Future version of ICOBS 8.2.3 after 01/01/2011

ICOBS 8.2.4

The requirement to possess sufficient powers does not prevent a claims representative from seeking additional authority or instructions if needed. It does prevent it from declining to deal with, or transferring responsibility for, claims properly referred to it by an injured party, or their representative.

06/01/2008

Notifying the appointment of claims representatives

ICOBS 8.2.5

(1) A firm must notify to the information centres of all EEA States:

(a) the name and address of the claims representative which they have appointed in each of the EEA States;
[Note: article 5(2) of the Fourth Motor Insurance Directive]
(b) the telephone number and effective date of appointment; and
(c) any material change to information previously notified.

(2) Notification must be made within ten business days of an appointment or of a material change.

06/01/2008
Future version of ICOBS 8.2.5 after 01/01/2011

Motor vehicle liability claims handling rules

ICOBS 8.2.6

Within three months of the injured party presenting his claim for compensation:

(1) the firm of the person who caused the accident or its claims representative must make a reasoned offer of compensation in cases where liability is not contested and the damages have been quantified; or
(2) the firm to whom the claim for compensation has been addressed or its claims representative must provide a reasoned reply to the points made in the claim in cases where liability is denied or has not been clearly determined or the damages have not been fully quantified.

[Note: article 4(6) of the Fourth Motor Insurance Directive and article 4(4)(4e, first paragraph) of the Fifth Motor Insurance Directive]

06/01/2008
Future version of ICOBS 8.2.6 after 01/01/2011

ICOBS 8.2.7

(1) If liability is initially denied, or not admitted, within three months of any subsequent admission of liability, the firm must (directly, or through a claims representative) make a reasoned offer of settlement, if, by that time, the relevant claim for damages has been fully quantified.
(2) If an injured party's claim for damages is not fully quantified when it is first made, within three months of the subsequent receipt of a fully quantified claim for damages, the firm must (directly, or through a claims representative) make a reasoned offer of damages, if liability is admitted at that time.

06/01/2008

ICOBS 8.2.8

A claim for damages will be fully quantified for the purpose of this section when the injured party provides written evidence which substantiates or supports the amounts claimed.

06/01/2008

Interest on compensation

ICOBS 8.2.9

(1) If the firm, or its claims representative, does not make an offer as required by this section, the firm must pay simple interest on the amount of compensation offered by it or awarded by the court to the injured party, unless interest is awarded by any tribunal.
(2) The interest calculation period begins when the offer should have been made and ends when the compensation is paid to the injured party, or his authorised representative.
(3) The interest rate is the Bank of England's base rate (from time to time), plus 4%.

[Note: article 4(6) of the Fourth Motor Insurance Directive. Regulation 6 of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 makes this rule actionable under section 150 of the Act (Actions for damages) by any person who suffers loss as a result of its contravention]

06/01/2008
Future version of ICOBS 8.2.9 after 01/01/2011

ICOBS 8.2.10

A firm will be taken to have received a claim, or a fully quantified claim, for damages when the claim is delivered to it, or a claims representative, by any person by any method of delivery which is lawful in the firm's, or its claims representative's, respective State of residence or establishment.

06/01/2008

ICOBS 8.2.11

The provisions in this section are not intended to, and do not, restrict any rights which the injured party, or its motor vehicle liability insurer, or any other insurer acting on its behalf, may have and which would enable any of them to begin legal proceedings against the person causing the accident or that person's, or the vehicle's, insurers.

06/01/2008

ICOBS 8.3

Insurance intermediaries (and insurers handling claims on another insurer's policy)

06/01/2008

Application: who?

ICOBS 8.3.1

This section applies to an insurance intermediary, and to an insurer handling a claim on another insurance undertaking's policy.

06/01/2008

Interaction with the general law

ICOBS 8.3.2

A firm is expected to comply with the general law on the duties of an insurance intermediary. This section does not seek to set out the full extent of those duties.

06/01/2008

Conflicts of interest

ICOBS 8.3.3

(1) Principle 8 requires a firm to manage conflicts of interest fairly. SYSC 10 also requires an insurance intermediary to take all reasonable steps to identify conflicts of interest, and maintain and operate effective organisational and administrative arrangements to prevent conflicts of interest from constituting or giving rise to a material risk of damage to its clients.
(2) [deleted]
(3) If a firm acts for a customer in arranging a policy, it is likely to be the customer's agent (and that of any other policyholders). If the firm intends to be the insurance undertaking's agent in relation to claims, it needs to consider the risk of becoming unable to act without breaching its duty to either the insurance undertaking or the customer making the claim. It should also inform the customer of its intention.
(4) A firm should in particular consider whether declining to act would be the most reasonable step where it is not possible to manage a conflict, for example where the firm knows both that its customer will accept a low settlement to obtain a quick payment, and that the insurance undertaking is willing to settle for a higher amount.

01/04/2009
Past version of ICOBS 8.3.3 before 01/04/2009

Dealing with claims notifications without claims handling authority

ICOBS 8.3.4

A firm that does not have authority to deal with a claim should forward any claim notification to the insurance undertaking promptly, or inform the policyholder immediately that it cannot deal with the notification.

06/01/2008

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Transitional Provisions and Schedules

ICOBS TP 1

Transitional Provisions

Fifth Motor Insurance Directive

In relation to a claim by an injured party received by a motor vehicle liability insurer or its claims representative on or before 10 June 2007, the motor vehicle liability claims handling rules (see ICOBS 8.2.6 R to ICOBS 8.2.11 G) only apply if the claim results from an accident occurring in an EEA State other than the injured party's EEA State of residence which was caused by the use of a vehicle insured through an establishment in, and normally based in, an EEA State other than the injured party's EEA State of residence.

Initial disclosure document

A firm may use the keyfacts logo on a document that meets the requirements for an initial disclosure document except that it includes the sentence "It requires us to give you this document" in section 1 of the document. This rule applies until 5 January 2009.

Expired

Series of events

If, for a connected travel insurance intermediary, the application of any provision in this sourcebook is dependent on the occurrence of a series of events, the provision applies with respect to the events that occur on or after 1 January 2009.

ICOBS Sch 1

Record keeping requirements

06/01/2008

Notes

The aim of the guidance in the following table is to give the reader a quick overall view of the relevant record keeping requirements.

It is not a complete statement of those requirements and should not be relied on as if it were.

06/01/2008

Handbook reference

Subject of record

Contents of record

When record must be made

Retention period

ICOBS 1 Annex 1 G, Part 2 3.1R(3)

Record of election to comply with COBS rules for pure protection policies (including amendment or reversal)

Date of election and precise description of parts of the firm's business that will comply with COBS provisions

Not specified

Indefinitely

06/01/2008

ICOBS Sch 2

Notification requirements

06/01/2008

ICOBS Sch 2.1

There are no notification requirements in ICOBS.

ICOBS Sch 3

Fees and other required payments requirements

06/01/2008

ICOBS Sch 3.1

There are no requirements for fees or other payments in ICOBS.

06/05/2008
Past version of ICOBS Sch 3.1 before 06/05/2008

ICOBS Sch 4

Powers exercised

06/01/2008

ICOBS Sch 4.1

The following powers and related provisions in or under the Act have been exercised by the FSA to make the rules in ICOBS:

Section 138 (General rule-making power)

Section 139(4) (Miscellaneous ancillary matters)

Section 145 (Financial promotion rules)

Section 149 (Evidential provisions)

Section 156 (General supplementary powers)

Regulation 2 of the Financial Services and Markets Act 2000 (Fourth Motor Insurance Directive) Regulations 2002 (SI 2002/2706)

06/01/2008

ICOBS Sch 4.2

The following powers in the Act have been exercised by the FSA to give the guidance in ICOBS:

Section 157(1) (Guidance)

06/01/2008

ICOBS Sch 5

Rights of action for damages

06/01/2008

ICOBS Sch 5.1

The table below sets out the rules in ICOBS contravention of which by an authorised person may be actionable under section 150 of the Act (Actions for damages) by a person who suffers loss as a result of the contravention.

06/05/2008
Past version of ICOBS Sch 5.1 before 06/05/2008

ICOBS Sch 5.2

If a "Yes" appears in the column headed "For private person?", the rule may be actionable by a private person under section 150 (or, in certain circumstances, his fiduciary or representative; see article 6(2) and (3)(c) of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 (SI 2001/2256)). A "Yes" in the column headed "Removed" indicates that the FSA has removed the right of action under section 150(2) of the Act. If so, a reference to the rule in which it is removed is also given.

06/05/2008

ICOBS Sch 5.3

The column headed "For other person?" indicates whether the rule may be actionable by a person other than a private person (or his fiduciary or representative) under article 6(2) and (3) of those Regulations. If so, an indication of the type of person by whom the rule may be actionable is given.

06/05/2008

ICOBS Sch 5.4

Rule

Right of action under section 150

For private person?

Removed?

For other person?

All rules in ICOBS with the status letter "E"

Any rule in ICOBS which prohibits an authorised person from seeking to make provision excluding or restricting any duty or liability

Yes

Any other person

ICOBS 8.2.9 R

Yes

Any other person

All other rules in ICOBS

Yes

06/05/2008

ICOBS Sch 6

Rules that can be waived

06/01/2008

ICOBS Sch 6.1

As a result of regulation 10 of the Regulatory Reform (Financial Services and Markets Act 2000) Order 2007 (SI 2007/1973) the FSA has power to waive all its rules. However, if the rules incorporate requirements laid down in European directives, it will not be possible for the FSA to grant a waiver that would be incompatible with the United Kingdom's responsibilities under those directives.

06/05/2008
Past version of ICOBS Sch 6.1 before 06/05/2008

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ICOBS Insurance: Conduct of Business sourcebook

Used in

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Application

The general application rule

The general application rule

Modifications to the general application rule

Guidance

Application (see ICOBS 1.1.2 R)

General matters

Client categorisation

Introduction

Customer to be treated as consumer when status uncertain

Customer covered in both a private and business capacity

Customer classification examples

Communications to clients and financial promotions

Application

Clear, fair and not misleading rule

Approving financial promotions

Pricing claims: guidance on the clear, fair and not misleading rule

Inducements

Record-keeping

Exclusion of liability and reliance on others

Exclusion of liability

Reliance on others

Distance communications

Distance marketing

Application

Guidance on the Distance Marketing Directive

The distance marketing disclosure rules

Terms and conditions, and form

Commencing performance of the distance contract

Exception: distance contract as a stage in the provision of another service

Exception: successive operations

Exception: voice telephony communications

Exception: Means of distance communication not enabling disclosure

Consumer's right to request paper copies and change the means of communication

Unsolicited services

Mandatory nature of consumer's rights

E-Commerce

Application

Information about the firm and its products or services

Requirements relating to the placing and receipt of orders

Exception: contract concluded by e-mail

Guidance on the Distance Marketing Directive

Distance marketing information

Abbreviated distance marketing information

Information about the firm, its services and remuneration

General requirements for insurance intermediaries

Application: who?

Status disclosure: general

Status disclosure exemption: introducers

Status disclosure exemption: connected travel insurance

Scope of service

Guidance on using panels to advise on the basis of a fair analysis

Means of communication to customers

Additional requirements for protection policies for insurance intermediaries and insurers

Application: what?

Ensuring customers can make an informed decision

Disclosing the limits of the service provided

Status disclosure for insurers

Fee disclosure

Commission disclosure for commercial customers

Commission disclosure rule

Initial disclosure document

Initial disclosure document

Identifying client needs and advising

General

Eligibility to claim benefits: general insurance contracts and pure protection contracts

Eligibility to claim benefits: payment protection contracts

Disclosure of material facts

Statement of demands and needs

Application: who? what?

Statement of demands and needs

Means of communication to customers

Statement of demands and needs: non-advised sales

Advised sales

Suitability

Suitability guidance for protection policies