PROD 4 - What you need to know...

PROD 4 is a part of the IDD, which is being promoted as something alarming by some commentators in the market.

RWA believe that this attitude is harmful to the market and to the profession of insurance broking. PROD 4 is actually the template that allows us to comply with TCF 2.

PROD 4 applies to all insurers and authorised firms which manufacture relevant products and this will include badging, schemes, binding authorities and so on.

If you want to know whether you fall into the PROD 4 regime then contact Neil Templar at our IDD helpdesk via our contact form.

Here are some of the things you will have to do (the list is by no means exhaustive):

  1. Check you comply with the customer best interest rule;

  2. assess whether the product remains consistent with the needs of the identified target market and whether the intended distribution strategy remains appropriate, including taking account of any direct distribution;

  3. review processes to make sure product design takes account of the objectives, interests and characteristics of customers, doesn’t adversely affect customers and prevents or mitigates consumer detriment; including consideration to charging structures (even for low-price products) and situations where low-income consumers are involved.

You need to focus on:

a. general matters
b. product approval process
c. product testing
d. oversight of distribution channels
e. monitoring and review of products
f. additional expectations

You will also need to:

  1. draft a written agreement (as required by PROD 4.2.1R) defining the firm’s role in product manufacture and facilitate the agreeing of such role and responsibilities with product providers (this should already happen);

  2. implement a system that ensures distributors have the necessary knowledge, experience or competence to understand the product and the target market; (e.g. wholesaling or sub-broking) and they undertake to comply with other rules such as the new requirements of SYSC, general conduct and ICOBS, and particular knowledge:

a. minimum knowledge of terms and conditions of policies offered;
b. minimum knowledge of applicable laws;
c. minimum knowledge of claims handling;
d. minimum knowledge of assessing customer needs;
e. minimum knowledge of the insurance market;
f. minimum knowledge of business ethics standards;
g. minimum knowledge of financial competence;
h. minimum knowledge of complaints handling.

If you have any questions please contact Neil Templar at our IDD Helpdesk via our contact form.

About the author

Robin Wood founded RWA in 1992. He is an acknowledged Expert on insurance broker's duties and Conduct Standards and Risk Management and has been an Expert to the courts on a number of reported cases including ​Environcom v Miles Smith, The Café De Lecq case and Eurokey v Giles.

Robin is happy to advise anyone who wants to know how to meet good and reasonable standards of conduct and behaviour whether that be a sole trader or a regulator. Robin has written a number of important guide books on topics such as Training & Competence, The Duty of an Insurance Broker, The Insurance Act and Professional Standards of Insurance Brokers. A regular speaker at industry conference events and Masterclasses, Robin is an engaging presenter who is known for filling a room and providing a challenging and effective delivery. He is a Member of the Expert Witness Institute.

Robin Wood

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