Do insurance introducers need FCA authorisation?

Why introducing can be insurance distribution

Rights under a contract of insurance are a specified investment under the Regulated Activities Order, so arranging deals in investments under article 25 applies to insurance as it does to shares or bonds. Since the Insurance Distribution Directive was implemented in the UK, the activities that make up insurance distribution have been read broadly. They include advising on, proposing or carrying out other work preparatory to the conclusion of a contract of insurance, concluding contracts, and assisting in their administration and performance, particularly when a claim is made.

An introducer that passes customers to an insurer or broker in return for commission can therefore be arranging. The more it does, for example discussing cover, collecting information for a quote or helping with a proposal form, the clearer that becomes. Exclusions that work for introducers of other investments should not be assumed to work in the same way for insurance. Helping customers with claims under their policies can also be a regulated activity in its own right. PERG 5 is the FCA’s guidance on all of this.

Introducer appointed representatives

Many insurance introducers are appointed representatives of an authorised insurer or broker. An appointed representative is exempt for the regulated activities its principal has accepted responsibility for, and the principal must supervise it. SUP 12 in the FCA Handbook sets out the requirements.

A lighter form is the introducer appointed representative. Its appointment is limited to effecting introductions to its principal or the principal’s group and distributing non-real time financial promotions. It does not extend to advising, or to assisting in the administration and performance of a contract of insurance, so an introducer whose staff discuss cover or help with claims will usually need a full appointment or its own permission. The principal decides the scope of the appointment and is accountable for what the representative does within it. Appointed representative arrangements

Insurance sold alongside goods or services

The Regulated Activities Order contains an exclusion for some insurance sold by providers of goods or services as an add-on to what they supply, known as the connected contracts exclusion, in article 72B. In outline, it can apply where the provider’s business does not otherwise involve regulated activities, the insurance complements the goods, other than motor vehicles, or services it supplies, and the cover is for particular risks linked to them, such as breakdown, loss of or damage to the goods, non-use of the services, or certain risks linked to travel booked with the provider. There are limits on the premium and further conditions on the type of cover.

The exclusion is narrow and it is not a general exclusion for retailers or service providers. A business that sells insurance unrelated to what it supplies, or cover outside the permitted types, falls outside it. Whether a product is insurance at all can be a separate question: some extended warranties and protection plans are contracts of insurance, and others are not. PERG 6 explains how the FCA identifies a contract of insurance.

Affiliate and comparison models

Online affiliates are paid by insurers or brokers for sending them customers. Whether that is arranging depends on what the affiliate does. A site that publishes general content with a link is in a different position from one that collects customer details, recommends particular policies or takes the customer part of the way through a quote. Providing information on one or more insurance contracts according to criteria the customer selects on a website, or ranking products, can itself be insurance distribution where the customer can go on to conclude a contract directly or indirectly. That is why insurance comparison sites are generally authorised or work as representatives of an authorised firm. Lead generation

Your marketing is a separate test

Adverts, web pages and emails that invite people to take out insurance can be financial promotions under section 21 of FSMA. The Financial Promotion Order treats some insurance communications differently from investment communications, and the exemptions available depend on the type of insurance and the audience. An appointed representative’s promotions are its principal’s responsibility. Separately, the FCA’s insurance conduct rules in ICOBS require communications to customers about a policy to be clear, fair and not misleading. How the financial promotion rules work

Common misunderstandings

When a written opinion helps

A written legal opinion is worth considering when an insurer or broker asks you to confirm your status before paying commission, when you want to add cover to your goods or services and rely on the connected contracts exclusion, when you run an affiliate or comparison site, or when you are deciding between an introducer appointment, a full appointment and your own permission. If an appointed representative arrangement or authorisation is needed, we can introduce you to specialists, and they pay us an introduction fee. How written opinions work