Long-term insurance contracts (Pure Protection only)
Press Release for Financial Advisers and General Insurance Intermediaries - Long-term insurance contracts (Pure Protection only).
This notice is for general information. It is not a substitute for legislation and should therefore be read in conjunction with relevant legislation in each case.
The Isle of Man Financial Services Authority is reminding financial advisers and general insurance intermediaries of their obligations in relation to the sale of pure protection contracts.
Firms are encouraged to view the guidance published on the Authority’s website, which explains the key requirements regarding terms of business agreements (TOBAs) and the extent of the advice a firm must provide to its customers.
Further information is available in the thematic report published in February 2025 on conduct risk in the Non-Life insurance intermediary sector, which included independent financial advisers (IFAs).
The report confirms that firms engaged in the sale of pure protection contracts are required to enter into a TOBA with their customers in line with the regulatory requirements of the Insurance Act 2008 (IA08). This is in addition to the TOBA requirements under the Financial Services Act 2008 (FSA08) for all other regulated activity undertaken.
Firms have the option of using two separate TOBAs or choosing to combine the documents, either totally or in part, provided the requirements of both Acts are met within the signed TOBAs they execute with their customers.
Firms should consider how best to ensure that customers are made aware of the basis of any advice given under either regulatory framework. These considerations must be documented, clearly evidencing the type of advice given – for example, whether full advice, limited advice or how the demands and needs of the customer have been met under each regulatory framework. It is not necessary to hold separate meetings to achieve this.
The Authority is seeking to raise awareness of these requirements in response to recent enquiries about the extent of the advice a firm must provide in relation to the sale of pure protection contracts. The sale of such contracts falls under the regulatory remit of the IA08, even if undertaken by a firm licenced as an IFA under FSA08.
By way of background, prior to the merger of the Insurance and Pensions Authority (IPA) and Financial Supervision Commission (FSC), IFAs who intermediated on pure protection policies were exempt from the requirement to also register as an insurance intermediary with the IPA. This was to avoid unnecessary duplication of regulatory oversight and fees by both regulators.
While there was no requirement to be registered with the IPA, such firms still had to comply with certain elements of the insurance intermediary framework, including the common trading practices and professional indemnity requirements. This approach was confirmed in a joint IPA and FSC press release.
Following the merger of the IPA and FSC into the Financial Services Authority (FSA) a series of consultations invited feedback on plans to update the general insurance intermediary framework in line with the Insurance Core Principles.
One proposal was to remove the exemption that permitted IFAs intermediating on pure protection contracts not be registered under the IA08. (CP17-07/T08 section 3.1.2 – IFAs offering pure protection products). This was due to the following reasons:
- To ensure the public has access to information regarding which firms on the Island are regulated to sell pure protection contracts.
- To ensure the Authority understands the extent to which pure protection business is being sold on the Island by IFAs, therefore enabling the Authority to allocate its resources appropriately in relation to the supervision of this activity.
- To ensure the Authority is able to use its full supervisory and enforcement powers prescribed in the IA08 to deal with any malpractice or breaches in relation to the sale of pure protection products.
All the consultation submissions, with particular reference to this exemption under Section 3.1.2 (Question 2), showed that firms either supported the proposal or had no comment. Taking this feedback into account, the Authority decided to move ahead with the removal of the exemption.
Additional published Guidance for Insurance Intermediaries can be found on our website:
https://www.iomfsa.im/media/3109/guidance-requirement-for-registration.pdf
https://www.iomfsa.im/media/2739/guidance-on-suitability-of-an-insurance-contract.pdf