The Insurance Distribution Directive (IDD) imposes requirements in respect of systems and controls, conduct and capital adequacy. In order to comply with the IDD, the FCA has set out rules governing the calculation of capital resources and the determination of Paragon’s capital resources requirements. These are found in MIPRU.
Responsibility for distribution activities (MIPRU 2)
Paragon ensures that the responsibility for its insurance distribution activity is allocated to directors who are not non-executive directors and who are controlled functions of Paragon. Paragon has allocated responsibility for its insurance distribution activities to James Kalbassi, Tara Falk, Nick Lewin and Spenser Lee.
The Compliance Team uses the FCA CONNECT system to register persons responsible for insurance distribution activities and updates these details as necessary from time to time.
Paragon also establishes that:
i. a reasonable proportion of the persons within its management structure who are responsible for insurance distribution activity, and all other persons directly involved in its insurance distribution activity, demonstrate the knowledge and ability necessary for the performance of their duties; and
ii. all the persons in its management structure and any staff directly involved in insurance distribution activity are of good repute.
Professional Indemnity Insurance (MIPRU 3)
Insurance intermediaries are required to take out and maintain professional indemnity insurance (PI) with an EEA insurance undertaking or a person of equivalent status in certain countries specified by the FCA. This insurance must incorporate specific terms and comply with minimum limits of indemnity which for Paragon is:
i. for a single claim, €1,250,000; and
ii. in aggregate, €1,850,000 and an amount equivalent to 10% of annual income (this amount being subject to a maximum of£30 million.
The excess must not be more than the higher of:
i. £5,000; and
ii. 3% of annual income.
Paragon has taken out PI with a number of Lloyd’s and London market insurers. Paragon monitors the position of its PI cover.
Should Paragon’s cover fall short of the required standard it:
i. in the case of the indemnity limit, take immediate steps to inform the FCA and to remediate the deficit in the limit; or
ii. in the case of excess, it holds additional capital as set out in MIPRU 3.2.14. If it lacks the resources to hold such additional capital, it will take immediate steps to inform the FCA and to remediate the breach of the excess requirement.
Paragon complies with the requirements set out above and monitors the impact of exchange rates on its limit of indemnity to ensure continuing compliance.
Capital Resources (MIPRU 4)
Paragon ensures at all times that it can meet its liabilities as they fall due and maintains capital resources equal to or in excess of the applicable FCA capital resources requirement.
There is a greater risk to consumers and greater impact on market confidence, if a firm which holds client money (or other client assets) fails. For this reason, Paragon’s capital resource requirement is the higher of:
(i) £10,000; and
(ii) 5.0% of the annual income from its insurance distribution activity.
Paragon complies with the requirements set out above.
Post your comment on this topic.