Design and Distribution Obligations (DDO) is the most significant of all the regulatory reforms to be navigated (from the product perspective). If done well, it will break the back of many of the other reform tasks.
So when do you need to get started, if you haven’t already?
We think it is time to start now, because:
- It all has to be in place by 5 April 2021 (not just started by then) – now 18 months away, less two Christmas breaks.
- There are a lot of products to do – you need a Target Market Determination (TMD) for every active PDS.
- There will be changes needed to many intermediary (agent and broker) agreements as well as internal systems and reporting.
- Of all the reforms, this may be the best to demonstrate being on the front foot and taking a positive approach to change.
The responsibility for implementing DDO rests with the entity that issues the PDS:
- Insurers selling retail products
- Underwriting agencies that issue their own PDS
These organisations will need to have TMDs and all the associated processes required for DDO, and therefore will have the most work to do.
Brokers and product distributor roles will be limited to monitoring and reporting on sales outcomes (e.g. breaches of the TMD) as required by the product originators above.
Roadmap for insurers
In our article published in May 2019 we discussed what the TMD will need to cover and what the other obligations are. In the remainder of this article we cover the practical steps that are now becoming urgent for insurers to meet their Design and Distribution Obligations.
Governance and responsibility
Who is the key responsible person in the organisation for DDO? Is the product management function sufficiently well established at the top level to take this on? Is a COO or CUO in a position to add this to their responsibility set?
The Board (or other governing body) will likely want to be involved at least with the first couple of products, but should there be a permanent Board responsibility and reporting for DDO? We think that the responsibility should rest with executive management, without requiring the Board authority for individual decisions.
An early draft of governance and responsibility will enable the work to begin with clarity and focus.
Product management is the logical functional area to own DDO.
In the design stage input will be needed from a range of areas (this looks like a task force):
- Marketing/customer experience
- Distribution (by channel)
- Actuarial, particularly for product value assessment
- Complaints or IDR
Implementation will need to involve:
- Distribution, particularly in ensuring distribution obligations are understood and in agreements
- Information technology, especially website management
- Business intelligence, because new reports will be required
- IDR, with new interactions needed (readily combined with the RG165 upgrades if you get the timing right)
- Compliance, because the new obligations will need to be understood and tracked
- Legal, for review of documents and checking against legal obligations
- Risk, who needs to understand what is happening and create a feedback loop for issues
- Learning and development, because there will be some new or changed training requirements for some areas of the company
How can Finity help?
Finity has a deep understanding of products, markets and insurance operations. Finity is also a leader in the regulatory compass for general insurance. For DDO we can:
- Develop and implement the product value framework suitable for your business
- Help establish the program structure and plans
- Grind through some of the work that is needed
- Train, supervise and review your people working on the project
- Provide assurance for governance purposes
One of the great opportunities is that we think you can use this project to kill several birds with the one stone. It is a time when you will certainly open the PDS and so implementing all desired changes in one go is worthwhile. An effective program of work on DDO can address all of the following reforms as well:
- Unfair Contract Terms - update for known issues
- Consumer duty of disclosure
- Deferred sales model
- Updated sales scripts and training
Read our ongoing Royal Commission Response here.
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