The regulator has outlined how it intends to comply with the Insurance Distribution Directive by the 23 February 2018 deadline required of the UK.

This aims to consolidate and strengthen The Insurance Mediation Directive, which was introduced in early 2005 and was designed to encourage competition between insurance firms, as well as ensure appropriate levels of protection for customers, across the EU.

The IDD requires intermediaries to hold PII or a comparable guarantee against liability arising from professional negligence. Minimum levels of cover are €1,250,000 per claim per year, and €1,850,000 per year in aggregate.

The FCA said its existing rules are more detailed than the IDD requirements in some respects, such as a requirement for intermediaries to maintain a higher minimum aggregate cover – 10% of annual income up to £30m – where this is greater than the directive minimum amount.

There is also a need to have specific terms which the PII cover must incorporate (such as cover for legal defence costs and Ombudsman awards).

The FCA proposed to maintain the existing requirements but it “will amend the minimum levels of PII cover in line with the IDD minimum levels”.

It stated: “We will retain the additional income-based minimum aggregate requirements. In our view, there has been no material change in circumstances since these were introduced.

“PII coverage remains an area of focus for FCA in other areas in addition to the IDD16 and in December 2016 we announced a broad review of the PII market. Our proposals in this consultation paper and the outcome of this consultation will inform our wider work.”

The consultation paper also covers the FCA’s the following areas:

• professional and organisational requirements
• complaints handling and out-of-court redress
• changes to conduct of business rules (for non-investment insurance contracts)
• the regulatory regime for ancillary insurance intermediaries

The IDD will apply more broadly than the IMD and bring consumer protection rules in line with those in other financial markets.

Christopher Woolard, executive director of strategy and competition at the FCA said: "This directive is a significant piece of legislation with implications for the insurance industry as a whole. Many of the changes extend UK standards to other parts of the EU and where domestic provisions already exist we will seek to minimise the disruption to UK firms.

"As well as encouraging competition between insurance intermediaries, this directive will continue to ensure protection for insurance customers."