COBS 4 – Requirements for Advising and Selling Non-Investment Insurance Contracts

1. Chapter Summary

COBS 4 sets out the regulatory requirements for firms advising on and selling non-investment insurance contracts (NIICs), such as general insurance products. It ensures that firms provide clear, fair, and non-misleading information to clients and conduct their business in a manner that protects consumers. This chapter helps maintain consumer confidence and promotes transparency and fairness in insurance distribution.

2. Applicability

This chapter applies to all firms carrying out insurance distribution activities for non-investment insurance contracts within the UK regulated by the FCA. It excludes MiFID investment business and specifically targets insurance mediation activities, including advice and arranging insurance.

3. Key Rules and Their Meaning

• COBS 4.1.1R – Clear, Fair, and Not Misleading Communications Firms must ensure that all communications, including pre-contractual information, are clear, fair, and not misleading. This ensures consumers receive accurate details about insurance products.
• COBS 4.2.1R – Disclosure of Information Before the Contract Is Concluded Firms are required to disclose essential information about the insurance product, the insurer, and the firm’s status as an intermediary prior to the contract conclusion, enabling consumers to make informed decisions.
• COBS 4.3.1R – Product Information and Comparison Requirements Firms must provide sufficient information for clients to understand the main features and risks of the insurance product and, where applicable, provide product comparisons.
• COBS 4.4.1R – Suitability Assessments for Advice When advising on NIICs, firms must conduct a suitability assessment to ensure the product meets the client’s demands and needs. This includes gathering relevant client information and providing recommendations based on this.
• COBS 4.5.1R – Handling of Client Money and Complaints Firms must adhere to FCA rules on client money handling and have procedures in place for managing client complaints effectively.

4. Interpretation Notes / FCA Expectations

• The FCA expects firms to maintain transparency regarding their role, especially when acting as intermediaries.
• Pre-contractual disclosures should be comprehensive but concise, avoiding overwhelming the consumer.
• Suitability assessments are expected to be proportionate to the complexity of the insurance product.
• The FCA encourages firms to document advice processes carefully to demonstrate compliance.

5. Practical Considerations for Firms

• Implement standardized client information sheets and product disclosure templates.
• Develop training programs for advisers on regulatory communication and suitability requirements.
• Maintain thorough records of client interactions, suitability assessments, and disclosures.
• Establish complaint handling procedures and monitor complaint trends for compliance risks.

6. Related Handbook References

• COBS 2 – Treating Customers Fairly and Managing Conflicts
• PRIN – Principles for Businesses (underpinning fairness and transparency)
• SYSC – Systems and Controls (compliance and risk management frameworks)
• ICOBS – Insurance Conduct of Business sourcebook (for more detailed insurance regulation)
• MIPRU – Prudential rules relating to insurance firms

7. Regulatory Focus / Enforcement Risk

• The FCA actively monitors for misleading or incomplete pre-contractual information.
• Failures in suitability assessments and inadequate disclosures have been focal points in enforcement.
• Complaint handling processes are regularly reviewed to ensure consumer protection standards are met.