Introduction
The aim of IDD is to establish new rules on insurance distribution and to improve regulation in the retail insurance market, as well as create more opportunities for cross-border business, establish the conditions for fair competition between distributors through an extension of the Directive to direct sales, and to strengthen consumer protection, in particular with regard to the distribution of insurance-based investment products.
Main effects of regulation on a company
- CPD based on at least 15 hours of professional training or development per year (details will be set down in national law)
- changes of the sale process:
- provide in advance with clear information about the status of the persons who sell insurance, type of remuneration
- rules to ensure that conflicts of interest do not adversely affect the interests of the customer
- provide additional information detailing any cost of distribution that is not already included in KID
- obligatory demands-needs test
- personalized recommendation if advice is provided prior to the sale of an insurance product
- provide standardised information about non-life insurance products (IPID)
- PRIIPs implementation
- product oversight and governance (POG) implementation
- advised and non-advised sales process
Main timelines
| Final date of IDD implementation into national law | 23.2.2018 |
| Final date for project* | 23.2.2018 |
* depends on national law
Overview of regulation
EU regulation places consumer protection, both through prudential and conduct of business regulation, at the center of its strategy. Misconduct by firms may not only harm individual consumers, but may also have a wider prudential impact, posing a threat to the stability of the financial sector.
The directive applies to persons whose activity consists of providing insurance or reinsurance distribution services to third parties.
What are the objectives of the IDD directive?
- the main objective is to set minimum standards on EU level concerning insurance and reinsurance distribution in order to achieve greater customer protection
- apply for different distributor of insurance products and their channels (also travel agents, car rental companies, website)
- by regulating distribution of insurance contracts, including insurance-based investment products
- set minimum standards for persons practicing insurance distribution as an ancillary activity who are not covered by the directive
- unified registration of insurance, reinsurance and ancillary insurance intermediaries
- promote freedom of establishment and the freedom to provide services within the EU
- regulate cross-selling practices
- encourages companies to move from a product-oriented strategy based on the product’s lifecycle
- set specific standards with respect to insurance-based investment products in order to protect customers
To whom it applies
- applies to any natural or legal person who wants to pursue the distribution of insurance and reinsurance products
- does not apply to ancillary insurance intermediaries, if the insurance is a complementary service and covers risk included in travel insurance and warranty insurance, the premium of which does not exceed 600 EUR (or the duration of coverage is less than 3 months and the premium less than 200 EUR)
- despite the previous point, ancillary insurance intermediaries should provide customers with:
- information about the identity of intermediaries and the complain process
- IPID
- consideration of the customer’s demand and needs
Professional and organisational requirements
- Member States shall have in place and publish mechanisms to effectively control and assess the knowledge and competence of insurance and reinsurance intermediaries and employees of insurance and reinsurance undertakings and employees of insurance and reinsurance intermediaries, based on at least 15 hours of professional training or development per year
- a fitness and propriety requirement for insurance and reinsurance intermediaries
- special measures to protect customers against misusing cash management
Information requirements
- marketing communications shall be fair, clear and not misleading
- insurance intermediaries should make the following disclosures before the conclusion of a contract:
- identity
- whether it provides advice about the insurance products sold
- complaints and out-of-court complaint rights
- the registerin which they are registered
- whether the intermediary is representing the customer or is acting for and on behalf of the insurance undertaking
- Conflicts of interest and transparency – in addition, insurance intermediaries must provide the customer with the following:
- ownership relationship between insurance company and intermediary (10% or more)
- whether he or she gives advice on the basis of a fair and personal analysis or is linked exclusively with one or more insurance companies, or is not under a contractual obligation
- national regulation that can make the provision of advice provided prior to the conclusion to be mandatory for the sales of any insurance product, or for certain types of insurance products
- the nature of the remuneration
- an insurance company communicates to its customer the nature of the remuneration received by its employees in relation to the insurance contract
- All information provided must be on paper, under special conditions also on a website or other durable media
Advice and standards for sales where no advice is given
- any contract proposed should be consistent with the customer’s insurance demands and needs
- where advice is provided, the insurance distributor must provide the customer with a personalised recommendation
- whether or not advice is given, the insurance distributor has to provide the customer with the relevant information documents about the product
- for large risk deliveries of information defined in IDD are not needed
Cross-selling
- insurance products and ancillary products or services which are not insurance must be unbundled
- does not affect bundling of insurance products
Product oversight and governance requirements
- Insurance companies and intermediaries which manufacture any insurance product for sale to customers shall maintain, operate and review a process for the approval of each insurance product
- The product approval process shall:
- specify an identified target market
- ensure that all relevant risks to such an identified target market are assessed
- ensure that the intended distribution strategy is consistent with the identified target market
- a review process of products to see if product remains consistent with the needs of the identified target market
- does not apply to insurance of large risks
Additional requirements in relation to insurance-based investment products
- the insurance intermediary or an insurance undertaking carrying on the distribution of insurance-based investment products shall maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps designed to prevent conflicts of interest
- provide KID to customers in an appropriate time