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Insurance Distribution Directive (IDD) − significant changes for all insurance distributors

05 May 2016

The IDD is designed to improve EU regulation in the insurance market by ensuring a level playing field for all participants involved in the sale of insurance products. It aims to address the inconsistent implementation of the Insurance Mediation Directive (IMD) across EU Member States and to tackle the increased complexity of the insurance market since the IMD was introduced in 2002. The IDD also seeks to increase consumer protection which has been an area of focus for the EU across all financial sectors since the financial crisis. Furthermore, to enhance cross-sectoral consistency, certain parts of the IDD are aligned with the rules under the MiFID II Directive.

Scope

The IDD extends the scope of the IMD to cover all participants in the sale of insurance products. Accordingly, the IDD will apply to not only (re)insurance intermediaries but also to distributors of insurance products that sell directly to customers without the use of an intermediary − i.e. insurers and reinsurers (also known as direct writers). The IDD will also apply to participants that distribute insurance products on an ancillary basis (such as travel agents and car rental companies) unless they fall within a limited exemption. However, as under the IMD, there are carve-outs for claims management, loss adjusting, expert claim appraisal and providing information on an incidental basis to a customer in the context of another professional activity.

Timeline

The IDD entered into force on 22 February 2016. This means that Ireland, along with all other Member States, will be required to transpose the IDD into national law by 23 February 2018. There is a transitional provision for intermediaries registered under the IMD until 23 February 2019, meaning that IMD-registered intermediaries must comply with the relevant national provisions implementing the IDD by this later date.

Key changes

Aside from the extension of scope referred to above, the following are some of the other key changes to the pre-existing IMD regime:

  • Enhanced information and conduct of business requirements to ensure cross-sectoral consistency, taking account of the MiFID II regime, including a duty to act in ‘customers’ best interests’, stricter remuneration disclosure and conflict of interest requirements, and various provisions relating to form and extent of information and advice provided
  • Simplified procedure for cross-border entry by intermediaries into EU insurance markets (includes publication of national general good provisions)
  • Single electronic public register containing records of all intermediaries that have notified intent to carry on cross-border business to be established by EIOPA
  • Product approval process for insurance products to be introduced to consider risks for target market
  • Minimum professional knowledge and competence requirements appropriate to product complexity and nature of activities conducted (includes minimum 15 hours CPD requirement).

Minimum harmonising directive

Although the IDD will significantly raise the minimum standards of the IMD, it is also a ‘minimum harmonising’ directive. This means that Member States will be able to gold-plate it by adding extra requirements when implementing the IDD if they choose to do so. It remains to be seen how Ireland will approach the implementation of the IDD. However, it is important that all firms in scope consider the implications of the IDD in planning their future distribution strategy sooner rather than later.