The IDD introduces new rules on insurance distribution. It came into force on 23 February 2016 and must be implemented into the national laws of the EU Member States by 1st July 2018. As for the application date, the member States have to apply the national rules from 1st October 2018 at the latest. The IDD repeals the Insurance Mediation Directive (IMD) and is a minimum harmonisation Directive. In other words, Member States, as they transpose the IDD into national law, cannot do less than what is required under the Directive but they may introduce additional measures if they deem it necessary to ensure the protection of consumers in their market. Insurance intermediaries who are already registered under the IMD have until February 2019 to comply with their respective and relevant provisions of national law implementing IDD knowledge and ability requirements (IDD Articles 40 and 10.1).
The IDD seeks to improve regulation in the retail insurance market and create more opportunities for cross-border business, to establish the conditions necessary for fair competition between distributors of insurance products and to strengthen consumer protection, in particular with regard to the distribution of insurance-based investment products.
The IDD empowers the Commission to adopt four binding Delegated Acts (DAs) to further specify some of its provisions with regard to Product Oversight and Governance (POG), conflicts of interest, inducements and assessment of suitability and appropriateness and reporting. The IDD empowers the Commission to adopt one implementing technical standard (ITS) regarding a standardised format of the Product Information Document (PID). The IDD also empowers the Commission to adopt regulatory technical standards (RTS) reviewing the minimum amounts of PII / financial capacity. EIOPA has to develop the draft DAs, ITS and RTS. The IDD empowers EIOPA to adopt various level 3 measures and to carry out other reports and studies (see below).
- The IDD: its main features
- The IDD covers the distribution
of not only
non-life and life products, reinsurance products,
insurance-based investment products (IBIPs).
- The IDD applies to insurance
, i.e. insurance intermediaries, insurance
undertakings and ancillary intermediaries
. The IDD (unlike the IMD)
expressly applies to certain activities conducted through
- The IDD applies to ancillary
, i.e. service providers and distributors of goods who
distribute insurance products on an ancillary basis. Those ancillary
excluded from the IDD where the
insurance they sell covers the risk of breakdown, loss of or damage to the
goods or non-use of the service or covers damage to or loss of baggage and
other risks linked to travel booked with that provider; and where the
amount of the premium for the insurance product does not exceed €600 on a
pro rata annual basis. In circumstances where the insurance is
complementary to the good or service and the duration of that service is
equal to or less than three months, the amount of the premium paid per
person should not exceed €200.
- Limiting the impact of the
exemptions on consumer protection, the IDD states that
or intermediary using the services of an exempted ancillary insurance
intermediary will have the obligation to ensure that the latter complies
with a series of information and conduct requirements.
- Product Oversight and Governance (POG)
- The IDD introduces product
oversight and governance requirements for insurance undertakings and
intermediaries which manufacture insurance products (a process for the
approval of each insurance product, identified target market consistent
with intended distribution strategy, review of insurance products and
information of distributors).
- It also includes some
requirements for insurance distributors who propose products that they do
not manufacture (to have adequate arrangements to obtain appropriate
information on insurance products, to understand the characteristics and
identified target market of each insurance product)
- POG requirements do not apply
to insurance products which consist of insurance of large risks.
- New information requirements
- For the sake of better consumer protection, insurance distributors will have to act honestly, fairly and professionally in accordance with the best interests of their customers. In particular, they cannot make any arrangements by way of remuneration or sales target that could provide an incentive to recommend a particular product to a customer when they could offer a different product that would meet the customer’s needs better.
- Before the conclusion of the contract, consumers will be provided with clear information about the professional status of the person selling the insurance product and about the nature of remunerationwhich he will receive. This does not apply for large risks and for reinsurance distribution activities. Member States may limit or prohibit the acceptance or receipt of fees, commissions or other monetary or non-monetary benefits paid or provided to insurance distributors by any third party, or a person acting on behalf of a third party, in relation to the distribution of insurance products.
- The IDD introduces a detailed standardised Insurance Product Information Document (IPID) for all non-life insurance products (see below).
- Where advice is provided, the insurance distributor has to provide the customer with a personalised recommendation explaining why a particular product would best meet his customer’s demands and needs. Member States can make the advice mandatory for the sales of any insurance products. Important to note is that the Directive explicitly states that distributors operating under Freedom of Establishment (FOE)/Freedom of Services (FOS) in Member States where advice is mandatory, will have to comply with that stricter provision when concluding contracts with consumers having their habitual residence in that Member State.
The IDD introduces new rules regarding cross-selling: where the insurance product is the ancillary product to a good or service, the good or service should be allowed to be purchased separately from the insurance (i.e. ban on tying). The IDD does not prevent the distribution of insurance products which provide coverage for various types of risks. The IDD requires that where the insurance product is the main product and is sold with an ancillary product or service that is not insurance, the customer is informed of whether the components can be bought separately.
- More clarification is given in
the IDD on the division of competence between the home and host Member
States. Broadly speaking, when the intermediary is passporting on a
its home Member State is responsible for ensuring
compliance with all IDD requirements. When the intermediary is operating
FOE basis, the host State concerned is responsible
for ensuring compliance with IDD information and conduct of business
requirements. Its home Member State is responsible for everything
- All intermediaries are subject
to relevant “general good” provisions that the host State may impose. Any
Member State which possesses additional “general good" type rules
will need to ensure that these are made publicly available.
- Continuous Professional Development (CPD)
- The IDD requires Member States
to have mechanisms to assess knowledge and competence of intermediaries,
employees of intermediaries and of undertakings based on at least 15 hours
of CPD per year (courses, e-learning, mentoring etc.
). The nature of the products
sold and the role of or the activity carried out by the person following
the training have to be taken into account.
- Member States may require that
the successful completion of the training and development requirements is
proven by obtaining a certificate.
- The IDD contains a specific
chapter with additional requirements for insurance-based investment
products (IBIPs) distributed by insurance undertakings and intermediaries,
meaning that they come on top of the requirements in the general part of
- Intermediaries and undertakings
have to take (proportionate) arrangements to prevent conflicts of interest
from adversely affecting the interests of their customers and must take
steps to identify them. If the taken arrangements are insufficient to
ensure that the risk of damage will be prevented, there is a requirement
of disclosure of the general nature or sources of conflicts of interest in
good time before the conclusion of the contract.
- For IBIPs, there will also be
Key Information Document (KID) according to the PRIIPs
- The IDD does not contain a
provision as the one in MiFID II on independent advice linked to a ban on
commission. Regarding independent advice Member States may require the
assessment of a sufficiently large number of products available on the
market that are adequately diversified.
- The IDD allows benefits if
there is no detrimental impact on the quality of the service and it is not
against the criteria to act honestly, fairly, professionally, and in
accordance with the best interests of customers. The IDD explicitly
foresees the possibility for Member States to go beyond (e.g. prohibition
of commissions, return to the client). Member States have the possibility
of introducing mandatory advice. Any stricter requirements have to be
respected in case of FOS and FOE.
- The IDD: its level 2 and 3 measures
The IDD empowered the Commission to adopt Delegated Acts to specify regulatory requirements on:
- Product Oversight and Governance Arrangements (Article 25, IDD)
- Management of Conflicts of Interest (Articles 27 and 28, IDD)
- Inducements (Article 29, IDD)
- Assessment of Suitability and Appropriateness and Reporting to customers (Article 30, IDD)
Under IDD Article 20, prior to the conclusion of a contract, the insurance distributor (i.e. the intermediary or the insurer or the ancillary intermediary) is required to provide the customer with the relevant information about an insurance product in a comprehensible form. In relation to the distribution of non-life insurance products, this relevant information must be provided by way of a standardized insurance product information document (IPID) on paper or another durable medium. The manufacturer of the non-life insurance product is required to draw up the IPID. The IPID will not replace the contractual documentation that is provided with an insurance policy
The IPID is intended to be a pre-contractual and stand-alone document that aims to provide relevant information about the product to allow the customer to take an informed decision. The content of the IPID is defined in the IDD and must contain the following information: information about the type of insurance; a summary of the insurance cover, including the main risks insured, the insured sum and, where applicable, the geographical scope and a summary of the excluded risks; the means of payment of premiums and the duration of payments; main exclusions where claims cannot be made ; obligations at the start of the contract ; obligations during the term of the contract; obligations in the event that a claim is made; the term of the contract including the start and end dates of the contract, and the means of terminating the contract.
The format of the IPID, specifying the above-mentioned information, has to be developed by EIOPA through an implementing technical standard (ITS) that the Commission will have to adopt
- Other IDD level 3 measures and reports to be issued by EIOPA
Possible EIOPA coordination of NCA monitoring their insurance/reinsurance market
EIOPA single electronic register of intermediaries under FOS/FOE
EIOPA assisting MSs in case of breach of IDD obligations by intermediaries under FOS/FOE
Review of and regulatory standards re PI insurance and financial guarantee
EIOPA Website with hyperlinks to national general good rules and EIOPA report on them
EIOPA Guidelines for the assessment and the supervision of cross-selling practices
EIOPA Guidelines for the assessment of IBIPs that incorporate a structure making it difficult for the customer to understand the risks involved + possible Guidelines for the assessment of non-complex IBIPs
EIOPA annual report re all administrative measures or sanctions
4 years after the IDD entry into force, EIOPA report on the application of the IDD.
2 years after the IDD entry into force, EIOPA evaluation of the structure of insurance intermediaries’ markets
4 years after the IDD entry into force, EIOPA report on competent authorities' powers and resources
By 23 February 2021, the Commission has to submit a report assessing whether the scope of the IDD remains appropriate with regard to the level of consumer protection, the proportionality of treatment between different insurance distributors and the administrative burden imposed on competent authorities and insurance distribution channels. By 23 February 2021, the Commission will also have to review the IDD. The review shall include a general survey of the practical application of IDD rules.
- The IDD: implementation by EU Member States - BIPAR monitoring
As the IDD is a minimum harmonisation Directive, Members States may introduce additional measures at national level that may lead to unnecessary administrative burden and would have a negative effect on the Single Market. BIPAR will monitor the IDD implementation in the EU Member States and will assist its member associations, for example, in case of wrong implementation of the text. In this context BIPAR issues regular updates on the IDD implementation, article by article.
For more recent news concerning this dossier, please contact your national association.
BIPAR - CMS briefing notes: IBIPs & POG