Insurance Distribution Directive (IDD)

The aim of this article is not to provide you with the most up-to-date information on the subject but to give you a general insight in the subject and its importance for the sector.

The IDD introduces new rules on insurance distribution. It came into force on 23 February 2016 and had to be implemented into the national laws of the EU Member States by 1st July 2018. By February 2020, all EU Member States had implemented the IDD. The IDD is a minimum harmonisation Directive, meaning that Member States cannot implement less than what is required by the IDD but they may introduce additional measures to ensure the protection of their consumers.

The IDD empowered the European Commission to adopt two Delegated Acts to further specify IDD provisions on Product Oversight and Governance (POG) and Conflicts of interest, Inducements, Assessment of suitability and appropriateness and reporting for IBIPs. These Delegated Regulations are binding for Member States. The Commission also adopted an implementing technical standard (ITS) regarding a standardised format of the IDD Product Information Document (IPID), and a regulatory technical standard (RTS) reviewing the minimum amounts of PII/financial capacity[1].

According to IDD Article 41, by 23 February 2021, the Commission had to submit a report on the application of IDD Article 1 and to review the IDD. Because of the late adoption of the Directive and then the Covid-19 crisis, these reports have been postponed. They should be published by end of 2022.

The Commission will consult the industry on its report on the review of the IDD in early 2022. The EIOPA report on the IDD application (see below) will feed into that report.

EIOPA will also be requested by the Commission in June 2021 (or later this year) to provide its technical advice on the possible revision of the IDD. To this end, EIOPA will consult the sector accordingly.

Measures issued by EIOPA

The IDD empowers EIOPA (European Insurance and Occupational Pensions Authority) to adopt various measures and to carry out other reports and studies.

According to IDD Article 41, EIOPA was required to prepare a report to assess the application of the IDD by the end of 2020. EIOPA has postponed the delivery of this report to Q4 2021, mainly because of the delayed transposition and application date of the IDD and the impact of the COVID-19 pandemic. As a first step towards the preparation of its report, EIOPA consulted stakeholders at the end of 2020, asking for their feedback on the experience with the application of the IDD.

BIPAR key messages in response to EIOPA consultation on IDD application

  • It is too early to have a clear view and understanding of the impact of the IDD on the activities of insurance intermediaries and on consumers’ protection. The introduction of new requirements by the IDD is still too recent to allow for any meaningful conclusions about their application in practice.
  • The assessment of the impact of the IDD cannot be seen in isolation of other market developments and of many new EU rules which came into force in the last years (GDPR, AML, etc.).
  • The IDD is a good and balanced text that can bring real benefits to consumers and retail investors.
  • There is now a need for regulatory stability for insurance intermediaries.
  • There is room to update some outdated IDD requirements for example, that require precontractual information to be provided to consumers on paper by default.
  • The (lack of) application of the proportionality principle is a serious issue.
  • Regulatory convergence must be a key focus in addressing any issue going forward, in this regard EIOPA has a key role to fulfil.

In October 2020, EIOPA published a paper on the supervision of IDD POG requirements. EIOPA explains that the paper can be of useful support for distributors when implementing their own POG policies, so they can better engage with their supervisors. In its paper, EIOPA sets out the supervisory approach for assessing whether manufacturers have developed and implemented adequate systems and controls for their POG process and whether product distribution arrangements have been properly implemented by distributors, to be aligned with manufacturers’ distribution strategy and ensure products are sold within the right target market.

In December 2020, EIOPA published its first report on administrative sanctions and other measures imposed under the IDD by NCAs. Under Article 36 (2) of the IDD, EIOPA is required to publish such a report each year. Overall, in eight Member States (Belgium, Bulgaria, Denmark, France, Germany, Hungary, Lithuania and Malta), NCAs imposed a total of 1,923 administrative sanctions or other measures. The vast majority of sanctions (around 75%) were for breaches of professional and organisational requirements in Article 10 of the IDD.Around 20% of sanctions were imposed for breaches of the registration requirements in Article 3 of the IDD.The most frequent sanctioning measure based on the information reported by each NCA, was to withdraw the registration of the intermediary followed by the use of administrative pecuniary sanctions.

In April 2021, EIOPA launched its IDD Single Rulebook. The IDD Single Rulebook is meant as a documentation tool and aims at promoting and ensuring the consistent application of the IDD (levels 1, 2 and 3) across the EU. It provides easy access to the IDD regulatory framework, legally binding and non-binding.

In April 2021, EIOPA published another set of Questions & Answers (Q&As) on the application of the IDD. EIOPA Q&As are a practical convergence tool to support “common supervisory approaches and practices”. EIOPA’s answers are non-binding and they are not subject to the “comply or explain” procedure. This latest set of Q&As provides, in particular, practical guidance on "appropriateness assessment, POG requirements (significant adaptation of an existing product, product testing and product review for existing products, manufacturer’s responsibility for adequate product oversight & governance), the application of the IDD in case of providing advice regarding existing contracts and to captive insurance undertakings".

Other measures already adopted by EIOPA

  • Under Article 11(3) of the IDD, EIOPA must include on its website the hyperlinks to the websites of competent authorities where information on “general good[2]” rules is published. Such information is now available on the EIOPA website
  • According to the IDD, Article 11(5), EIOPA is also required to publish a report examining the general good rules in the context of the proper functioning of the IDD and of the internal market. This report was published on 30 July 2019. The report is accompanied by a country-by-country analysis.
  • Under the IDD, Article 3.4, EIOPA must establish and publish on its website and keep up to date a single electronic register containing records of insurance, reinsurance and ancillary insurance intermediaries which have notified their intention to carry out cross-border business in accordance with the IDD. This information is now available on theEIOPA website.
  • In December 2018, EIOPA published a report on the “Evaluation of the Structure of Insurance Intermediaries Markets in Europe” in accordance with Article 41(5) of the IDD (please click here for the Report and here for the annex). This Report provides an overview of the status of the European intermediaries markets up to 31 December 2017, relating to data for the period from 2013 to 2017.

BIPAR is monitoring the IDD implementation in the EU Member States and is assisting its member associations, for example, in case of wrong implementation of the text.

[1] The current figures are as follows:

  • the minimum amount of EUR 1 300 380 per claim;
  • the minimum amount of EUR 1 924 560 for all claims/year; and
  • the minimum amount of EUR 19 510 of financial capacity

This Regulation is binding in its entirety and directly applicable in all EU Member States.

[2] General good provisions are rules adopted by a Member State which introduce additional requirements addressing specificities of its market (e.g. consumer protection, prevention of fraud, preservation of the good reputation of the national financial sector etc..) and must be observed by insurance intermediaries providing cross-border services into that market.

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