Insurance Distribution Directive (IDD)

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 (level 1 text) 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. As for the application date, the Member States had to apply the national rules from 1st October 2018 at the latest. According to the European Commission, all EU Member States have now implemented the IDD with the exception of Spain that has not communicated any IDD transposition measures so far.

IDD key main features

Wider scope: The IDD covers the distribution of non-life and life products, reinsurance products, but also insurance-based investment products (IBIPs). It applies to insurance distributors, i.e. insurance intermediaries, insurance undertakings and ancillary intermediaries (with exemptions). The IDD expressly applies to certain activities conducted through price comparison websites.

Product Oversight and Governance (POG): The IDD introduces POG requirements for insurance undertakings and intermediaries which manufacture insurance products. It also includes requirements for insurance distributors who propose products that they do not manufacture. POG requirements do not apply to insurance products which consist of insurance of large risks.

New information requirements: 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 remuneration which he will receive. This does not apply for large risks and for reinsurance distribution activities.

The IDD introduces a detailed standardised Insurance Product Information Document (IPID) for all non-life insurance products that must be provided to the customer prior to the conclusion of a contract by the insurance distributor. The manufacturer of the non-life insurance product is required to draw up the IPID.

Cross-selling rules: 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 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 as to whether the components can be bought separately.

Cross-border activities: More clarification is given on the division of competence between the home and host Member States. Broadly speaking, when the intermediary is passporting on a FOS basis, its home Member State is responsible for ensuring compliance with all IDD requirements. When the intermediary is operating on a 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 else.

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.).

IBIPs regime: The IDD contains a specific chapter with additional requirements for IBIPs distributed by insurance undertakings and intermediaries.

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 were already registered under the IMD had 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).

IDD level 2 measures

In 2018, empowered by the IDD, the Commission adopted two Delegated Regulations (level 2 texts) that further specify some of the IDD provisions with regard to POG and with conflicts of interest, inducements, assessment of suitability and appropriateness and reporting for IBIPs products. The Commission also adopted one implementing technical standard (ITS) regarding a standardised format of IPID (see BIPAR Annual Report 2017/18).

In May 2019 the Commission adopted a regulatory technical standard (RTS) reviewing the minimum amounts of PII/financial capacity. The IDD also empowers EIOPA to adopt various level 3 measures and to carry out other reports and studies.

IDD RTS on PI insurance and financial guarantee

In May 2019, based on the EIOPA proposals submitted in June 2018 after consultation of concerned stakeholders, including BIPAR, the European Commission adopted a Delegated Regulation amending the IDD with regard to RTS adapting the base euro amounts for professional indemnity insurance and for financial capacity of insurance and reinsurance intermediaries.

The IDD base amounts have been adapted taking into account the changes in the European index of consumer prices which increased by 4,03% in the relevant period from 1 January 2013 to 31 December 2017. The figures have changed as follows:

  • the minimum amount of EUR 1 250 000 per claim is increased to EUR 1 300 380 per claim;
  • the minimum amount of EUR 1 850 000 for all claims/year is increased to EUR 1 924 560 for all claims/year; and
  • the minimum amount of EUR 18 750 of financial capacity is increased to EUR 19 510.

The Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. It will then apply 6 months after the date of entry into force. This transitional period of 6 months aims to allow Member States to adapt their national legislation and to give insurance and reinsurance intermediaries and their insurance providers time to take the necessary implementation measures. This Regulation shall be binding in its entirety and directly applicable in all EU Member States.

IDD level 3 measures issued by EIOPA

  • On 13 July 2018, EIOPA published a first 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. These Q&As provide practical guidance on the application of the IDD and its delegated Regulations on POG and on the additional regulatory requirements for IBIPs.
  • Under Article 11 of the IDD, EIOPA must include on its website the hyperlinks to the websites of competent authorities where information on “general good” rules is published. General good rules are rules adopted by a Member State in the interest of the general interest (e.g. consumer protection, prevention of fraud, preservation of the good reputation of the national financial sector etc..) and that insurance intermediaries intending to carry on business in that Member State under FOS or FOE must comply with.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. EIOPA has been asking BIPAR on an informal basis information on intermediaries’ experience with national general good rules when carrying out cross-border business. Its report is expected to be published later in 2019.
  • 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 on 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, and more in particular:

    • of the different types of insurance intermediaries and other distribution channels in the European market,
    • of the registered insurance intermediaries and their role in the distribution of insurance,
    • of the patterns of cross-border activity,
    • of the remuneration models used by insurance intermediaries and other distribution channels and
    • of the growth of “other emerging insurance distribution channels and InsurTech in the EU”.

EIOPA will continue to monitor closely developments in national markets amongst others in preparation of a further report on the application of the IDD, which EIOPA will prepare by February 2020 in accordance with Article 41(4) IDD.

Other reports/works to be carried out by EIOPA

  • Possible EIOPA coordination of NCA monitoring their insurance/reinsurance market
  • EIOPA Guidelines for the assessment and the supervision of cross-selling practices
  • EIOPA annual report on all administrative measures or sanctions
  • 4 years after the IDD entry into force, EIOPA report on the application of the IDD
  • 4 years after the IDD entry into force, EIOPA report on competent authorities' powers and resources

BIPAR monitoring of IDD implementation

BIPAR monitors the IDD implementation in the EU Member States and assists its member associations, for example, in case of wrong implementation of the text. In this context BIPAR also issues regular updates on the IDD implementation and on intermediaries’ remuneration in the EU Member States.

Revision of EIOPA Luxembourg Protocol

In September 2018, EIOPA adopted the revised version of its Luxembourg Protocol on the cooperation of national competent authorities (NCAs) with regard to the IDD, now in the format of a Decision of EIOPA’s Board of Supervisors (BoS) which is binding on the authorities represented in the BoS.

EIOPA revised its Luxembourg Protocol in the light of the new provisions of the IDD. BIPAR was consulted informally on the revision of the Luxembourg Protocol and informed EIOPA in particular on the importance of keeping the clarifications the Protocol contains on the triggering element of insurance intermediaries’ cross-border activities. BIPAR is therefore pleased that these clarifications were maintained in EIOPA’s Decision. These clarifications that BIPAR helped the Commission and CEIOPS (now EIOPA) to develop in 2007, have very important ramifications for our sector and it is anticipated that they will continue to be heavily relied upon by insurance intermediaries when carrying out cross-border activities.

Under EIOPA’s interpretation, an intermediary is not operating under FOS if the intermediary:

  • is registered in the same Member State as the policyholder’s residence or establishment;
  • is registered in the same Member State where the risk is situated; or
  • has no intention to carry out cross-border business.

One of the objectives of the IDD was to clarify intermediaries’ FOS. However, this was not defined in the IDD. BIPAR believes that it is important for the sake of legal certainty to have a clear description of the triggering element of the FOS activities of an intermediary because general good rules and stricter information requirements of the host Member State may have to be complied with by an intermediary when he/she is considered as carrying out FOS in that Member State.

BIPAR handbook on Cross-Border Insurance Distribution by Insurance Intermediaries in the EU

The IDD changes how insurance intermediaries operate across the borders of the EU Member States. Based on our own continuous work on this topic, BIPAR appreciates its importance for insurance intermediaries in the EU and in order to provide insurance intermediaries with updated and practical information, it commissioned the Brussels office of Steptoe & Johnson LLP to draw up a handbook on Cross-Border Insurance Distribution by Insurance Intermediaries in the EU.

The Connecta Case - CJEU on the concept of insurance mediation

The European Court of Justice (CJEU) ruled in its judgment of 31 May 2018 (C-542/16) on the following preliminary questions:

  • Are insurance intermediaries providing financial advice related to the conclusion of contracts combining the traditional insurance element with the placement of capital (e.g. unit-linked life assurance, IBIPs) subject to the insurance mediation rules (IMD)? Or, must such activity be treated instead as investment mediation governed by MiFID I?
  • Do the insurance mediation rules cover activity where an insurance intermediary has no intention of concluding a genuine insurance contract?

The CJEU held that providing financial advice on unit-linked and insurance-based investment products falls within the scope of IMD, NOT that of MiFID I. Furthermore, the CJEU held that for an activity to be considered as “insurance meditation” what matters is the activity of an intermediary who is properly authorised to act in this capacity, not the subjective intentions of those performing this activity to conclude a contract.

- Published on June 2019 -

For more recent news concerning this dossier, please contact your national association.

BIPAR - CMS briefing notes: IBIPs & POG

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