- 2'15 min
Insurance distribution directive (IDD): what will be changing
The new requirements in the IDD constitute a major change for everyone in the insurance sector: product oversight and governance, duty of advice, remuneration… Applicable normally from 2018, it will radically reorganise insurance distribution.
The European directive on insurance distribution (or IDD for Insurance Distribution Directive) is part of a process of harmonisation of the regulations on the distribution of insurance products in Europe with the aim of ensuring that all customers are equally protected in their relations with insurance distributors. In concrete terms, three major new requirements will be implemented. Whose delegated acts were adopted on 21 September by the European Commission who has recorded the postponement of the implementation of the IDD from 23 February to 1 October 2018.
Introduction of product oversight and governance
The major innovation in the Directive is the introduction of Product Oversight and Governance ("POG"). These new regulations oblige insurers to check that the products they design and distribute comply with the interests and needs of their customers in every case. In practice, the IDD requires that a distribution strategy be described for each insurance product, that it correspond to the predefined target market and that the sales channels be adapted to enable the product to be effectively distributed to the predefined target market.
From 2018 onwards, insurers will therefore have to reinforce the procedures preceding the launch of a product and new obligations on the reporting of intermediaries to insurers will have to be introduced.
Strengthening the duty of advice
The Directive strengthens the standardisation of pre-contract disclosures and thetraceability of the advice provided. Insurers will have to provide their intermediaries with the required product information documents:
- the IPID (Insurance Product Information Document), a pre-contract information document intended to inform customers about non-life insurance products;
- the KID (Key Information Document) for insurance-based investment products (document required by the PRIIPs Regulation).
The distributor will have to be able to prove that it has provided customers with all the objective information available on the product in order to enable them to take a decision in full knowledge of the facts.
New rules on preventing conflicts of interest
The IDD introduces new rules of conduct intended to prevent conflicts of interest when selling products. It also introduces transparency for the customer concerning the remuneration of intermediaries.
In particular, the Directive imposes an obligation to adopt a system of remuneration that does not influence the choice of contract proposed by the broker. Furthermore, brokers will have to inform their customers of the nature of their remuneration.
The application of the Directive is delayed
The bodies representing brokers, general agents and financial advisors have just officially asked the Minister of the Economy and Finance, Bruno Le Maire, to intervene with the European Commission to seek a postponement of the effective application of the IDD by one year. As the final version of the Delegated Acts which will set out the precise practical provisions, are only due to be published in the autumn, the market players consider that they will not have enough time to meet their new obligations by the deadline of 23 February 2018.
The European Parliament meeting in plenary approved on 25 October 2017 the two delegated regulations under the Insurance Distribution Directive.This approval is accompanied by a request to the European Commission to postpone the application of the Directive on 1 October 2018.
Sources: Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution – Argus de l’Assurance - CSCA ; FFA