The Insurance Distribution Directive (IDD) has now come into effect. This is the updated framework for those who undertake insurance activities and it brings in new obligations for those within scope.
Am I affected?
The IDD covers firms involved in the distribution of insurance or reinsurance – direct distributors, intermediaries etc. There are exemptions for certain entities, such as consumer association websites that aim to provide a comparison of insurance products available on the market rather than sell a specific contract. On the whole though, the IDD creates a wide umbrella that captures everything from life to motorcycle insurance.
What amendments are being made to the regime?
- Scope. The IDD extends the scope to all sales of insurance products. In order to guarantee that the same level of protection applies regardless of the channel through which customers buy an insurance product, the IDD also covers other market participants who sell insurance products on an ancillary basis, such as travel agents and car rental companies, unless they meet the conditions for exemption.
- Training and Competence. It is important that individual managers and employees possess an appropriate level of knowledge and competence in relation to the distribution activity. The IDD introduces provisions that recognise the importance of guaranteeing a high level of professionalism and competence among firms involved in insurance distribution and their employees.
- Passporting. Despite the existing single passport systems for insurers and intermediaries, the insurance market in the Union remains very fragmented. The IDD provides greater detail and clarity on the procedure for cross-border entry by intermediaries into insurance markets across the EU.
- Conflicts of interest. Firms must establish organisational arrangements to prevent conflicts of interests, and inform clients if those arrangements are insufficient to prevent a conflict with regard to a particular contract.
- Bundled products. If a firm is offering insurance products together with an ancillary product or service, it is obliged to inform the customer if components can be bought separately, and how the price and risk of those components differ from the bundled package.
- Information and conduct of business. The IDD significantly amends the IMD information and conduct of business requirements, taking the MiFID II Directive into account to ensure cross-sector consistency.
- Insurance-based investment products. Insurance-based investment products are often made available to customers as potential alternatives to investment products. To deliver consistent investor protection and avoid the risk of regulatory arbitrage, it is important that insurance-based investment products are subject, in addition to the conduct of business standards defined for all insurance products, to specific standards aimed at addressing the investment element embedded in those products. Such specific standards should include provision of appropriate information, requirements for advice to be suitable and restrictions on remuneration.
How can Bovill help?
The enhanced scope of the Insurance Distribution Directive subjects a large number of firms to new reporting, disclosure and organisational obligations. Bovill’s experts can help you prepare and ensure that your firm’s processes are fit for purpose. Whether you need help with implementation or would like us to review the changes you have made please do give us a call.