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 IMD 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.
The FCA has published three Consultation Papers – CP17/7, CP17/23 and CP 17/33. They have also published Policy Statement PS17/21 which sets out their response to the first Consultation Paper, CP17/7, and near final rules in relation to:
- application of the Directive;
- professional and organisational arrangements;
- complaints handling and out of court redress;
- changes to the conduct of business rules for non-investment insurance contracts; and
- the regulatory regime for Ancillary Insurance Intermediaries.
The standardised presentation format for the IPID is also finalised but we do not expect the full set of final Handbook rules until January 2018. Also watch out for EIOPA guidelines: Execution-only sales.
There are concerns that firms will not be ready for the implementation date of 23 February 2018. To this end, the European Parliament has adopted two decisions which call on the Commission to adopt a proposal to delay the IDD implementation date until 1 October 2018 whist retaining the transposition date of 23 February 2018. This is further supported by ECON who have also written to the Commission urging them to take account of Parliament’s request to postpone. Currently the implementation date of 23 February 2018 still stands.
How can Bovill help?
The enhanced scope of the IDD subjects a large number of firms to new reporting, disclosure and organisational obligations. Bovill’s experts are prepared to help you prepare and ensure that your firm’s processes are in compliance. Further, the IDD provides member states with considerable flexibility to alter its provisions. Therefore, it is imperative to keep track of the Directive’s legislative development at the national level. Bovill is doing just that, and if you have any questions about its progress, please do give us a call.