The Insurance Distribution Directive or IDD (Directive 2016/97/EU) regulates the activities of all distributors of insurance products: intermediaries, insurance companies, bank-assurance and ancillary insurance intermediaries, including online distribution.
These aer our insights of possible impacts on the local insurance scenario:
Professional requirements (Article 10)
- Insurance distributors and their employees carrying out insurance distribution activities should possess appropriate knowledge and ability. Insurance distributors and their employees must comply with continuing professional training and development requirements corresponding to the role they perform and the relevant market
Organisational requirements (Article 10)
- Insurance and reinsurance intermediaries must hold professional indemnity insurance covering the whole territory of the Union against liability arising from professional negligence, for at least EUR 1,250,000 applying to each claim and in aggregate EUR 1,850,000 per year for all claims unless such insurance or comparable guarantee is provided by another insurance or reinsurance undertaking;
- Ancillary insurance intermediaries must also hold professional indemnity insurance taking into account the nature of the products sold and the activity carried out
Information requirements and Conduct of Business Rules (Article 17)
Insurance distributors owe their duty to their customers. They should ensure that their customers’ needs are met and are therefore not remunerated or do not remunerate or assess the performance of their employees in a way that conflicts with this duty. The insurance products offered to customers should not be based on sales targets, remuneration or otherwise that could provide an incentive to the insurance distributor or its employees to recommend a particular insurance product, as opposed to offering a different product which would better meet the customers’ needs.
Conflicts of Interest (Article 19)
1. Before the conclusion of an insurance contract, an insurance intermediary shall provide the customer with the following information:
- whether, directly or indirectly, it holds a 10% or more interest in the insurance undertaking;
- whether the insurance undertaking or its parent holds, directly or indirectly, a 10% or more interest in the insurance intermediary;
- whether it gives advice on the basis of a fair and personal analysis;
- whether it is under a contractual obligation to conduct insurance distribution business exclusively with one or more insurance undertakings;
- if the intermediary is not under a contractual obligation to conduct insurance distribution business exclusively with one or more insurance undertakings and does not give advice on the basis of a fair and personal analysis, the intermediary is to provide the names of the insurance undertakings with it may and does conduct business;
- the nature of the remuneration received in relation to the insurance contract;
- whether in relation to the insurance contract, it works:
(i) on the basis of a fee paid directly by the customer;
(ii) on the basis of a commission of any kind included in the insurance premium;
(iii) on the basis of any other type of remuneration in connection with the insurance contract;
2. Where the fee is payable directly by the customer, the insurance intermediary shall inform the customer of the amount of the fee or, where that is not possible, of the method for calculating the fee.
3. Prior to the conclusion of an insurance contract, an insurance undertaking who sells insurance products directly to customers should communicate to its customers the nature of the remuneration received by its employees in relation to the insurance contract.
Advice and standards for sales where no advice is given (Article 20)
Prior to the conclusion of an insurance contract, the insurance distributor should understand the demands and the needs of the customer and shall provide objective information about the insurance contract to allow the customer to make an informed decision.
When the insurance distributor provides advice prior to the conclusion of the contract, the advice should explain why a particular product would best meet the customer’s demands and needs.
The information should be formulated according to the complexity of the insurance contract and the type of customer.
Where an insurance intermediary informs the customer that it gives its advice based on a fair and personal analysis, it should give its advice on the basis of an analysis of a sufficiently large number of insurance contracts available on the market.
Information about non-life insurance products shall be provided by way of standardised insurance product information drawn up by the manufacturer. The insurance product information document should contain the following information:
- information about the type of insurance;
- a summary of the insurance cover, including the main risks insured, the insured sum and, where applicable, the geographical scope and a summary of the excluded risks;
- the means of payment of premiums and the duration of payments;
- main exclusions where claims cannot be made;
- obligations at the start of the contract;
- obligations during the term of the contract;
- obligations in the event that a claim is made;
- the term of the contract including the start and end dates of the contract;
- the means for terminating the contract.
Arrangements to prevent conflict of interest (Article 27)
All insurance intermediaries and undertakings shall maintain and operate effective organisation and administrative arrangements in order to avoid any conflict of interest from adversely affecting the interest of their customers. Those arrangements should be proportionate to activities performed, the insurance product sold and the type of distributor.
Information to customers (Article 29)
Appropriate information shall be provided, prior to the conclusion of a contract, to customers on insurance-based products, investment products and with regards to all costs and related charges. The information shall include:
- A periodic assessment of suitability of the insurance based investment product recommended to customer;
- Guidance on and warnings of risks associated with product/investment strategies proposed;
- Information on all costs and related charges, cost of advice, cost of insurance based products and how the customer may pay for it.
All costs and charges shall be aggregated to allow customers to understand the overall cost. The customer may request an itemised breakdown of the costs and charges. Where applicable this is to be provided to the customer on a regular basis and at least annually.
Assessment of customers (Article 30)
When providing advice on an insurance-based investment product, the insurance company shall obtain the necessary information from their customers, including:
- their knowledge and experience in the investment field relevant to the specific type of product/service;
- their financial situation including the ability to bear losses, and
- their investment objectives, including their risk tolerance,
so as to enable the insurance company to recommend to the customer the insurance-based investment products that are suitable for that person and that are in accordance with their risk tolerance and ability to bear losses.