Overview and key changes
IDD leaves Member States the option to impose additional requirements in many areas and so can be regarded as a minimum harmonising directive (like IMD). IDD will be a much more substantial regime and will include further level 2/3 material (as explained below).
Cross-sectoral consistency has been an issue and there is a complicated relationship with other EU legislation (Solvency II Directive (2009/138/EC), MiFID II Directive (2014/65/EU), IMD and PRIIPs (Regulation (EU) No 1286/2014) – as explained further below).
MiFID II amends IMD to introduce, for insurance-based investment products, certain elements of the COB rules under MiFID (new Article 13(a) to (e) of IMD). With the likely delay to MiFID II implementation (read the recent RZ report on this topic here), it seems that these changes may now be superseded by IDD.
The scope of IDD is broader than that of IMD –
- It has been extended to all sellers of insurance products (insurance distributors), including insurers/reinsurers that sell directly to clients (Chapter I).
- Some mere ‘introducers’ will no longer be caught (Article 2 (2) (c)).
- IDD also captures certain activities conducted via price comparison/aggregator websites (Article 2).
Other key changes to the pre-existing IMD-regime are briefly discussed below:
Information and conduct of business (Chapters V and VI). This is an area in which cross-sectoral consistency has been an issue. For example IDD requires distributors to “always act honestly, fairly and professionally in accordance with the best interests of their customers” (like MiFID). Advice is not mandatory under IDD but Member States are free to impose such a requirement. There are additional requirements for insurance-based investment products including enhanced provisions concerning conflicts of interest.
Conflicts of interest and remuneration (Recital 40 and 41; Article 18 and 19). There are general requirements to prevent remuneration causing a conflict of interest or distorting recommendations.
The Commission’s original IMD II proposal required mandatory (i.e. not only ‘on request’) prior disclosure of the amount of commission earnt by insurance brokers/intermediaries. This was highly controversial and has not survived into the final text of IDD (see our May 2014 report). IDD requires intermediaries to disclose the type/nature of their remuneration (fee paid by client, commission or other forms or a mix of these). The amount of any fees must be disclosed (but not the amount of any commission).
Member States, however, will be free to impose more onerous disclosure requirements, or to restrict or prohibit commission payments.
IDD also requires insurers to disclose the nature of the remuneration received by its employees.
The additional obligations applicable to insurance-based investment products (Chapter VI) include additional requirements in relation to conflicts of interest, disclosure and remuneration/third party payments (reflecting cross-sectoral consistency with MiFID). It expressly permits Member States to impose stricter requirements, for example, prohibiting fees, commissions and non-monetary benefits from third parties in the context of insurance advice. This would allow Member States to impose the full MiFID II regime prohibiting third party payments in relation to those giving independent advice.
Standard insurance product information document (Article 20). For general/non-life products, IDD requires the use of a standard format for pre-contract product information disclosure. For insurance-based investment products a Key Information Document (KID) will be required under PRIIPs.
Professional knowledge and competence requirements (Recital 28; Article 10; Annex I). Provisions in the directive emphasise the need for appropriate levels of product knowledge given their complexity and the nature of activities conducted. There is a requirement for continuous professional development/training based around fifteen hours per year. Member States may require successful completion is proven by obtaining a certificate.
Cross-border passporting (Article 3(4); Chapter III). IDD clarifies the procedure for cross-border entry by intermediaries into insurance markets in the EU. EIOPA is to establish 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 Chapter III of the directive.
Bundled products (Article 24). IDD introduces disclosure requirements where suppliers cross-sell /bundle products together. The onus is on the supplier to inform the customer if it is possible to buy the product(s) separately.
Product governance (Article 25). A product approval process is required, for each insurance product, to consider the risks for the target market (see further below).
Sanctions (Chapter VII). IDD increases the level of harmonisation of administrative sanctions and other measures for breach of provisions under the directive.
Product governance - by insurers and intermediaries
On 30 October 2015, EIOPA launched a consultation paper (EIOPA-CP-15/008) on revised proposals for preparatory guidelines on product oversight and governance arrangements by insurance undertakings and insurance distributors (POG guidelines). (This followed an earlier consultation paper (EIOPA-CP-14/150) on this topic that related solely to insurers under Solvency II.) The deadline for responses to the consultation is 29 January 2016. A final report is expected in Q2 2016.
There are two sets of guidelines; one for ‘manufacturers’ (insurer or intermediary) and one for insurance distributors who distribute without manufacturing.
The aim is to ensure Member States’ competent authorities take a consistent approach in the period before IDD implementation. EIOPA has stated that POG guidelines could possibly form the basis for technical advice on Level 2 measures for the Commission.
Level 2 (2016/17)
The Commission is able to adopt delegated acts concerning:
- Article 25, which covers product oversight and governance requirements
- Article 28, which covers conflicts of interest
- Article 29, which covers the provision of information to customers
- Article 30, which covers the assessment of suitability and appropriateness, and reporting to customers.
The Commission together with EIOPA is to produce technical standards (in the form of regulations):
- RTS relating to changes in the European Index of Consumer Prices, under Article 10(7)
- ITS relating to a standard format for the insurance product information document (PID), under Article 20
Level 3 (2016/17)
Provisions have been made for EIOPA to produce guidelines concerning:
- Article 17, which covers cross-selling
- Article 30(7), which covers the assessment of suitability and appropriateness, and reporting to customers
 By way of background information on policy development, please see EIOPA’s earlier consultation and final report on ‘Conflicts of Interest in direct and intermediated sales of insurance-based investments products’ (which arose in the context of the MiFID II amendments to IMD –see above).