On 2 February 2016, the Insurance Distribution Directive (Directive 2016/97/EU) (IDD) was published in the Official Journal of the European Union.
The IDD replaces the 2002 Insurance Mediation Directive (Directive 2002/92/EC) (IMD). It must be transposed in the Members States by 23 February 2018. The provisions of the IDD are somewhat similar to its predecessor the IMD, but the breadth and depth of application means that it could have a broader impact on all firms that sell insurance products.
Why was the IDD introduced?
The IDD was introduced to address deficiencies in the IMD and, like its predecessor, is a minimum harmonisation directive. This means that the provisions can be gold plated by EU Member States. The IDD is broad in scope and applies to the distribution of both insurance and reinsurance products.
It affects all sellers of insurance products and insurance undertakings that sell insurance directly to customers. This includes aggregators and online insurance retailers. It will also apply to anyone whose activities include assisting in the administration and performance of a contract of insurance such as loss adjusters and claims managers.
This broad scope means that some distributors and administrators of insurance products are facing a suite of new regulations that they will need to prepare for.
Objectives
- EU-wide minimum harmonisation
- Strengthening consumer protection
- Identifying and avoiding conflicts of interest
- Introducing distribution channel standards
- A level playing field for different distribution channels
Affected companies
In order to guarantee that the same level of protection applies regardless of the channel through which customers buy an insurance product, either directly from an insurance undertaking or indirectly from an intermediary, the scope of this Directive needs to cover not only insurance undertakings or intermediaries, but also 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.
How IDD will impact your organisation?
| Subjects | Requirements IDD | |
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General requirements |
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| Product governance |
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| Distribution / Marketing |
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| Reporting obligations insurance-based investment products |
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Non-compliance with IDD can have significant negative consequences
Personal liability for management and supervisory bodies (for legal entities).
Financial penalties against legal entities:
At least 5,000,000 euros or up to five percent of the total annual turnover.
Publication of the type and nature of the breach and the identity of persons responsible for it.
Financial penalties against natural persons:
At least 700,000 euros or up to twice the amount of the profits gained or losses avoided because of the breach.
Ban on the exercise of a management function in insurance intermediaries or undertakings for any members of the management body who are held responsible.
Damage for the falsely issued KIDs (PRIIPS)
What do I need to do?
Insurance firms affected by the IDD will need to ensure that they can comply with the IDD’s obligations. Those operating under current IMD exemptions will need to revisit their business operations to ensure that they are still exempt under the IDD.
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