On 2 February 2016, the Insurance Distribution Directive (IDD) was published in the Official Journal of the EU. The Directive entered into force on 22 February 2016, Member States are required to implement the new requirements by 23 February 2018. However, on 20 December 2017, the European Commission announced a proposal to push back the application date of the Insurance Distribution Directive (IDD) by seven months to 1 October 2018, following requests from the European Parliament and Member States for a postponement. Member States are still required to transpose the IDD into national law by the original date, 23 February 2018. However, under the current proposals, firms will not be required to comply with the IDD until 1 October 2018. The Commission is also preparing to postpone the application of two delegated regulations adopted under the IDD. The European Parliament and the Council will need to agree and confirm the new application date in an accelerated legislative procedure.
The European Parliament is to consider the proposed delay to the IDD application date at its February 2018 plenary session.
The IDD aims to improve the regulation of retail insurance sales and distribution practices across the single European market and aims to bring greater transparency and improved, more comprehensible, information to consumers, to help people ensure that they buy products that suit their needs. It will continue to be a minimum harmonisation Directive, meaning that Member States may gold-plate it (impose higher standards/requirements) if they wish.
To enhance cross-sectoral consistency, certain parts of the IDD are aligned with the rules under the MiFID II Directive.
Key changes to IMD regime
The IMD which came into force in 2005, introduced a regime for intermediaries involved in the promotion, sale and administration of insurance contracts permit them to operate in other Member States on an establishment or freedom of services basis.
The IMD aims to guarantee a high level of consumer protection. The Directive has also established a legal framework, aiming at a high level of professionalism and competence among insurance intermediaries. However, due to its minimum harmonisation character, a patchwork of national regulations has emerged in Member States leading to significant gaps and inconsistencies as far as the activity of insurance mediation is concerned. This had led to consumers having poor understanding of the risk and features of insurance products, exacerbated by a collapse in consumer confidence in the aftermath of the financial crisis.
Furthermore, the risk based solvency regime introduced under the Solvency II Directive will also affect the relationship between insurers and policyholders. Recital 139 of the Directive invites the Commission to revise the current IMD to align it with the proposed risk-based framework.
The Commission Consultation
In November 2010, the Commission launched a consultation on the review of the Insurance Mediation Directive focusing on modernisation on the current rules in the Directive, increasing consumer protection, and eliminating obstacles to the functioning of the single market through greater harmonisation. The consultation drew on advice submitted by EIOPA (formerly CEIOPS). At the same time it also issued a consultation on PRIPS.
The objectives of the consultation are:
The revision of the IMD will consist of two parts:
Key issues addressed
The aim of the Commission’s consultation was to review the current IMD to ensure it still meets its original objectives. As IMD was a minimum harmonisation Directive it has resulted in differences in how it has been implemented by Member States - the Commission wants to address this “patchwork” of regulation:
The proposals will include:
The proposals aim to apply consistent conduct, inducement and conflicts rules to all persons selling PRIPS regardless of whether they are an intermediary or product provider. The PRIPS selling rules will be aligned with the MiFID rules in order to ensure an equal level of protection.
MiFID II proposals contain an EU-wide commission ban which concerns investment firms: - a firm “shall not accept fees, commissions or any monetary benefits paid or provided by any third party... in relation to the service to clients”. This will be applicable to financial products but not to insurance policies. If applied to insurance distribution in the IMD2, it would mean a ban on the traditional payment of commission to intermediaries.
In the UK since 31 December 2012, the Retail Distribution Review (RDR) rules have applied, meaning that product providers are no longer be able to offer commission for advised sales, and financial advisers are no longer be able to accept commissions for recommending investment products (including life insurance) to retail customers. This has created the need for a totally new adviser charging model which intermediaries must agree upfront with their clients.