Insurance Distribution Directive

Despite the European passport granted to insurance intermediaries by the Insurance Mediation Directive (IMD) in 2002, the single market for insurance distribution remained very fragmented. In 2016, in order to promote the emergence of a genuine Single Market in insurance services, the Insurance Distribution Directive (IDD) introduced new rules on cross border insurance distribution and new division of competence between home and host Member State authorities. However, it failed to provide the necessary legal clarity on when an insurance intermediary is likely to be pursuing cross-border activities. This chapter will explore whether the IDD, together with the 2018 Decision of EIOPA’s board of Supervisors, have led or will lead to more market integration. This chapter also briefly analyses the possible impact of ‘Brexit’, that is, the leaving of the EU by the United Kingdom, on cross-border activities of insurance intermediaries.

IDD directive constitutes a piece of EU primary legislation and therefore it is obliged to respect the legal principles ruling the way in which EU acts towards the Member States, among which proportionality principle is of special importance. A legal act complies with the principle of proportionality if the measures adopted by the EU do not exceed the limits of what is appropriate and necessary to attain the objectives legitimately pursued by the legislation in question. According to IDD’s recitals, the measures adopted therein are proportional to the aim pursued by the IDD, i.e. customer protection. However, a live discussion boosted over the focal point of the IDD, i.e. a wide range of information duties, may lead to different conclusions and thereby put proportionality of the IDD in doubts. To verify this thesis, the author attempts to carry out the ‘proportionality test’ of the discussed information duties.

Product oversight and governance (POG) is one of the major innovations, if not the most significant, introduced by the Insurance Distribution Directive (IDD). This chapter aims to investigate how POG fits into the overall EU insurance regulation. POG introduced a risk-based and prospective approach similar to that of Solvency II. Moreover, the supervision required by POG is similar to that arising from Solvency II. Above all, the set of rules on POG extends the list of those affecting the organization of the undertakings. The combination of these three profiles that pertains to insurance undertakings, intermediaries and supervisors, is likely to have a significant impact on the harmonization of the rules on the conduct of insurance business.

The life insurance sector not only pertains to a variety of distributors, such as for example, ‘bancassurance’ entities combining investments services, investment and insurance products, but also to the large portion of unit-linked/investment based life insurance products. Major legal changes introduced by Directive (EU) 2016/97 (“IDD”) will therefore need to be carefully considered and anticipated by the life insurance industry, including specific professional and organizational requirements, specific information standards for insurance-based investment products, which will include the provision of appropriate information and requirements for advice to be suitable, restrictions on remuneration, and special requirements relating to the advice to be provided to the customer by any distributor related to costs and charges or to the distribution of the product—including the cost of advice. The international character of the Life Insurance has an important impact on the work to the implementation of IDD which aims at a so-called minimum harmonization. No doubt that the implementation may appear wide and burdensome, but it is a unique opportunity for all entities involved to achieve a good balance of liabilities between the professionals involved, review risk management options and look for sustainable business alternatives. This chapter examines the impact of IDD on life insurance and addresses the harmonization impact and effect of the IDD in the insurance industry.

The chapter aims to analyse the recent reform of the EU regulatory framework as regards insurance-based investment products (IBIPs). The current regime provided for IBIPs offers stronger protection to all customers, regardless of the channel of distribution. In line with the EU plan to provide consistent cross-sectorial investor protection across all Member States, many IDD provisions are based on the corresponding MiFID II rules, even though some differences remain and should be further elaborated in connection with the inconsistencies, overlaps and gaps in the investor protection as far as the distribution of the IBIPs is concerned. Furthermore, several Member States have exercised the discretions recognised by the IDD as regards IBIPs mainly to gold plate investor protection measures. However, such an uncoordinated approach undermines the internal market’s objectives. Therefore, the chapter advises EIOPA to use its powers to coordinate Member States’ measures and ensure transparency about National Competent Authorities’ measures in this respect.

The issue of the interpretation of the concept of an “employee of insurance undertaking”, which was used in the Directive on insurance distribution may cause issues from the point of view of the definition of the “employee” in terms of the type of legal relationship and the scope of activities that are allowed to be performed only by such employees. The authors demonstrate that, in accordance with the previous case law of the European Court of Justice/Court of Justice of the European Union, the concepts contained in EU directives should be interpreted in accordance with EU law, taking into account its autonomy and its aim (harmonization of legal systems of Member States). This should be applied even if a simple translation of a particular term used in an EU directive into the language of a Member State may give rise to an incentive for that term to be interpreted in the context of a local legal system.

The chapter is devoted to the principle of acting in the customer’s best interest in the Polish insurance market. It aims to interpret the principle of the best interest of the customer in light of European and Polish financial markets law and Polish supervisory practice. The chapter is also intended to indicate the best course of action in accordance with the principle of the customer’s best interest.

In this chapter I analyze the impact that Directive 2016/97 has on insurance companies. The new requirements for employees who distribute the insurance policies of the insurance company increase the protection for customers. In addition, these new requirements lead to a reform of the governance system of the insurance company. New policies, new procedure manuals are necessary to carry out the distribution of insurance by the insurance company. Therefore, I will study the new legal requirements and their impact on the Spanish regulations.

Chapter VII of the Insurance Distribution Directive delineates the sanctions and other pecuniary measures which the Commission of the European Union now requires as a portion of the minimum harmonization of the Directive. As Member States adopt and apply the articles of Chapter VII, which are unprecedented in their scope and specificity, they may find guidance through a comparison of the enforcement mechanisms already in place in other jurisdictions.

The United States is well known as the largest insurance market in the world, and possesses an extensive body of insurance regulation. The National Association of Insurance Commissioners, an advisory organization comprised of the insurance commissioners from each of the 50 U.S. states, drafted the Producer Licensing Model Act—the closest American corollary to the IDD. Unfortunately, despite widespread adoption of the PLMA, the effectiveness of U.S. state enforcement mechanisms on the actions of intermediaries is, overall, weak and inconsistent. We will analyze why this is the case, and offer concrete examples of the failures of specific state enforcement regimes.

The Insurance Distribution Directive is set to change how insurers and intermediaries design as well as sell insurance products. The provisions of the Directive are far-reaching and are to have a significant impact on consumers. The Directive is heavily pro-consumer and due to its pro-consumer nature, it is to have extensive benefits for consumers. South Africa has recently enacted microinsurance provisions which are now considered formalised insurance products in the country. New legislation has been enacted to regulate microinsurance policies in both life and non-life spheres. Microinsurance is to have a profound impact on a large part of the country’s population. Considering the pro-consumer and extensive nature of the IDD, it is worth considering what the IDD can “offer” the South African microinsurance model, what can South Africa learn from these provisions?

The General Data Protection Regulation (GDPR) and the Insurance Distribution Directive (IDD) have radically transformed the EU data protection and insurance distribution laws, thus constituting the two main regulatory sources of disruption for the insurance industry. The new IDD obligations require the adoption and implementation of compliance measures, which affect both the internal and the external operations of distributors, and which in numerous cases involve and even require the collection and processing of personal data in order to be effective and achieve the intended goals. As such, compliance with the IDD provisions needs to be designed in a way that respects the applicable GDPR provisions and ensures abidance by the related data protection obligations. This chapter aims to highlight some characteristic examples of areas where the IDD obligations mingle with the GDPR provisions, both in terms of the internal organization and functioning of insurers and intermediaries (Sect. 2), as well as with regard to the relations between distributors and their customers, and between distributors themselves (Sect. 3), and to pose some of the key issues that should be taken into account when attempting to tackle the interplay of these two sets of rules.

‘Telematics’ insurance is an example of data driven innovation in the insurance industry where data obtained from the vehicle (such as speed, time and location) is used to provide consumers with premiums based on their actual driving behavior. Despite the many benefits including more accurate risk assessments and premium setting, there are serious privacy concerns about the increased use of vehicle data for insurance purposes. The information requirements of the GDPR and the IDD could address some of these concerns in the context of telematics insurance. This research chapter concludes the analysis of the scope of these requirements by proposing the need for a broad interpretation for information to be made available in order to effectively help consumers make better, well informed decisions about insurance products and use of their personal data for insurance purposes.

This chapter will analyse the role of IDD as the new EU legal framework for enforcing consumer ADR system in the insurance sector. After a brief examination of the main EU initiatives aimed at promoting the use of ADR for consumer’s disputes, it will consider the position of the IDD rules. Then, it will try to imagine the impact of the IDD framework on out-of-court redress for the insurance sector, with an overview of the main items that could be faced in the implementation of article 15 of the directive.

Distribution is a key aspect of insurers’ business models. Insurance companies use multi-channel and multi touch-point distribution methods to target their customers. Insurers must manage the distribution risk arising from actions of the distribution channel, which have the potential to impact the quality and volume of the insured portfolio, the insurer’s income-generating capacity, long-term financial sustainability and brand value. In this chapter we discuss the implications of the introduction of the Insurance Distribution Directive (IDD) on distribution risk management and on firm’s entire value chain. The expected impact of IDD main provisions (demands and needs analysis, suitability and appropriateness requirements, remuneration and incentive mechanisms, conflicts of interest dispositions, cross-selling, POG, information to customers, CPD) on product development, sales and distribution, underwriting and policy administration, claims, asset and customer management activities are analysed, considering the influence of digitalization on insurance distribution and value chain.

Since the Insurance Distribution Directive has been implemented into the national jurisdictions, the product management is no longer subject to the internal regulation of the insurance undertakings nor it can be regulated by the national of European soft law.

The purpose of the chapter is to analyze product oversight and governance requirements set out in the Article 25 of the Directive which are further developed in delegated acts. Second issue is the process of defining target market with respect to each product, assessing all the relevant risks for such defined target market and analysis of the adequacy of the intended distribution strategy. Moreover, a formal recognition of the possibility of creating insurance products by the insurance intermediaries and the imposition of the relevant obligations would be considered. The analysis of how the changed approach to the product management influenced the insurance undertakings, intermediaries and the insurance market will be also presented in the chapter.

This chapter examines whether the rules regarding Insurance Product Information Documents mandated in Article 20 of the Insurance Distribution Directive, have, in reality, resulted in policyholders being able to easily and transparently compare different offers in the pre-contractual phase to determine whether an insurance product is appropriate for the policyholder.

The format of the Insurance Product Information Document has been determined following thorough analytical work (such as EIOPA’s Draft Implementing Technical Standards concerning a standardised presentation format for the Insurance Product Information Document of the Insurance Distribution Directive of 7 February 2017, EIOPA-17/056, including the related consumer testing and consultations.). However, there are no guidelines or rules for insurers to follow when completing the Insurance Product Information Document. Based on an examination of selected insurance products from various insurers, this chapter concludes that there is a significant discrepancy between how different insurers complete the Insurance Product Information Documents. Such discrepancy occurs even when the cover offered by the insurers is identical or almost identical. This chapter discusses whether this is expedient and whether there is a need to draw up guidelines or rules on the completion of the Insurance Product Information Document in order to provide instructions to the insurers and to allow customers to make informed comparisons of insurance products.

On the whole, this chapter concludes that there is a need for at least guidelines, if not regulation, if the Insurance Product Information Document is to be an effective and useful basis for comparison in the pre-contractual phase.