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The EU Insurance Distribution Directive

The EU Insurance Distribution Directive 2016/97 (“IDD”) entered into force on 22 February 2016. EU member states are required to transpose it into national legislation by 1 July 2018 and to apply it to insurers and insurance distributors by 1 October 2018. IDD will replace and repeal EU Insurance Mediation Directive 2002/92/EC (“IMD”). Like the IMD, the IDD covers the regulatory requirements for insurance and reinsurance intermediaries that wish to operate toward European customers. However, the application of the IDD is wider – it extends the existing provisions to a broader range of professionals and introduces new specific organizational and conduct of business requirements.

  1. Scope of Application

IDD goes beyond the concept of “mediation” used by the IMD covering a broader range of professionals. It does not only apply to intermediaries but generally to any entity distributing insurance products. It applies to: (1) all sellers of insurance products, including insurance undertakings that sell directly to customers; (2) any person whose activities consist of assisting in the administration and performance of insurance contracts, including those acting on behalf of insurers; and (3) ancillary insurance intermediaries. With regard to website’s usage, the IDD confirms that insurance distribution regulations take place when websites or other media are used to provide information about insurance contracts in accordance with criteria selected by customers and there is also a insurance products’ ranking list.

  1. Fairness and Professionalism.

The new regime introduces two general principles. Insurance distributors must “always act honestly, fairly and professionally in accordance with the best interests of customers”; and that all information must be “fair, clear and not misleading”. There are detailed requirements about the information that insurance distributors must disclose to customers before the execution of an insurance agreement including, but not limited to, identity, address and registration detail of the insurance distributor. The requirements are different depending on whether the business is an insurer, intermediary or ancillary insurance intermediary. Remuneration disclosure requirements for insurance intermediaries include disclosure of: (1) the nature of remuneration received in relation to an insurance contract; (2) the basis of the remuneration (the fee paid by the customer, a commission included in the insurance premium, an economic benefit of any kind offered or given in connection with the insurance, or a combination of these); and (3) any payment made by the customer under the insurance agreement other than ongoing premiums and scheduled payments,

  1. Freedom to provide services.

The new regime simplifies the procedure for cross-border entrance to insurance market across the EU in a number of ways. Member states have to establish a so-called “single information point” providing public access to their registers for insurance, reinsurance and ancillary intermediaries. Information as to goods that will be insured must be provided by the insurance intermediaries according to IDD. This allows any member state to impose additional regulatory measures if those measures serve for an information purpose required under the IDD. This requirement is also in compliance with the opinion of the Court of Justice of the European Union (CJEU) who has repeatedly acknowledged that areas including, but not limited to, consumer protection, social order, prevention of fraud and the protection of intellectual property could fall within the scope of the interest of the “general good” in connection with insurance matters.

  1. Professional requirements.

The IDD requires stricter and more specific professional requirements compared to the IMD. EU member states have to establish and publish mechanisms to effectively control and assess the background and the competence of insurance and reinsurance intermediaries and their employees. For instance, at least 15 hours of professional training or development per year are required, as well as other requirements as to the nature of the products sold, the type each insurance or reinsurance distributor, the activity that each performs. EU member states may also require that the successful completion of the training and professional requirements is proven by obtaining a certificate. The IDD also sets greater professional indemnity insurance requirement for intermediaries of at least €1.25 million per claim or €1.85 million in aggregate, unless such insurance or comparable guarantee is already provided by an insurance or other undertaking on whose behalf the intermediary is acting. Ancillary insurance intermediaries are required to hold professional indemnity insurance as well.

Compliments of AEM Carnelutti, a member of the EACCNY