With the D-Day of October 1, 2018 fast approaching, now is the time for distributors of insurance products to take stock of the situation in order to ensure that they are equipped to deal with the new obligations being imposed upon them by the EU’s Insurance Distribution Directive (IDD).

This Directive, adopted by the European Commission in 2016 and bound to come into force shortly, seeks to ensure enhanced protection for consumers when they purchase insurance products. It regulates the way that insurance products are sold whether by insurance intermediaries, insurance companies, their employees, ancillary insurance intermediaries or via online distribution.

The IDD makes provision for a certain conduct of business and transparency rules for distributors of all insurance products. Before the conclusion of an insurance contract, all insurance distributors have to disclose their identity, information as to whether they provide advice as well as information on potential conflicts of interests. Furthermore, they must also inform customers about the source and the nature of their remuneration.

The Directive does not prescribe a particular method of remuneration for insurance distributors. However, it does lay down rules to ensure that the remuneration or payment is transparent. If distributors ask for a fee, they must disclose its amount.

The IDD also prescribes the way in which these disclosures are to be made. Insurance distributors must furthermore check whether the product on offer meets the demands and needs of the customer.

The IDD empowers the European Commission to adopt more detailed rules

In terms of this law, consumers are endowed with the right to certain information before they sign an insurance contract. Indeed, every distributor selling a non-life insurance product must provide consumers with a standardised insurance product information document before a contract is signed. This will be a simple document summarising the main features of the insurance contract. This document is designed to give customers basic information about the type of non-life insurance, the obligations of the parties, claims handling and a summary of the non-life insurance cover. In this way, consumers will be able to familiarise themselves with the insurance product they are about to purchase and will be able to compare with others and hence make a well-informed decision.

Where insurance products are offered in a package with another good or service, such as when a new car is sold together with motor insurance, consumers will have the choice to buy the main good or service without the insurance policy. In so far as travel is concerned, the Directive obliges travel agents to disclose information about whether insurance is available for a trip but customers will always have the choice as to whether they buy such an insurance product or not.

Due to the potentially increased risk that insurance-based investment products represent to consumers, stronger safeguards have been put in place for the sale of life insurance products with investment elements, such as unit-linked life insurance contracts. Insurance distributors selling such products have to make sure that the product is suitable for the customer taking into account his/her financial situation, investment objectives and experience in the investment field. 

The IDD empowers the European Commission to adopt more detailed rules to cater for specific elements stemming from the IDD. These rules will serve as guidance for insurance distributors when it comes to particular elements. To date, the Commission has already published detailed rules dealing with product oversight and governance, obliging insurers to prioritise the interest of consumers when designing, developing and distributing all insurance products.

Despite the added regulatory burden being imposed upon insurance distributors by the IDD, it is indeed not only consumers who stand to benefit from these new rules. Insurance distributors will equally benefit from fair competition offered by the level playing field which is being guaranteed by this directive.

Mariosa Vella Cardona M’Jur, LL.D., is a freelance legal consultant who specialises in European law, competition law, consumer law and intellectual property law.

mariosa@vellacardona.com

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