As a motorhome insurance broker, you will likely spend a large amount of your time keeping up to date with legislation and directives that are published on a regular basis. However, this is not always an easy job, which is why in this month’s article Victor Millwell investigates the new Insurance Distribution Directive (IDD). The IDD was adopted by the European Parliament on the 24th November 2015 and the Council of the EU on the 14th December 2015. The IDD has been altered so that it can replace the current Insurance Mediation Directive (IMD) which has been around since 2002. These new rules will regulate EU insurance brokers, agents and other intermediaries alike. These changes to the IMD were prompted by: • A larger focus on buyer protection across all financial sectors since the 2008 credit crunch. • The advance of the insurance market and product offerings since the IMD was first implemented. • Member states being inconsistent in the way in which the IMD regime had been actioned.
The IDD is a “minimum harmonization directive”, simply meaning that it sets a threshold in which national legislation must meet. Member states are allowed to maintain this or even introduce stricter requirements relating to selling insurance. As previously mentioned, the new IDD will apply to a wider regulation of insurance “distributors” including: • Every kind of insurance product seller, including anything that is sold directly to customers. • Anyone who is involved in assisting with administration or performance of insurance contracts. This includes someone acting on behalf of insurers e.g. claims management activities. • Supporting insurance intermediaries. Insurance expert Alexis Roberts of Pinsent Masons, said: “It is good to see that the IDD’s journey through the European legislative process is progressing at a steady pace. “The IDD has been on the radar for the UK insurance industry for some time and the UK has the advantage of having ‘gold-plated’ the current Insurance Mediation Directive, so requirements will not be felt as stringently as in other member states. It will be important, though, for relevant industry players to keep the new requirements of the directive and its implications for business, particularly for insurers’ direct sales processes, at the forefront of their minds in 2016.” Once implemented, the IDD will require a minimum of 15 hours each year for professional training and development for some involved in the distribution of insurance. This includes “relevant persons within the [distributor’s] management structure” and anyone “directly involved” in insurance distribution. All channels of insurance being distributed should have consistent information and buyer protection in place unless they are not liable due to meeting certain conditions. Insurance undertakings must implement, document and regularly review any internal policies. Furthermore, upon payment, clear information must be given regarding what the distributor will receive for selling an insurance product. The IDD will introduce a general rule that it is essential for distributors to “always act honestly, fairly and professionally in accordance with the best interests of its customers.”
Cross-selling and package products
Any time an insurance product is sold or offered along with another service or in a bundle, the insurer must inform the customer as to whether the different components are available to be brought separately. If they are able to do so then an adequate description of each component should be provided. The new IDD regulations include specific and tighter requirements regarding package retail insurance-based investment products (PRIIPs). The new IDD is very comprehensive so brokers should take time to read all the changes that have been made and start making small changes where they can. There is still plenty of time as the next step is for each member state to enact its own version of the law (i.e. an update of the Financial Services and Markets Act) and this means that it is likely to be at least 2 years before this become effective in UK law. However by starting now brokers can get a head start and be ahead of the game once the law is implemented.