Ready… Steady… IDD!
IDD will have an extensive impact on all insurance product distributers.
Regulatory demands have impacted insurers heavily over the last decade, with Solvency II certainly being the most onerous of all measures. A certain “regulatory fatigue” is palpable on the market but new supervisory obligations continue to put pressure on all players.
IDD – the Insurance Distribution Directive – is probably the most important of the recent and upcoming initiatives, yet not all those concerned have it on their radar! Being up to standard with the new directive is however of crucial importance, as the final stages and the implementation are rapidly approaching. IDD entered into force on 23 February 2016 and firms must follow its requirements from 23 February 2018. This is the case for the UK as well as for the entire EIOPA governed EU market.
“Firms must follow its requirements from 23 February 2018.”
The timelines are similar all around Europe, differences being the transposition process. Whilst the UK will transpose via policies, other countries will embed the new regulation into laws. However the February 2018 date is the same all around the EU.
IDD – IMPACT AND CHANGES
In the UK, IDD replaces the Insurance Mediation Directive (IMD), effective for the all market players since 2005 (incl. reinsurance distribution). Whilst the regulator tried to reduce changes as much as possible by using the existing IMD framework and regulations, companies must still prepare for new supervisory measures through IDD. Some notable changes in scope are:
• Extension of the application from IMD
– which applies to insurance intermediaries only – to all sellers of insurance products, including those that sell directly to customers, thereby effectively covering the entire UK market.
• IDD also applies to any business whose activities consist of assisting in the administration and performance of insurance contracts, including those acting on behalf of insurers – for example, claims management activities, rather than only those on behalf of policyholders.
• IDD applies to distribution of insurance products on an ancillary basis (travel agents, car rental companies, car dealerships, …)
The changes in scope effectively double the number of players who are concerned by IDD when compared to IMD, resulting in a near total market coverage by IDD.
Across Europe, the situation is different to the UK. Most countries did not have a set of rules or obligations similar to IMD, or even if certain regulation existed, it was not nearly as extensive. This means that non-UK insurers or intermediaries
must invest considerably more effort into IDD compliance. It must however be kept in mind that any non-UK entity of a UK insurer, or any EU intermediary used by UK insurers for distribution purposes, will also have to comply with IDD and it is the ultimate responsibility of the UK entities to assure that their European entities and distribution partners are IDD compliant.
“It is the ultimate responsibility of the UK entities to assure that their European entities and distribution partners are IDD compliant”
WHO IS IDD TARGETING?
The Insurance Distribution Directive will directly impact:
• All types of distributers, independent of their status. This includes the insurers themselves if they distribute via their own direct channels (online, agents, …).
• Life insurance as well as non-life insurance incl. reinsurance, even though IDD imposes stricter rules on the savings business lines (IBIP)
• Individual and group insurances / protection
The Directive is looking to maintain or raise existing consumer protection standards for the sale of insurance products as well as promote effective competition in the interests of consumers by ensuring an appropriate regulatory regime across the market.
WHERE WILL YOU BE AFFECTED AND WHAT ARE THE SOLUTIONS?
IDD’s impact is not limited to some single workflows or processes. Neither is it a compliance-only project. A combined multi-level internal & external (intermediaries) effort and even structural changes in some areas are needed to master the challenges posed by this supervisory measure. Designing an IPID (ie. PRIIPS for non-life products), introducing training measures, working on new processes in the product life cycle, introducing new remuneration models in distribution or defining a product’s target market are just some of the areas which must be addressed under IDD.
Stepping up to IDD requires an impact analysis of current business lines preceding a due diligence of the current compliance level. A centrally coordinated project team can effectively monitor and deploy necessary steps towards an IDD compliant business, help harmonise efforts and processes between internal stakeholders and entities, help effectively integrate external or third-party stakeholders and help address the difficulties of a multi-national entity or an international distribution network.
Contacts and Contributors
Richard Eland, Partner Harwell UK & Switzerland
Pascal de Lima, Chief Economiste Harwell Management