The Insurance Mediation Directive (IMD) as implemented by member states, governs insurance mediation activities carried out within Europe.
Introduced in 2005, the IMD sought to reduce the differences in the distribution of insurance products between member states and create a single European insurance market.
The European Commission’s (the Commission) consultation document in 2010 sought responses to its proposals to revise the IMD, as it was considered to be inconsistently applied across Europe.
What is the aim of the IDD?
The Insurance Distribution Directive (IDD) will replace the IMD and must be implemented in each Member State by 23 February 2018. Its key objective is to harmonise the provisions on the sale of insurance and reinsurance products. The IDD is a minimum harmonisation directive meaning that member states may impose or introduce more stringent provisions if they are for the benefit of protecting customers.
An individual or firm which distributes insurance or reinsurance products will be affected by the directive, unless exempt.
Unlike the IMD, the IDD focuses on the “distribution” of insurance as well as reinsurance products, which means that it will not only apply to agents and brokers. Rather its scope is wider to cover all market participants selling insurance and reinsurance products, including insurance based investment products. Insurance distributors are therefore identified as insurers, intermediaries and ancillary intermediaries. The latter group refers to those whose main business is not insurance although they may sell certain insurance products which are complementary to their goods or services and where the insurance product does not cover liability risks or life assurance.
Removal of introducing
The definition of distribution under the IDD is similar to the definition of insurance mediation activities under the IMD. Insurance distribution is explained as “advising on, proposing, carrying out other work preparatory to the conclusion of contracts of insurance or of assisting in the administration and performance of such contracts, in particular in the event of a claim”. The regulated activity of introducing is not included under the IDD as the directive does “not apply to mere introducing activities” such as providing data and information on potential policyholders to insurance or reinsurance intermediaries or undertakings.
To guarantee a high level of professionalism with the sale of insurance and reinsurance products, the IDD requires insurance and reinsurance distributors and employees of insurance and reinsurance firms carrying insurance or reinsurance distribution activities to possess appropriate knowledge and ability to perform in their role.
What will these changes mean for the UK?
While the IDD is relevant to any firm which sells insurance or reinsurance products to customers, UK regulated firms are unlikely to find the new requirements onerous. Nevertheless, firms should consider the impact of new requirements such as professional knowledge and assess where further guidance is needed to avoid the stringent sanctions for breach of requirements.