...one year to go
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Insurance Distribution Directive... one year to go February 2017
The Insurance Distribution Directive 4
Key reforms 5
Implementation across the EU 7
Selling requirements 12
Organisational requirements 17
Cross border activity 18
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The countdown begins
After almost 4 years of protracted
negotiations, countless drafts and a change of
name, the Insurance Distribution Direction
(“IDD”) came into effect on 22 February 2016.
It must be implemented by Member States by
23 February 2018.
This note looks at what progress France,
Germany, Italy, Poland, Spain and (despite
Brexit) the UK are making in implementing
the IDD and at how firms in each country
might be impacted by the IDD.
Why the IDD?
Currently the selling practices of insurance
intermediaries across the EU are regulated by
the Insurance Mediation Directive (“IMD”)
2002. It was recognised that there are notable
short comings with the IMD and in 2012 the
European Commission published proposals for
IMD2 (as the IDD was then called).
Aims of the IDD
The IDD is designed to:
–– improve EU regulation in the insurance market,
–– increase customer protection
–– improve consistency between the regimes operating
in different Member States.
What were the issues with the IMD?
The fallout from the 2008 financial crisis
highlighted the need for more effective
consumer protection. The European
Commission felt that the IMD fell short in
–– The IMD only applies to the sale of insurance
products via intermediaries and not to those
sold directly by insurance companies.
–– There was inconsistency of regulation
across Member States: whilst the real aim of
the IMD was European harmonisation this
was not being achieved as some countries
“gold-plated” their rules (such as the UK
and Germany), whilst others did not.
–– Certain parts of the IMD were in need of
modification or clarification, for example,
introducing clearer provisons on the
scope of the Directive and improving
Insurance Distribution Directive... one year to go February 2017 5
The IDD expands the scope of the IMD to cover
–– all sales of insurance products, including
insurance-based investment products
–– sales by insurance intermediaries like
brokers or managing general agents and,
significantly, it extends cover to more
modern distribution arrangements such as
–– ancillary insurance intermediaries such
as travel agents and car rental companies
(where the premium exceeds a certain level
and where certain other conditions are met)
–– direct sales by insurers and reinsurers.
Certain activities are exempt, including the
activity of ‘introducing’, activities relating to
risks outside the EU or third countries and
Acting in the best interests of
In line with the focus on consumer/customer
protection there are two new conduct
obligations for insurance distributors:
–– to act “honestly, fairly and professionally
in accordance with the best interests of
–– that Member States will ensure that
all information is “fair, clear and
It is not clear how the first new obligation will
fit with the insurance market and it raises a
number of questions: on its face it appears
straightforward for an insurance broker
acting – in a traditional sense – for their
client, the policyholder. But how does this
apply to insurers, where the policyholder is
their contractual counterparty? How does it
apply to a broker when acting as agent of the
insurer? Moreover, does the new rule require
distributors to act in the best interests of
customers separately from acting honestly,
fairly and professionally or if (as of course
they should) they act honestly, fairly and
professionally, is that in itself in accordance
with customers’ best interests?
Product and selling requirements
The IDD introduces a number of detailed
provisions regarding point of sale disclosure
and advising requirements.
Bundled products/cross selling
Cross-selling practices and tied financial
services have come under scrutiny. For
insurance that is sold as a part of a package
with other goods or services, the IDD
introduces a new requirement to disclose
to customers whether the insurance can
be bought separately and if so, certain
information disclosure requirements will apply
such as a description of the insurance as well
as evidence of the separate costs and charges.
The IDD will require firms selling insurance as
part of a package with other goods or services
6 Hogan Lovells
also to offer the same goods or services without
the insurance (although certain exemptions
will be available e.g. insurance sold with
Conflicts of interest and remuneration
The IDD includes specific rules covering the
management of conflicts of interest and the
disclosure of remuneration by requiring firms
to indicate clearly to customers the basis/
nature of their remuneration whether by
way of fee, commission or any other form of
economic benefit. The IDD does, however,
expressly allow Member State regulators to
impose restrictions on specific types of fees,
commission and other types of benefits.
Professional requirements and
There are new requirements for training and
development. The IDD requires insurance
intermediaries and the staff of insurers who
are responsible for or involved in the sale
of insurance products to have a high level
of professionalism and competence. In
addition, there is a specific requirement for
those working in insurance distribution to be
of “good repute” and as a minimum to have a
clean criminal record.
Publication of “general good” rules
Member States must publish the “general
good” rules applicable in their jurisdiction.
In practice, how this will actually happens
remains to be seen but it is hoped that the
appropriate regulator in each country will have
to publish on their websites the national rules
for “protecting the general good”.
A single electronic database of insurance
intermediaries will be established to simplify
the procedure for cross-border entry to
insurance markets across the EU.
Insurance based investment products
These products are within the ambit of the IDD
and there are specific requirements placed
upon distributors. Requirements cover, for
example, conflicts of interest, disclosure of
remuneration, assessment of the suitability of
products, warnings of risks and disclosure of
Insurance and reinsurance intermediaries
must obtain authorisation from the
appropriate regulator to carry out insurance/
reinsurance distribution. Insurers and
reinsurers, on the other hand, do not require
distribution authorisation under the Directive.
And the conduct rules which are set out in
the Directive are only applicable to insurance
intermediaries and insurers.
Enforcement and sanctions
The IDD sets out more stringent enforcement
obligations, together with sanctions for breach
of the requirements.
Insurance Distribution Directive... one year to go February 2017 7
The IDD must be implemented by Member
States by 23 February 2018.
The IDD introduces a number of new
concepts and it remains to be seen how these
will be implemented by Member States. The
introduction of new requirements will most
likely have a huge impact upon the day to day
business of distributors. Given the sanctions
for breach of the Directive, businesses will
find themselves under pressure to deliver.
Timing is tight and this is of concern. The
IDD provides a framework of principles
but the detail will be set out in the Level
2 technical implementing measures to be
adopted by the European Commission. Until
there is certainty about the content of the
Level 2 measures firms will not be able to
make the necessary changes to their business
models and organisational structures.
It is interesting to note that the IDD is
a minimum harmonisation directive so
Member States will not be prevented from
“gold-plating” (introducing more stringent
provisions) even though this was considered
a defect of the IMD. How, or the extent to
which, this may cause a fragmented approach
across the EU is yet to be seen.
–– 22 February 2016 – IDD came into effect
–– 1 February 2017 – EIOPA delivers technical advice to
European Commission on Level 2 technical
implementing measures on product oversight and
governance, conflicts of interest, inducements and
assessment of suitability and appropriateness of
insurance-based investment products.
–– Q2/3 2017 – EIOPA to prepare Level 3 guidelines,
complete preparatory work on market monitoring of
ancillary insurance products and development of
electronic register for passporting intermediaries.
–– 23 February 2018 – the IDD to be implemented by
–– February 2023 – review of the IDD
When the UK implemented IMD in 2005 it
heavily gold-plated the requirements, including
extending its scope to cover direct sales and
ancillary intermediaries. As a result the IDD is
not introducing too many material changes to
the current UK regulatory regime. It is too early
to tell what impact the Brexit vote will have for
the UK – will the Financial Conduct Authority
reverse or modify any of its regime in light of the
IDD? All we have for now is a statement from
Andrew Bailey, head of the Financial Conduct
Authority, on 19 July 2016, in which he appears
to have confirmed that directive requirements
will continue to be met/implemented until the
UK has left the EU. If that is the case, given
the current timing of negotiations, which are
unlikely to be completed before 23 February
2018, the UK should expect to see the IDD
requirements implemented in the UK.
Implementation across the EU
8 Hogan Lovells
The Law relating to “transparency, fight
against corruption and the modernisation of
the economic life” dated 9 December 2016
provides that the IDD will be implemented
through an Ordinance (ordonnance), within 18
months following the enactment of the Law.
A project of law of ratification will then be
tabled before the French Parliament within a
period of five months from the publication of
the Ordinance. Ordinance is a quick way for
European Directives to be transposed into
French Law. As yet, no draft of the Ordinance
and/or other secondary implementing
legislation has been published but we expect
the provisions of the IDD will be reproduced
We expect that, as with the Solvency II
Directive, the IDD will be implemented through
regulations and through amendments to the
Prudential Regulation Authority Rulebook and
Financial Conduct Authority Handbook. In the
UK, transitional efforts to comply with the IDD
should be minimal and quite straight forward.
The IMD was implemented in Spain through
the Insurance Mediation Act 2006. The
Spanish regulator has decided to implement
the IDD by replacing the 2006 Act with a new
Act which will combine features of the old
regulation with the provisions of the IDD. A
first draft of the new Act was presented in
Insurance Distribution Directive... one year to go February 2017 9
The Federal Ministry for Economic Affairs
and Energy published a draft law on the
implementation of the IDD on 21 November
2016. The new law should be adopted in
July 2017. Implementation will be through
amendments to the Trade and Commerce
Regulation Code, the Insurance Contract
Act and the Insurance Supervision Act. At a
regulatory level, amendments will be made to
the Ordinance on Insurance Mediation and the
Insurance Contract Act Information Ordinance.
The Ministry of Finance has taken its first steps
to start the IDD implementation process. A
draft of a new Act is planned to be adopted by
the Council of Ministers in the second quarter
The IDD is expected to be implemented
through amending the Italian Insurance Code
and the relevant IVASS regulations. We expect
the implementing legislation to substantially
reproduce the provisions of the IDD. As yet,
drafts of the implementing legislative decree
and regulations have not been published by
the Italian regulator.
10 Hogan Lovells
Authorisation (or “registration”)
requirements are set out in Article 3 of
the IDD, together with plenty of extra
commentary in the recitals.
As with the IMD, insurance and reinsurance
intermediaries are required to be registered
with their appropriate Member State
regulator. Intermediaries already registered
under the IMD will not be required to
reregister under the IDD.
Ancillary insurance intermediaries (such
as travel agents, banks and car rental
companies) are covered by the IDD and, as
with (re)insurance intermediaries, they must
be registered. This will have an impact on
firms in Poland and in Italy, who will come
within the definition of ‘ancillary insurance
intermediary’ but who are not currently
required to be registered. French and UK
law already provides for a similar category
of intermediary and so the IDD will not
substantially amend their existing regimes.
However, Spanish law allows intermediaries
to have recourse to ‘’external collaborators’’,
individuals or companies who collaborate
with intermediaries on the distribution of
products but who are not classified as an
intermediary. ‘’External collaborators’’ are
only required to be registered on an internal
register maintained by the intermediary.
External collaborators will not fall within
the IDD and we wait to see how the Spanish
regulator proposes to deal with these types of
firms in future.
Under the IDD (re)insurers are not required
to receive specific distribution authorisation
from their regulators although this may be
required already by some Member States.
A new requirement of the IDD is that
regulators are required to establish an online
–– It must be easily accessible.
–– It must allow online registration.
–– If there is more than one Member State
register, then the regulator must establish
an electronic single information point
allowing access from each register.
–– EIOPA is to create a website with links to
each single information point or register.
Some Member States such as France
and the UK already operate on an on line
Article 10 sets out the conditions of
registration. Points to note are:
Knowledge and training
–– The knowledge and training requirements
apply to all staff who are responsible for or
involved in the distribution of products.
–– They must comply with continuing
professional training and development to
Insurance Distribution Directive... one year to go February 2017 11
maintain an adequate level of performance
corresponding to the role they are
performing and the relevant market.
–– Continuing professional training of at
least 15 hours per year will be required.
–– Regulators may require certification to
prove completion of the training.
–– There is a lighter touch regime for
In some Member States such as France, the
principle of continual professional training is
not a legal requirement, but the vast majority
of insurance intermediaries already have
compulsory training programmes, in line with
the recommendations and expectations of
the regulator. However in small offices (e.g.
family owned and run businesses), it is likely
that IDD will add to the existing regime.
There is a general requirement for people
responsible for or involved in distribution
to be of “good repute”. This essentially
requires them to have a clean criminal
record in relation to serious crimes
involving property and financial activities,
and to not have been declared bankrupt.
12 Hogan Lovells
The provisions covering selling requirements
form an extensive section of the IDD, with
an emphasis on customer protection which
goes back to the mandate behind the review
of IMD and the creation of the IDD. These
requirements cover the selling requirements
applicable to those involved in insurance
distribution (i.e. not reinsurance distribution).
Insurance distributors have a new overarching
requirement placed upon them to
always act “honestly, fairly and professionally
in accordance with the best interests of their
customers”. All information sent out by
insurance distributors must be “fair, clear and
not misleading”. Marketing communications
must be clearly identified as such.
Information disclosure and transparency
Similarly to the IMD, insurance intermediaries
and insurers must disclose certain specified
information before the conclusion of an
insurance contract. This includes, for
example, its identity, complaints policies
and its registration details. In particular, an
intermediary must state if it is representing the
customer or acting for an insurer.
Conflicts of interest
Insurance intermediaries are required to
disclose information to a customer about
its holdings in an insurer. Insurance
distributors are required to not remunerate or
assess the performance of their staff in a way
which conflicts with the duty to act in the best
interests of the customer.
In some Member States such as France,
distributors have not yet developed policies
relating to conflicts of interest but it is already
anticipated that the cost of complying with
this requirement will be significant. The
French regulator and operators are waiting
for the European Commission delegated
acts in relation to conflicts of interest before
taking appropriate measures.
Disclosure of remuneration
Insurance intermediaries must disclose:
–– the nature of remuneration
–– the basis of the remuneration
–– fee paid by the customer
–– a commission included in the
–– an economic benefit of any kind offered
or given in connection with the insurance
–– any combination of these.
–– If a fee is to be charged, the fee or the
method for calculating it must be disclosed.
–– Payments, other than on-going premiums
and scheduled payments must be disclosed.
Insurance Distribution Directive... one year to go February 2017 13
Insurers must communicate to the customer
the nature of the remuneration received by its
staff in relation to the insurance contract.
The German legislator has indicated that
it intends to impose stricter provisions on
remuneration for example, insurance agents
and brokers will only be able to receive their
remuneration from the insurer and not from
the customer. If these controversial proposals
are implemented it will have a significant
impact on the business model of German
insurance agents and brokers.
For Spanish and Polish firms the IDD disclosure
requirements will be a significant change from
the current disclosure regimes which only
requires disclosure in limited circumstances.
Italian and French law already requires
disclosure of remuneration in certain
circumstances. The IDD will enhance the
existing requirements and remuneration
policies and practices will need to be
revised. In France, it is likely that the
revision of distribution schemes will be
a hot topic involving lengthy and strong
discussions between the market players.
Achieving the revision in a prompt manner
will however certainly be fostered by the
enhanced powers given to the ACPR notably
to sanction remuneration schemes when
the remuneration creates incentives for
distributors which are not correlated with
There are new requirements placed on
insurance distributors in relation to the
advice they provide in relation to insurance
products, and how they provide that
advice. Depending on the complexity of the
insurance product and the type of customer,
insurance distributors are required to specify
the demands and needs of the customer
and provide objective information in a
comprehensible format. For certain nonlife
insurance products, a “standardised
insurance product information document”
has been introduced: this is to be drawn up by
the manufacturer of the non-life product and
must contain certain information as specified
in Article 20(8). It must also comply with a
list of requirements and be:
–– entitled “ insurance product
–– short and stand-alone
–– clear and easy to read
–– as clear in black and white as in colour
–– in one of the official languages of the
–– accurate and not misleading
EIOPA are working on a standardised
presentation format for this document.
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Insurance Distribution Directive... one year to go February 2017 15
Current German law already imposes a
general duty to advise which goes beyond the
duties prescribed by the IDD.
In Poland the advice requirements are
currently much less stringent than under the
IDD and we expect to see significant changes
in these areas under Polish law.
In France, the distributors are already subject
to a duty to advice that must be summarised
in writing. The standardised insurance
product information document may however
overlap with the existing obligations of
distributors to provide pre-contractual
information which is very much along the
lines of the requirement set out in the IDD
and, may ultimately result in additional
work for these distributors, who were to date
subject to “lighter” obligations in comparison
to the distributers of life insurance products
(who are already subject to this requirement).
Format of information
There are over-arching requirements
concerning the format of all information
provided to customers. Information must be:
–– on paper, or in certain circumstances on
some other durable medium or on a website
–– clear and accurate
–– comprehensible to the customer
In France, this is already the case.
Ancillary insurance intermediaries
Ancillary insurance intermediaries need
only comply with a watered-down set of
Large risks and reinsurance
Where distributors are distributing large
risks (as defined by the IDD) insurance or
reinsurance they need not comply with the
information disclosure requirements.
16 Hogan Lovells
Packaged Products and Services
The distribution of insurance products offered
as part of a package with another product or
service, are subject to a set of additional rules.
For example, the distributor must offer the
possibility of buying the product or service
without the insurance.
Product oversight and governance
Whilst the IMD concerned itself with the actual
distribution of insurance products, the IDD veers
into product oversight territory. There are a host
of requirements placed upon the manufacturers
of insurance products: each insurance product
requires a review and approval process for which
specific requirements are set out in the IDD.
These requirements are new under German,
French and Italian law and are likely to have
a substantial impact on the administrative
practices for firms and on implementation costs.
It is also anticipated that distribution
agreements will have to be revisited in order
for insurers and distributors to be able to
comply with their obligations (e.g. type and
frequency of information to be exchanged,
allocation of responsibilities, duty to
distribute and product only to the suitable
target defined by the insurer).
Insurance Distribution Directive... one year to go February 2017 17
In line with the aim of improving customer
protection, the IDD contains specific
provisions relating to the organisational
requirements of insurance distributors.
Members States are specifically required
to “take all necessary measures to protect
customers against the inability of the
insurance, reinsurance or ancillary insurance
intermediary to transfer the premium to the
insurance undertaking or to transfer the
amount of claim or return the premium.”
Regulators have a choice of how they implement
this: one way is to require that the intermediary
has a permanent financial capacity of 4 % of the
sum of annual premiums, subject to a minimum
of € 18,750 (EIOPA will be reviewing these
amounts in 2018 and then every 5 years). The
4% capital requirement is the same as currently
required under the IMD and most Member
States have implemented this requirement
but will need to amend their legislation to
increase, or in some cases like Spain, impose
the minimum amount. In Poland there are
currently no specific capital requirements.
In addition, a prerequisite to registration is
that intermediaries must have professional
indemnity insurance amounting to a minimum
of €1.25m each claim and €1.85m in aggregate.
These minimum amounts are higher than
current amounts required by the IMD. Some
countries, like France already provide for higher
amounts than those imposed by the IMD.
In fact, France already provides for a higher
amount than the IDD. Others, such as Germany
will need to make appropriate increases.
18 Hogan Lovells
The IDD aims to simplify cross border
activity. (Re)insurance and ancillary
intermediaries who wish to carry on business
in another Member State for the first time can
communicate to their home state regulator
certain information (i.e. registration details
and where they wish to operate) so that the
regulator can communicate that information
to the host Member State. The home state
regulator then informs the intermediary at
which point it is free to start business in the
host state. A similar procedure is set up for
intermediaries wishing to open up a branch
in another Member State.
Information on these (re)insurance and
ancillary intermediaries will be made available
via a single EIOPA electronic register:
–– Published on the EIOPA website
–– Kept up to date
–– Contain records of (re)insurance and
ancillary intermediaries which have notified
intention to carry on cross-border business
–– Member states shall provide the
information to EIOPA
–– Links from the EIOPA register to the
websites of Member States’ regulators
–– Links from the websites of Member States’
regulators to the EIOPA single register
Another new requirement under the IDD is
that regulators are required to publish their
“general good rules”. EIOPA will include links
to these on its website.
In Italy and Germany, the regulator already
publishes on its website a list of ‘general
good’ provisions. In both countries the
list is quite short although we expect they
will be amended to reflect the IDD. The
French regulator, the ACPR, takes a broad
interpretation of the concept of ‘general
good’ and considers the entire Book 5 of the
French insurance code relating to insurance
mediation to be of ‘general interest’.
There is an emphasis on home state regulators
being responsible for overseeing and enforcing
compliance with the new regulation. Under
the new Directive, in the event of any breaches
by distributors carrying on business outside
their home state, the issue will be redirected
back to the home state regulator. This will not
impact some Member States like France where
the regime already provides that home state
regulators are primarily, if not exclusively,
responsible for supervision, control and
sanction of their distributors.
Cross border activity
Insurance Distribution Directive... one year to go February 2017 19
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Our insurance team around the world
Carlos Ramos Miranda
Pieter Van Tol
Victor De Vlaam
Joaquín Ruiz Echauri
Luis Alfonso Fernández
Insurance Distribution Directive... one year to go February 2017 21
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