Under the Insurance Distribution Directive (IDD) the European Commission can adopt certain delegated acts, to supplement or amend certain non-essential elements of the IDD. EIOPA received a request from the Commission to provide technical advice on the possible content of these delegated acts and published its proposed advice for consultation in July 2016. The consultation closed in October 2016 and the technical advice has now been published.
The technical advice covers 4 main areas:
1. Product Oversight and Governance (Article 25) Insurers and intermediaries which manufacture insurance products for sale to customers will be required to maintain, operate and review product oversight and governance arrangements that set out appropriate measures and procedures aimed at designing, monitoring, reviewing and distributing products for customers. These need to be proportionate to the level of complexity and risks related to the products.
2. Conflicts of Interest (Articles 27 and 28) Insurers and intermediaries will be required to assess whether they have an interest related to their insurance distribution activities which is distinct from the customer's interest and which has the potential to influence the outcome of the services to the detriment of the customer. Conflicts of interest will also need to be identified between customers.
Insurers and intermediaries will be required to establish a conflict of interest policy (to the extent they have not already done so) which should be reviewed at least annually.
3. Inducements (Article 29(2)) Insurers and intermediaries will be required to maintain and operate appropriate organisational arrangements and procedures to ensure that inducements do not lead to detrimental impact on the quality of service provided to customers.
The technical advice states that an inducement is likely to have a detrimental impact on customers where the value of the inducement is ‘disproportionate’ against the value of the product, the inducement encourages an insurer or intermediary to recommend a product when a different product would been more suitable, and where the inducement is entirely, or mainly, paid upfront when the product is sold.
4. Assessment of suitability and appropriateness and reporting (Article 30) Insurers and intermediaries will be required to determine the extent of the information to be collected from customers in light of of a customer’s knowledge, experience, financial situation and investment objectives. They should inform customers ‘clearly and simply’, that the reason for assessing suitability is to enable them to act in accordance with the customer’s best interest.
Where the information required is not obtained, then the insurer and/or intermediary will not be permitted to recommend insurance-based investment products to the customer.
A link to the final technical advice can be found here.
Draft Implementing Technical Standards
EIOPA has also published draft implementing technical standards (ITS) to provide a standardised presentation format for the Insurance Product Information Document (IPID), together with a template IPID.
The objective is to ensure that customers are given enough information about non-life insurance products so that they can easily compare different products and make informed purchasing decisions.
EIOPA will submit the draft ITS and Impact Assessment to the European Commission by 23 February 2017. A link to the draft ITS can be found here.