Trilogue agrees on new Insurance Distribution Directive IDD

At the Trialogue negotiations between the European Commission, the European Council and the European Parliament on the last night of the Latvian EU Presidency, a compromise was reached on the new Insurance Distribution Directive, IDD. Ever since the European Commission presented its first draft for a new insurance mediation directive on 2 July 2012, there has been a great deal of debate about the proposed changes. Even a name change from the envisaged IMD 2 (insurance mediation directive) to IDD (insurance distribution directive) failed to calm matters.

Significant changes

The Directive aims, overall, to afford greater protection to customers who conclude an insurance policy. The provisions are intended to apply not only in cases where a customer obtains insurance via an intermediary but also where an insurance policy is taken out with the insurance company directly.

According to the information currently available, the Directive is intended to bring about the following changes:

• The publication of prices and costs is to made more transparent. For example, it will be stated in future whether the intermediary is to receive a financial incentive for the sale of a product. The much feared ban on commission fees was rejected in cases where it is deemed to have no detrimental effect on quality of service. The European Commission aims to implement delegatory legislation setting out ways in which the negative effects of commission payments on the quality of advice can be prevented.
• New provisions on transparency and business conduct will aim to ensure that the customer takes out only those insurance policies that he or she really needs.
• A product information sheet tailored to the relevant insurance will be used in future for all insurance products.
• In cases where products are sold accompanied by an insurance policy, the customer will be able to choose whether he or she wishes to purchase the main product with or without insurance.
• Insurance intermediaries will be obliged to undergo further training.

Outlook

It remains to be seen how exactly the Directive will be worded and how the German legislator will transpose it into national law. National legislators will have two years for transposition of the Directive. The political desire for more transparency is expected to result in increased costs for the insurance industry and this will ultimately, in turn, have an effect on customers’ insurance premiums. Furthermore, the insurance customer is already provided with a great deal of information under the German Ordinance on Information Obligations for Insurance Contracts (VVG-InfoV). Whether additional obligations to provide information will really improve the information provided to the insurance customer is doubtful and it remains to be seen how things actually develop. Other developments in this area, such as the current revision of the EIOPA guidelines for product oversight and governance (POG Guidelines), must also be followed and critically observed.