European Parliament gives go-ahead on Insurance Distribution Directive

The new Insurance Distribution Directive (IDD) will update the 2002 Insurance Mediation Directive (IMD), which sets out the current framework for regulating EU insurance brokers, agents and other intermediaries.

Consistent information and consumer protection should be in place across all insurance distribution channels, unless they meet certain exemption conditions, the Parliament said in a statement.

Under the IDD, clear information must be given on the payment that a distributor will receive for selling an insurance product and, for more complex products, the overall cost of the contract including advice and service charges. Remuneration arrangements must not encourage the distributor to recommend one product when another would be more suitable, the statement said.

Insurance distributors will also have to disclose any conflict of interest to the consumer, the Parliament said. Insurance distributors are defined in the legal text as including insurance intermediaries, ancillary insurance intermediaries and insurance undertakings,

A standardised, plain-language information document will be developed to give to consumers, free of charge, before they sign a contract. This will give information about the product, any obligations under the contract, the risks that are insured and those that are excluded, and means of payment.

New rules on consumer protection say that all insurance intermediaries should be registered with a competent authority in their home member state. Intermediaries will need their own insurance contracts, to provide cover of at least €1.25 million against professional negligence claims, per claim, and €1.85 million per year for all claims, the statement said.

The rules will not apply when insurance is complementary to the supply of goods and services and covers the cost of theft or damage, and when the premium paid is less than €600 a year, it said.

Insurance expert Alexis Roberts of Pinsent Masons, the law firm behind Out-Law.com said: "It is good to see that the IDD’s journey through the European legislative process is progressing at a steady pace."

"The IDD has been on the radar for the UK insurance industry for some time and the UK has the advantage of having 'gold-plated' the current Insurance Mediation Directive, so requirements will not be felt as stringently as in other member states. It will be important, though, for relevant industry players to keep the new requirements of the directive and its implications for business, particularly for insurers’ direct sales processes, at the forefront of their minds in 2016."

The IDD was originally referred to as IMD II, but the name was changed in September 2014 to reflect its focus on regulating the distribution of insurance products, including by insurers directly where no intermediation occurs.

All that remains before publication of the directive in the Official Journal of the European Union is adoption of the current text by the European Council which "according to reports, is expected to happen before the end of 2015", Roberts said. Thereafter, it will come into force within 20 days and member states will have a period of two years to transpose the directive into national laws and regulations.