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EIOPA publishes proposed advice on implementing Insurance Distribution Directive

The European Insurance and Occupational Pensions Authority (EIOPA) has published proposed technical advice on how the European Commission should protect consumers when implementing the new Insurance Distribution Directive (IDD). 06 Jul 2016

UK firms affected by the IDD should work on the basis that the directive will be reflected in UK law, said insurance expert Tobin Ashby of Pinsent Masons, the law firm behind Out-Law.com.

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

EIOPA laid out its advice in a consultation paper responding to a Commission request.

The advice is based on three objectives, it said: to ensure that insurance products meet the needs of consumers and prevent or mitigate mis-selling throughout the product lifecycle; to ensure that third party payments such as commissions do not have a detrimental impact on the quality of services to the customer; and, to ensure that insurers and intermediaries sell products that are suitable or appropriate.

Policy proposals include requiring the manufacturers of insurance products to establish internal approval processes for each insurance product before it is distributed to customers.

Organisations must find ways to avoid conflicts of interest between distributors and customers, such as inappropriate sales incentives, when selling insurance-based investment products (IBIPs). They must also identify the circumstances where third party payments such as commissions paid on the sale of IBIPs have a detrimental effect on the service to the customer.

EIPOA has specified the information that distributors should collect from a customer in order to be able to assess the suitability or appropriateness of IBIPs for that buyer. That information will also help them in reporting on the service provided to the customer, it said.

Insurance expert Tobin Ashby said: "The implementation date for member states for the IDD is 23 February 2018, which is before the UK will have exited from the European Union on the basis of the two-year timescale set out in Article 50 of the Treaty of the European Union, from when notice to leave is given. It is not expected that this notice will be given before September 2016 and it could in fact be given significantly later, possibly depending upon the identity of the next prime minister following David Cameron’s resignation."

"Firms affected by the directive should therefore work on the basis that this directive will be reflected in UK law and so this consultation will be relevant to their businesses," he said.

Gabriel Bernardino, chairman of EIOPA, said: "The IDD is a significant milestone to strengthen consumer protection in Europe. This work goes hand in hand with the fact that EIOPA places consumer protection at the very centre of its strategic objectives. It is now important to specify the new requirements underlying the IDD, to ensure a consistent application across Member States and, as a result, achieve a common level of consumer protection across the European Union. EIOPA actively seeks a discussion with all market participants on how these goals can best be accomplished."

The consultation period will end on 3 October 2016.