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EIOPA publishes final technical advice on implementing the Insurance Distribution Directive

The European Insurance and Occupational Pensions Authority (EIOPA) stressed the importance of consumer protection as it published final technical advice on possible delegated acts concerning the Insurance Distribution Directive (IDD).03 Feb 2017

"EIOPA places consumer protection, both through prudential and conduct of business regulation, at the centre of its strategy," EIOPA said.

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.

The technical advice was developed at the request of the European Commission and has been subject to extensive public consultation, EIOPA said. It covers product oversight and governance (POG), conflicts of interest, inducements and the suitability of insurance-based investment products (IBIPs).

Creators of insurance products should keep consumers' needs in mind throughout the development process. EIOPA said. It has further developed its guidelines to extend them to insurance intermediaries who act as 'manufacturers' of products, and to define what qualifies as a manufacturer. It has also laid out the level of granularity that it expects from manufacturers when defining their target market, depending on the type of products and the insurance coverage involved.

The advice describes situations where conflicts of interest can arise between distributors and customers, and requires distributors to take action to prevent, manage and if need be disclose any such conflicts.

Disclosure should be seen as a "step of last resort to be used only in cases where the organisational and administrative measures are not sufficient to effectively prevent and manage conflicts of interest. Any overreliance on disclosure should be considered a deficiency in the conflicts of interest policy", EIOPA said.

The advice specifies criteria to assess whether inducements, or "payments and non-monetary benefits paid or received by insurance intermediaries or insurance undertakings in connection with the distribution of an insurance-based investment product", can have a detrimental impact on services to consumers, to help providers recognise these. The authority stressed that this is not a prohibition on inducements, but that all factors should be considered in terms of how they affect the customer.

Insurance intermediaries should gather information from customers on the appropriateness or suitability of IBIPs. Only non-complex IBIPs, fitting specific criteria laid out in the advice, do not need this assessment, EIOPA said.

Insurance expert Tobin Ashby of Pinsent Masons, the law firm behind Out-Law.com said: "Firms affected by the IDD need to work on the basis that this will be reflected in UK law, as the implementation date of 23 February 2018 falls well before Brexit irrespective of when Article 50 notice is given. Any developments relating to the directive such as this technical advice from EIOPA will therefore be relevant to their businesses."

Gabriel Bernardino, chairman of EIOPA, said: "This advice is a substantial step forward in promoting a framework for better governance, suitability and accessibility of insurance products for consumers, across the internal market. We received valuable feedback from different stakeholders during the public consultation and we used it to ensure that our advice is sound, fit for purpose and proportionate. I am convinced that it provides a sound basis for delegated legislation under the IDD, in order to reinforce selling practices for direct sellers and intermediaries and ensure that advice to consumers is based on what best suits their needs and profiles."

Valdis Dombrovskis, vice-president of the European Commission, said this week that the Commission wants to finalise the delegated acts, based on EIOPA's advice, by autumn 2017 to give the market as much clarity as possible about the new rules.

EIOPA published its proposed advice for consultation in July 2016.

The deadline for member states transposing IDD is 23 February 2018.

The UK's Financial Conduct Authority plans to publish its own consultation on IDD implementation later this month.