The Insurance Distribution Directive (Directive EU 2016/97, thereafter “IDD”), which comes into force in most EU countries on 1 October 2018 addresses one of the major shortcomings of its predecessor, the Insurance Mediation Directive (Directive 2002/92/EC or “IMD”). The IMD, which was issued after a near decade of preparatory work and negotiation, introduced minimum standards and a common regulatory framework applicable to insurance intermediaries but did not extend those standards to insurance companies selling directly to clients.
The IDD finally bridges this gap and creates a true level playing field, thus ensuring equivalent customer protection whether an insurance product is sold to a customer directly by the insurance companies’ own staff or via an authorised insurance intermediary.
Another welcomed, but perhaps less publicised, contribution of the IDD is the definition of what has been until now a market practice rather a defined role of business referrals. Whilst the IMD considered that “introducing” came under the definition of intermediation, the IDD now clarifies that, provided certain conditions are met (that being no further steps are taken towards the conclusion of a contract of insurance), business referrals and the provision of information do not fall under the definition of “distribution”.
The IDD therefore focuses on its true subject matters: insurance companies selling directly and intermediaries (both referred to as “distributors”). While both will now operate under equivalent consumer protection standards, they each retain their respective strengths and identities.
Insurance companies are evidently product experts, with an unrivalled capacity to tailor their insurance solutions to the specific circumstances and wealth planning needs of the client. They will strive to provide clients and their families with a flexible, secure and effective wealth planning solution using life insurance and help ensure cross-border portability for today’s internationally mobile families. They may also offer solutions to include non-traditional assets into the insurance portfolio.
The insurance intermediary, on the other hand, will naturally be in a position to have a more holistic view of the client’s affairs and will bring their wider knowledge of the client’s needs to the insurance company. In the first instance, it is the insurance intermediary, which (where acting on an independent basis) will help the client identify the insurance company best equipped to meet the client’s potentially complex needs.
So, while insurance companies can and will distribute their products directly in some instances, their skills are complemented by the unique proximity of insurance intermediaries to their clients. Working in partnership with insurance intermediaries and leveraging their comprehensive knowledge of the client’s circumstances, the insurance company will deploy its product and planning expertise to craft an insurance solution addressing the client’s unique needs.
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