The Insurance Distribution Directive (IDD)concerns the distribution of insurance-based investment products (IBIPs). It also covers firms that assist in the administration and performance of an insurance contract post-sale. It aims to create a level playing field for all those involved in the sale of insurance products.
It builds on the existing Insurance Mediation Directive (IMD). This was introduced in early 2005 and was designed to encourage competition between insurance firms across the EU, as well as ensuring appropriate levels of protection for customers.
Key Dates
- Delayed from its original application date 23rdFebruary 2018, firms are required to comply from 1stOctober 2018
The Good news:
Certain parts of the IDD are aligned with the rules under MiFIDII, in a bid to encourage consistency across the sector. So some of the work around Suitability, conflicts of interest, disclosure, clear communications should have been completed.
What challenges does the IDD pose?
The IDD introduces enhanced information and conduct of business requirements:
- Additional knowledge and competency requirementsfor distributors with 15 hours relevant CPD (within the prescribed 35 hours per annum)
- Product oversight and governance requirements, procedures endorsed by Senior Management, Know product provider target market and understand the products to ensure suitability with client needs
- The production of an Insurance Product Information Document (IPID)for non-life products
- Disclosures around bundling of products and additional disclosure requirementsfor insurance-based investment products to include aggregated costs across cost type (fee/commission) and source (client/insurance provider)
- Mandated remuneration disclosuresto avoid conflict with client best interests
- Inducementsmust not have a detrimental impact on the service quality
- Conflicts of interestpolicy must be maintained, Senior managers require written reports on material risks of damage of client interests, client disclosure when you cannot prevent or manage any conflicts of interest
- PI Insurance limit increases across: Claims €1,250M Aggregate: €1,850M
How can automation help?
Ensuring you have the right systems and controls, governance, across product distribution is crucial so you will need management information to help you assess:
- Correct data and performance figures are used on IPIDs
- The correct risk warnings and disclaimers are added as a matter of course, in the right place and at the required size
- Product manufacturer target market matches your client segment needs
- Project management is improved, with a more efficient workflows, production and approval process – reducing duplication and saving significant time.
- The Senior Managers and Certification Regime(SM&CR) requirements are mapped across conflicts of interest/inducements/disclosure/record keeping/roles and responsibilities
- Paper edits and manual interventions are reduced, increasing efficiency and reducing the chances of errors and omissions
- An FCA-compliant audit trail is automatically created
- Compliance sign off is mandatory, minimising the chances of regulatory breaches
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