IDD came into force on 10 October 2018. It introduces new rules enhancing client protection in the insurance industry, in parallel with similar rules recently adopted in other sectors of the financial industry. IDD is an European Directive and applies therefore to the interests of European resident clients.
The creation of a level playing field
For thefirst time in insurance history, sales performed directly by insurance companieshave been identified as distribution activity and require insurance companies toalign with distribution obligations applicable to insurance intermediaries(tied or independent). Everyone involved in the ‘intermediation’ activity isnow considered a ‘distributor’ and as such affected by the provisions.
The client at the heart of the productdevelopment process
Insurance companiesas product manufacturers have to ensure that throughout the product developmentprocess the clients’ interests are considered as a priority, adapting
the productand distribution to the target market. This involves the need to describe theproduct’s risks, to comply with prudential requirements, to respond to thegeneral good provisions of the client’s country of residence. Whilst insurers have already implemented mostof this, the product development process has to be formalised with an embeddeddistribution strategy for each product including a regular review of theprocesses. Manufacturers and distributors will have to work together to ensure that the expertise and feedbackfrom the distributor are reflected in an appropriate and suitable productoffering.
Anydistributor has to take a holistic view of the client’s needs and personalsituation. Moreover an independent intermediary is also to know the offeringavailable in the market, to be able to compare it in the client’sinterest, and finallyto identify together with him the offerthat best suits his personal situation and requirements.
The key provisions and what it means forinsurance professionals
The productdevelopment process needs to be laid down in a Product Oversight and Governanceprocess (POG). All relevant POG information must be made available to eachintermediary, depending on the productsthat he is authorised to distribute in the relevant markets.
IDD alsoimposes increased disclosure requirements. The distributor must be transparentabout costs and charges and the intermediary has to disclose the cost for thedistribution service and what the service is composed of.
Eachdistributor has to ensure a proper needs-analysis of the client. Where advice isprovided by the distributor regarding anIBIP, the latter will have to complete an appropriateness and suitability check. This will be a kind of in-depth ‘Know-Your-Customer’process, to obtain information on the knowledge, experience, financial situation and investment objectivesof the client. Subsequently, the distributor must ensure that the contract soldcorresponds to the client’s needs and to the advice given to (and accepted by)him.
Insurancedistributors shall act honestly, fairly and professionally and put proceduresand controls in place to avoid causing any detriment to the clients and to betransparent about costs and services.
Inge De Wolf
Joined Swiss Life Global Solutions as Legal Director in 2017. Inge looks backon more than 20 years experience in cross-border life insurance both asLegal & Tax Director and Head of Compliance, leading an international team oflawyers. She started her carrier in a small law firm before she integrated the insurance sectorin Luxembourg. In 2000, she joins a leading international insurer where sheheads the Legal Department for a number of years before being appointed Legal &Tax Director.
Inge has also founded consulting and brokeragestructures in Luxembourg. She is a Belgian lawyer with a degree in both Belgian and French law, a French master in Private and Banking law, and certification in investment products and internationaltaxation. She is a London Business School graduate in Leadership &Management and a certified PNL Practitioner.
Inge is International Head of Legal Swiss LifeGlobal Solutions.
