insurance distribution directive and brexit

And so, it’s finally arrived – B-Day. The presenting of Article 50 into the hands of Donald Trusk which will officially trigger the UK’s exit from the European Union; and all the inevitable legal untangling that will surely entail.

Whatever your personal view of this momentous decision, the fact remains that, well, the remain vote lost and the country WILL be extricating itself over the coming years. Meaning a period of uncertainty for the insurance and financial sectors. With the implementation and continuation of the Insurance Distribution Directive (IDD) within the UK an issue of particular intrigue.

IDD came into force just over a year ago, in February 2016, with transposition into the law of each EU member state a requirement by 23rd February 2018.

And while the Brexit decision seems like a monkey in the wrench (if you’re a Die Hard fan, you’ll get this!) to this directive, the position from the UK Government seems pretty clear – according to their official online statement:

“Until exit negotiations are concluded, the UK remains a full member of the European Union and all the rights and obligations of EU membership remain in force. During this period the government will continue to negotiate, implement and apply EU legislation. The outcome of these negotiations will determine what arrangements apply in relation to EU legislation in future once the UK has left the EU. In line with this policy the government intends to transpose and implement IDD to schedule, and by 23 February 2018.”

So, IDD remains a thing for the UK insurance sector to take on board. At least until the Euro-Divorce is complete.

What is IDD?

The fundamentals

  • IDD came into force on 23rd February 2016, and replaces the previous European directive: 2002’s Insurance Mediation Directive (IMD).
  • It’s a framework (you might prefer to call them rules) aimed at regulating insurers, brokers, MGA’s and other intermediaries throughout the EU member states.

The Scope

  1. IDD applies to all sellers of insurance products; be that direct insurer to customer sale, or via any of the accredited intermediary routes.
  2. Claims Management providers and other ancillary service providers to the industry are also bound by the regulations of the new directive
  3. Websites, notably, price comparison sites are also included within the new regulatory scope of IDD; a change from the previous IMD.

Do these scope amendments have an impact on the UK market?

Probably not a great deal. The overriding remit of IDD is that is that:

“always act honestly, fairly and professionally in accordance with the best interests of customers”; and that all information must be ‘fair, clear and not misleading’”

Which is pretty much in accordance with the current FCA ‘Principles of Business’ remit.

There are fundamental requirements, under the new IDD regulations, about what must be disclosed to customers by the insurer, broker, or whichever distributor is presenting the product to the end-user. Which can be essentially boiled down to:

  1. Bundled packages – Distributors must disclose whether products bundled together can be individually bought, for potentially cheaper rates
  2. Product Explanation – Each product must have a concise explanation as to both the extent of its cover, and the rationale as to how it meets the customer’s needs
  3. Remuneration – Calculations on how products are remunerated (or the commission calculations) by the distributor

Naturally, this can lead to potentially more administrative and reporting changes between insurer or broker, and the client. And, as we’ve already discussed with the impending FCA renewals notice changes, such practical requirements is always likely to add a burden to the productivity of a business.

The Brexit Situation

The simple fact is, as things currently stand, we are still a member state of the EU. And as such, IDD is a regulation that the industry needs to be in compliance with. Meaning that everyone needs to be operating their business in accordance with the rules by 23rd February 2018.

Where the uncertainty lies, however, is what happens thereafter? And what more regulatory changes lie in wait once the bond with Brussels is fully severed.

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