One of the expressions most commonly used when discussing the Insurance Distribution Directive (IDD) is that it will create a “level playing field”.
The IDD will be a great equalizer in many respects. For example, it will extend a number of the requirements which were, until now, the province of intermediaries to insurance companies selling directly (including the formal requirements to capture and document the demands and needs of a client; and the reasons why a product is proposed to the customer). It will also generally align to the information requirements and conduct of business rules applicable to distributors of insurance- based investments with MiFID standards.
But in reality, a level playing field across Europe is much easier to say, in theory, than to deliver in practice! As cross-border insurance practitioners know, there is no such thing as a uniform European insurance market, just like there is no such thing as a uniform European insurance product.
What we do have is a common framework which allows distributors to operate beyond their national borders under a simplified notification process, however, the simplicity stops there. Beyond the comforts of the distributor’s country of residence or registered office lies the notion of “general good” and the first glimpse of a regulatory mosaic.
Product manufacturers have long been confronted with this reality in terms of product features and have mastered the ability of identifying the “general good” rules applicable to foreign operators active in other European Economic Area markets. This notion (which the European Commission valiantly attempted to clarify in its Interpretative Communication of 2000) has at times been the subject of much debate where host member states have attempted to impose rules on foreign operators with an impact on product design or prudential concerns – both traditional home member state prerogatives.
"Under IDD, distributors will also have to become experts in the concept of “general good” rules."
Although these rules pre-date the directive in many markets, the IDD formally establishes that information requirements and conduct of business are key host state concerns. Member states will explicitly be required to publish these “general good” rules, which must be necessary, proportionate and non- discriminatory. EIOPA will then centralise and examine such publications and report back to the European Commission. How the Commission will actively assess the necessary, proportionate and non-discriminatory nature of such “general good” rules is not mentioned explicitly in the Directive.
Beyond “general good” rules, we can expect a degree of gold-plating where stricter requirements are introduced on a national basis. Although the IDD itself is a minimum harmonisation directive, the fact that key requirements relating to product oversight & governance; and information & conduct of business rules, (applicable to the distribution of insurance-based investment products) are being introduced through EU regulations, is unlikely to be a coincidence. EU regulations apply directly and do not require transposition, thus ensuring a coherent framework for all market operators and limiting the possibility of local departures from the original text. Notwithstanding this application, a handful of divergences with the IDD have already appeared in some member states.
"The IDD expressly foresees the possibility for member states to adopt stricter requirements, and will require truly international cross-border players to manage these nuances carefully. That’s why it’s important for distributors and insurers to work closely together."
The single market for insurance distribution is a mosaic indeed, which requires the combination of local expertise coupled with a pan-European holistic approach to see the big picture.
Lombard International Assurance, which operates in more than 20 markets across Europe, the United States, Asia and Latin America has, over the last 25 years, built an extensive wealth of knowledge and expertise in international, European and country-specific distribution rules. We work hand- in-hand with our distribution partners to navigate through the complexity to understand, decode and fully leverage the new distribution landscape.
By Valérie Mariatte-Wood
Associate Director - Head of Regulatory Proposition
Lombard International Assurance
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