This article was also published on in French. Read the article here.

With the Insurance Distribution Directive (IDD) that coming into force in most EU Member States today, 1 October, distributors have no doubt spent these last weeks running final checks to assess their readiness, and in particular, four key requirements:

1.    Organisation and registration

Distributors will need to:
•    Have identified whether authorisation or registration requirements applicable in their Member State of residence or establishment have changed with IDD.
•    Appoint a person responsible for the distribution of products. 
•    Review their PI cover arrangements (new limits) and ensure they are familiar with any “general good rules” applicable in the country of residence of their clients or country where they provide their services. 
•    Ensure that their relevant people benefit from a minimum of 15hrs of training per annum on the topics identified by the regulatory authority of their country of residence or establishment.

2.    Product oversight and governance (POG) 

Distributors will need to:

•    Ensure that they have written procedures detailing how they will obtain all appropriate information regarding the products they distribute for newly developed and substantially modified products from their chosen product manufacturers. 
•    Ensure that their distribution strategy fits the target market and provide information back to the manufacturer, to monitor that their products are effectively distributed within the target market. 
•    Alert the manufacturer if they become aware of any product-related circumstances, which may negatively affect consumers.

3.    Conflicts of interest and inducements 

Distributors will need to:

•    Introduce or update their conflict of interest governance, in particular to disclose any circumstances creating a conflict of interest, which they are unable to manage or prevent to their clients. 
•    Assess every monetary or non-monetary advantage they either pay to, or receive from third parties, in order to ensure that such advantages do not have a detrimental impact on the quality of the service provided to their customers or prevent distributors from acting honestly, fairly and professionally in accordance with the best interests of their clients.
•    Review their remuneration policy to prevent potential damage to customers’ interests.

4.    Clients’ demands and needs and suitability assessment 

Distributors will need to:

•    Have identified which jurisdictions they operate in (either from a Home State or Host State perspective) have made the provision of advice (defined as a personal recommendation) compulsory for insurance-based investment products (IBIPs). 
•    Capture the demands and needs of the client - they will need to assess the suitability of the product when they distribute an IBIP on an advised basis.
•    Ensure that they provide the client with a suitability statement containing an outline of the advice given and agree with the client whether a regular suitability review will be provided during the life of the policy. 
•    Ensure that the product is appropriate for the client for cases when no advice is given.
•    Capture in writing the terms and costs of the service they will provide to clients, and provide periodic communications to customers including, where applicable, the costs associated with the transactions and services undertaken on behalf of the client.

Achieving IDD readiness is a significant undertaking for many distributors and cross-border practitioners will have to factor in “general good” requirements on top of the implementing law of their country of residence or establishment. Some of the requirements above could be subject to more stringent national rules. 
In order to meet such requirements and grow sustainably in a post-IDD world, related insurance industry players must invest significantly in expert resources, systems and processes. For large players, such investments must be made wisely to provide the desired impact across their value chain, while for smaller firms such investments could be challenging to make, putting pressure on their business models. 

As the largest pan-European provider of wealth solutions via unit-linked life insurance, at Lombard International Assurance we are at the forefront of the implementation of IDD in Luxembourg. We have gathered extensive knowledge of the IDD-ready distribution framework of many European countries. We work hand in hand with our distribution partners to ensure that our mutual clients benefit from sound specialist insight in respect of their wealth planning and portability needs. 

Please contact us if you need any further help or support.

Valérie Mariatte-Wood, LL.M.  
Associate Director - Head of Regulatory Affairs
Lombard International Assurance

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