The EU’s Insurance Distribution Directive: updates

The ultimate objective of the Directive is for consumers to benefit from the same level of protection irrespective of distribution channels.

In February 2016, the EU updated the regulatory framework for the sale of insurance by introducing the Insurance Distribution Directive (2016/97/EU) (IDD), which will repeal and replace the Insurance Mediation Directive (2002/92/EC) (IMD), which was adopted in 2002.

The IDD seeks to further harmonise how insurance distribution activities are regulated across the single market, to improve consumer protection standards and promote a single market for insurance sales. 

What’s new about this Directive?

A significant change from IMD is that the provisions in IDD will cover the sale of insurance products directly by an insurer. As a result, it is estimated that the IDD will cover 98% of the market, compared to the 48% covered by IMD.

Unlike the IMD, which only regulated the activities of insurance intermediaries, the scope of the IDD extends to insurance undertakings and reinsurance undertakings, specifically those employees carrying out insurance or reinsurance distribution, as well as other market participants who sell insurance products on an ancillary basis, unless they meet the conditions for exemption (a new category of intermediary referred to as the ‘ancillary insurance intermediary’).

Although the Insurance Distribution Directive (IDD) requires the regulation of insurance distribution activities in relation to most contracts of insurance, it does provide for limited exemptions in relation to products sold as part of a package, or as an ‘add-on’, by firms whose principal business is other than the distribution of insurance products.

Amongst the changes introduced by IDD are the removal of requirements to regulate certain activities which were required under IMD. These include changes to exemptions from regulation for market participants whose principal business is not selling insurance products, but who sell insurance products on an ancillary basis as part of the package. Additionally, IDD removes the requirement in IMD to regulate those carrying out activities which consist of the mere provision of data or information on insurance products or potential policyholders.

Malta’s adoption of the Insurance Distribution Directive 

In a circular issued by the MFSA, the Authority has announced that it is currently conducting internal discussions in relation to the implementation and transposition of the Insurance Distribution Directive.

Amongst others, it has advised that the IDD will be partially transposed by means of a Bill containing amendments to the current Insurance Intermediaries Act (Chapter 487 of the Laws of Malta), as well as amendments to the Insurance Business Act (Chapter 403 of the Laws of Malta), since the Directive also applies to insurance or reinsurance undertakings selling insurance products directly.

THE MFSA has also advised that the transposition of the IDD will necessitate amendments to subsidiary legislation, i.e. regulations issued under the Insurance Intermediaries Act, as well as certain regulations issued under the Insurance Business Act. In it’s circular, the MFSA stated that it is currently working on a regime for ancillary insurance intermediaries, and consequently, the tied insurance intermediaries regime, which the MFSA said it intends to retain, may necessitate some changes.

Consultation process underway

In its statement, the MFSA also explained that it is in the process of preparing the draft Bill and the necessary amendments to the regulations, which will be then issued for consultation to the market, explaining the proposed amendments to the said Acts and subsidiary legislation issued thereunder. In this respect, the MFSA said that it will issue a Consultation Document in 2017, giving the insurance industry a minimum period of 30 days to provide feedback.