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The impact of the Insurance Distribution Directive—one year on

Published on: 15 October 2019
Published by: LexisPSL
  • The impact of the Insurance Distribution Directive—one year on
  • What have been the biggest changes with the IDD?
  • What challenges have firms faced?
  • What effect is Brexit having on the IDD?
  • Any other observations?

Article summary

Insurance & Reinsurance analysis: The Insurance Distribution Directive came into force on 1 October 2018 and affected all insurance and reinsurance distributors and intermediaries. A year on, Ivor Edwards, partner and European head of the corporate insurance group at Clyde & Co, says it hasn’t had the damaging impact some feared but that does not mean firms should take a step back. or take a trial to read the full analysis.

The impact of the Insurance Distribution Directive—one year on

What have been the biggest changes with the IDD?

The increased disclosure requirements implemented as a result of the Insurance Distribution Directive (EU) 2016/97 (IDD) have led to customers being better informed about the insurance products they are buying. This means customers are now better able to assess their requirements and purchase the right cover to satisfy those requirements.

The introduction of the IDD at a time when insurance distribution models are evolving due to technology—and the increasing separation of product manufacture, distribution and underwriting—means that firms are constantly having to evaluate the customer impact of how they manufacture and distribute their insurance products.

What challenges have firms faced?

The fact that the implementation of the IDD was postponed for several months prior to coming into force on 1 October 2018 gave insurance distributors more time to update their systems and processes to meet the new requirements. This meant that its implementation has not, so far, had the kind of negative impact some feared.

It is probably too soon to tell whether the additional requirements resulting from the IDD will result in increased intervention by the Financial Conduct Authority (FCA). For example, the obligation on firms to identify a customer’s demands and needs and offer insurance products consistent with them has the potential to result in heavy regulatory intervention. The FCA has warned as recently as April 2019, in their thematic review of the general insurance distribution chain, that insurance distributors are failing to consider adequately the value of the products and services they provide to consumers. It remains to be seen how aggressive a stance the FCA will take when they come across non-compliance with certain requirements of the IDD.

What effect is Brexit having on the IDD?

Brexit has undoubtedly put significant strain on how insurance is distributed on a cross-border basis, both in terms of how insurance products are manufactured and how insurance products are ultimately distributed. The introduction of the IDD places new or reinforced obligations on all firms in the insurance distribution chain to act in the best interests of their customers. It is undoubtedly true that the introduction of the IDD, at a time when certain firms are already under pressure trying to mitigate the impact of Brexit, increases the risks of firms being non-compliant with their new and reinforced obligations.

Any other observations?

The fact that the IDD has not had the materially damaging impact some foresaw does not mean that firms should take a step back. The FCA’s thematic has already put firms on notice that the authority will not tolerate an indifferent approach to ensuring positive customer outcomes. Firms need to be cognisant, in particular, of risks caused by novel and innovative ways of manufacturing and distributing their insurance products.

Interviewed by Grania Langdon-Down.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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