Five Years of the Insurance Distribution Directive (IDD) – Time to Take Stock

The European Insurance and Occupation Pensions Authority (EIOPA) held a public event about the application of the Insurance Distribution Directive (IDD) on 9-10 March 2023. The online event gathered over 600 representatives from consumer associations, trade associations, insurance undertakings, insurance intermediaries, universities, national competent authorities and other institutions. The event allowed external stakeholders to share their experience about the application of the IDD and will help EIOPA in preparing the report on the application of the IDD to be published by beginning of 2024.

Fausto Parente, Executive Director of EIOPA, and Elena Barra Caracciolo, Chair of the Committee on Consumer Protection and Financial Innovation, opened the event. Mr Parente highlighted the need for insurance distributors to “follow a customer-centric approach and always act honestly, fairly and professionally in accordance with the best interests of the customer”. Ms Barra Caracciolo underlined that “the report will be based not only on the input received through this event, but also on separate surveys run with national competent authorities”.

The event covered four different sessions which were related to (i) digitalisation and new distribution models, (ii) emergence of more sustainable insurance products and integration of sustainability factors, risks and preferences into the IDD, (iii) issues related to the practical application of the IDD and (iv) quality of advice and selling methods.

Following impulse speeches by various representatives from trade associations, consumer associations, national competent authorities and other institutions on each of the sessions, EIOPA opened the floor to participants to provide their input:

• On trends in digitalization and new distribution models, emphasis was placed on the opportunities this could bring, for example in drastically reducing the time needed for consumers to buy an insurance product. However, this new trend, in addition to new ancillary distribution models connected to electronic devices, also carries risks and does not remove the need for insurance distributor to act honestly, fairly and professionally in accordance with the best interests of the customer. Even if digitalization could help consumers to interact with insurance distributors, the human interaction, including in hybrid models, in terms of insurance sales such as life insurance, is not likely to disappear soon. As stressed by a panellist: “Insurance is not downloading an app”.
• With regards to the new requirements on the integration of customer’s sustainability preferences in the suitability assessment, participants found that the most challenging issue related to the implementation of these rules is, in particular the complexity of the regulatory framework and the fact that customers struggle to express their “sustainability preferences”. Financial education programmes on sustainable finance can help to raise consumers’ awareness on the possible options to invest sustainably. Another issue is the limited offering of products that can match the sustainability preferences of customers due to data availability and in some Member States, the low compliance with the rules in the first months of application. In addition, participants were of the view that the content on sustainable finance in training courses for intermediaries should improve in order to ensure a higher quality of advice provided by intermediaries.  
• On issues related to the practical application of the IDD, it was emphasised that the IDD regulatory framework is still evolving. Indeed, the recent ECJ judgment on group insurance  still needs to be assessed in its concrete application in different jurisdictions and potential consequences for some insurance business schemes. Moreover, after-sales conduct of insurers as well as some “new” insurance distribution activities, which could be out of the exact scope of the IDD, may affect the consumers and the core IDD principle: the protection of the customer’s interest. Thus, even if in the definition of “insurance distribution” in the IDD, includes the preparatory works to the conclusion of insurance contracts, questions could arise about cold calling and other cases of unexpected solicitation and the increasing influence of new digital tools such as lead generation tools and whether these are caught under the IDD framework.
• On quality of advice and selling methods, some thinking still need to be conducted concerning the precontractual information given to consumers notably concerning the exact insurance coverage of a product (e.g. contractual exclusions) and whether the demands and needs test is being adequately performed through the use of a medical questionnaire, for example. Practical implementation of advice and recommendations given by distributors sometimes tends towards formalism. Still, even if IDD has allowed different actors to improve their business practises as underlined by a number of stakeholders (e.g. the introduction of the IPID as a consumer disclosure tool), work is still necessary to better protect the customer’s interest taking into account some new distributions channel (ancillary distribution models). In this light, some measures at national level (for example, through “soft law”) with development of extended cooling-off period to cancel an insurance product bought by consumers were presented as an example of a tool to address some conduct issues, notably concerning cross-selling schemes.