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European Insurance and Occupational Pensions Authority

1870

Q&A

Question ID: 1870

Regulation Reference: (EU) No 2016/97 - Insurance Distribution Directive

Topic: Scope (Art. 1 IDD)

Article: 1(3)((a)(i))

Status: Final

Date of submission: 01 Mar 2019

Question

There are insurance products which cover a customer's financial loss for the difference between the purchase price and the market value of a vehicle at the time of the incident (often referred to as GAP insurance). Can car dealer who distribute such insurance policies on an ancillary basis be exempted from the scope of the Directive by virtue of Article 1(3)(a)(i) IDD? This provision sets out that the Directive shall not apply to ancillary insurance intermediaries carrying out insurance distribution activities where, notably, the following conditions are met: “the insurance is complementary to the good or service supplied by a provider, where such insurance covers the risk of breakdown, loss of, or damage to, the good […] supplied by that provider...".

EIOPA answer

The answer to this question is provided by the European Commission.

In accordance with Article 1(3)(a) IDD, one of the conditions for the exemption of ancillary intermediaries from the scope of the Directive is that the insurance is “complementary to the good or service supplied by a provider” and covers “the risk of breakdown, loss of, or damage to, the good” supplied by that provider. In the case of a car dealer, this will typically include all insurance policies providing financial protection against breakdown, loss of or damage to the vehicle sold by the car dealer to the customer, such as comprehensive (“omnium”) car insurance or more limited policies like breakdown insurance. The details of the insurance coverage conditions, in particular with regard to the amount of compensation in case of write-off due to an accident, are left to the contractual conditions and the provisions of national law. The “GAP insurance” referred to in the question could therefore be covered by the exemption under Article 1(3)(a) IDD if it provides compensation for the financial disadvantages caused by the damage to or loss of the vehicle sold by the car dealer.

However, in order to be exempted from the scope of the Directive, an ancillary insurance intermediary – in the present case a car dealer – would have to meet all the cumulative conditions set out in Article 1(3) IDD for the entire range of insurance products offered. This means that the insurance products provided would have to be strictly limited to the breakdown, damages to or loss of the customer's vehicle and could not contain any element of liability coverage. In addition, the amount of the premium could not be higher than 600 EUR per year.

If the exemption of Article 1(3) IDD applies also Article 1(4) IDD has to be complied with. This provision provides additional obligations when ancillary insurance intermediaries, who are exempted from the scope of the IDD, distribute insurance products. In particular, Article 1(4)(b) of the IDD requires that insurers and insurance intermediaries that carry out a distribution activity through an exempted ancillary insurance intermediary, are responsible for compliance with Articles 17 and 24 IDD, and for considering the demands and needs of the customer before the proposal of the contract.

Disclaimer provided by the European Commission:

The answers clarify provisions already contained in the applicable legislation. They do not extend in any way the rights and obligations deriving from such legislation nor do they introduce any additional requirements for the concerned operators and competent authorities. The answers are merely intended to assist natural or legal persons, including competent authorities and Union institutions and bodies, in clarifying the application or implementation of the relevant legal provisions. Only the Court of Justice of the European Union is competent to authoritatively interpret Union law. The views expressed in the internal Commission Decision cannot prejudge the position that the European Commission might take before the Union and national courts.