Question ID: 2694
Regulation Reference: (EU) No 2016/97 - Insurance Distribution Directive
Topic: Demands and needs test (Art. 20 para. 1 subpara. 1 IDD)
Article: 2; 20(1); 22; 23
Status: Final
Date of submission: 13 Jun 2023
Question
The DNT (Demands and need test) could be seen as a document very formal but also could be an entire documented discussion between the client and the broker. The question I have is: it is acceptable to have the DNT consisting of the entire email discussion between a corporate broker and a client especially when the placement concerns a large risks or a risk where placement cannot be transactional and requires multiple rounds of negotiations between the parties and multiple documents exchanged. Usually when a corporate client has an insurance need that has to take into account an activity that includes multiple factories, properties etc. in order to find the right product the discussion could be quite complex and impossible to be simplified to a simple check-box document.
Background of the question
We are trying to identify what would be a best practice in this field as in case of a complex plasament a general DNT "check-box" document is inadeqaute.
EIOPA answer
Article 20(1), subparagraph 1 of the Insurance Distribution Directive (IDD) provides that on the basis of information obtained from the customer, the insurance distributor shall specify the demands and the needs of that customer. Recital 44, IDD specifies, in the same vein as Article 20(1), subparagraph 2, IDD, that any insurance product proposed to the customer should always be consistent with the customer’s demands and needs. The insurance distributor is solely responsible of the execution and the analysis of the demands and the needs.
According to Article 22(1), subparagraph 1, IDD, the information referred to in Article 20, notably the specification of the demands and the needs of the customer, need not be provided when the insurance distributor carries out distribution activities in relation to the insurance of large risks, as defined in Article 2(1), point 16, IDD.
Without prejudice to this large risks exemption, the demands and needs specification, which must take place “prior the conclusion of an insurance contract, should be carried out in relation to any customer looking to purchase an insurance product. However, the nature of the specification should be modulated according the complexity of the insurance product being proposed and the type of customer in accordance with Article 20(2), IDD.
According to Article 23(1), IDD, the demands and the needs should be communicated to the customer on paper. Two derogations from this paper by default regime, are possible: the demands and the needs could be provided by a durable medium other than paper or a website if, in both cases, specific conditions are met (cf. Article 23(2)). However, even if one of these derogations has been used by the customer, a paper copy of the demands and the needs test should be provided upon request and free of charge according to Article 23(3), IDD.
The IDD does not specify a mandatory format (e.g questionnaire) in which the demands and the needs should be completed. Nevertheless, in some cases, i.e. depending of the type of risk, one way of executing and documenting the demands and needs specification could be demonstrated by the e-mail communication between the customer and the distributor. This email communication should show that the insurance distributor – who is solely responsible for the execution and the analysis of the customer’s demands and needs - has performed the related assessment pursuant to Article 20(1), IDD.
Last but not least, taking into account the fact that the IDD is aimed at minimum harmonisation, Member States can maintain or introduce more stringent provisions in relation to the demands and needs specification and its format, e.g standardized questionnaire, in order to protect customers.