September 27, 2018
As you are aware, the Insurance Distribution Directive comes into effect on 1 October 2018. In order to support your preparations, OneLife is making available to you various documents and procedures to help you gain a clear understanding of the new regulatory framework.
What is IDD?
Please find below a short video presenting the main features.
The main objectives of IDD are to:
- Improve regulation of the retail insurance market and create more opportunities for cross-border activities;
- Create the necessary conditions for fair competition between distributors of insurance products;
- Strengthen consumer protection, notably regarding the distribution of insurance-based investment products (IBIPs).
What are the consequences for clients?
IDD requires distributors to provide clear and transparent information to enable clients to make informed decisions.
The main difference is that such information is now a formal requirement, to be provided via pre-contractual documentation incorporating a document designed to obtain all of the information about the client and to establish their profile and associated PRIIPs KID, in addition to all related charges (definition and nature of such charges). Once the information has been obtained, the client may decide whether or not to enter into the contract. This document will be made available to you in the very near future, should you wish to use it.
Following the signature of the contract and throughout its lifetime, distributors are obliged to monitor the evolution of all IBIP contracts and to verify that they remain suitable vis-à-vis the profile established during the pre-contractual phase. This process must be documented for the different transactions and subsequently annually, via an appropriate report.
IDD requires distributors to be able to substantiate all advice given to clients throughout the lifetime of their contracts.
What are the consequences for our partners?
Unlike the Insurance Mediation Directive, IDD concerns both Intermediaries and Insurance Companies.
Accordingly, business relationship agreements will be amended and must highlight the new obligations and duties incumbent on Intermediaries and Insurance Companies.
Distributors shall be required to act in the best interests of clients in an honest, impartial and professional manner.
This definition entails:
- A strengthening of obligations regarding advice (Articles 20 and 30 of the Directive). For all products, distributors shall be required to establish their clients’ needs and requirements, extending right up to personalised recommendations for IBIPs. The objective of such recommendations is to offer a product that meets the previously established needs and demands, and which shall be arrived at by creating an investment profile incorporating a client suitability test and provision for periodic reassessment throughout the lifetime of the selected product. Documenting such assessments enables distributors to demonstrate that they are acting in clients’ best interests.
- Transparent information (Articles 17, 18, 19, 20 and 29 of the Directive) regarding remuneration. Distributors must inform the client about all charges associated with the contract by setting out the nature of the charges and how they are calculated. Distributors and insurance companies must also avoid any situation that may undermine the quality of the service provided to the client. In other words, a parallel procedure covering the prevention, detection and management of conflicts of interest must be implemented by distributors and insurance companies. Should any such situation arise within the context of their activities, it must be notified to the insurance company without delay in order to try to find a solution. Should the situation persist, it shall only be disclosed to the client in the last resort, to enable the client to make an informed decision.
- There is a new aspect vis-à-vis product governance and oversight (Article 25 of the Directive), allocating new roles to the various parties involved in the insurance universe: OneLife plays the role of Manufacturer of the products made available to its partners, who in turn play the role of Distributor.
Within the framework of this role as Manufacturer, a product creation policy and distribution strategy will be introduced, incorporating definition of the target market and a range of distribution channels which will be different for each product. All of this information will be forwarded to partners via the PDAs (Product Distribution Arrangements), which will be available in the very near future via Youroffice.
For their part, distributors must:
- Communicate their distribution strategy to the manufacturer, to ensure that it is suitable for the manufacturer’s target market;
- Monitor the products, in order to verify that they remain suitable vis-à-vis the realities in the market place.
All of these new obligations will be incorporated within the new agreement which you will receive in the not too distant future.
In summary, the following changes:
- A model pre-contractual information form, available for your use;
- Revised general terms and conditions;
- Amended transaction documents, to enable you to document advice given prior to transactions;
- The PDAs, to help you understand our target markets;
- A new agreement meeting the requirements of IDD;
- A new Appendix 1, covering remuneration that meets all of these new requirements
We will notify you as soon as these new documents are available on our systems.
Please do not hesitate to contact us should you require any further information.
Author : Nora Belarbi