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Insurance Distribution Directive: In the Shadow of MiFID

Shedding light on a low-key regulation in Europe

Andy Pettit


A European Union directive took effect in early October with the aim of enhancing consumer protection and creating a level-playing field for how insurance products are distributed.

The Insurance Distribution Directive, or IDD, is important to European investors because certain insurance-wrapped products are a popular, flexible and tax-efficient way to invest.

The directive will have a big impact. Yet, so far, it’s drawn little attention from financial websites and media. It’s worth noting that IDD is to insurance companies, distributors and price-comparison websites what MiFID is to banks, asset managers, platforms and investment advisers.

What the Insurance Distribution Directive is all about

The IDD outlines the information that should be given to consumers before they sign an insurance contract. The directive imposes certain conduct of business and transparency rules on distributors. It also clarifies procedures and rules for cross-border business. Plus, it contains rules for the supervision and sanctioning of insurance distributors in case they breach the provisions of the directive.

Insurance Distribution Directive’s similarities with MiFID

IDD is similar to MiFID in a few key ways. For instance, under IDD, product manufacturers (usually insurance companies) must have a product-approval process that defines a target market for each product; ensure that those products consider the needs of those customers; and select distributors that have the expertise to understand the product and its target market. Manufacturers must also produce an insurance product information document that contains the information a consumer will need to make an informed decision about purchasing a policy.

Insurance-based investment products are among the many product types classified as packaged retail investment and insurance-based products, or PRIIPs, and therefore require the key information document as defined by the PRIIPs regulation. For all other (non-investment) insurance products, a two-page insurance product information document is required, drafted in simple language and containing key information and not all the policy terms and conditions.

In turn, product distributors must ensure that customers receive the insurance product information document before concluding a contract. They must also notify manufacturers of any sales outside of the target market and provide the manufacturer with information that it needs to review the product.

The Insurance Distribution Directive in practice

IDD is in many ways a good example of converging and more consistent regulation. It’s a step toward a single rulebook and a component of the European Commission’s Capital Markets Union.

Because insurance-based investment products are covered by the PRIIPs directive, they’ve had to produce key information documents since the beginning of this year. And because many insurance-based investment products invest in other retail investment products, insurance companies have had to source data from those investment managers to be able to produce the documents. The industry came together to find a way to consistently share of this data in a template, known colloquially as an EPT, or European PRIIPs template.

We surmise that the low-key launch of the directive is a consequence both of the evolution from the groundwork laid by PRIIPs and the long-standing Insurance Mediation Directive, whose scope extends beyond insurance-based investment products to general insurance including life, travel, motor, home and other protections.

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