With the new Insurance Distribution Directive (IDD) the EU seeks to further harmonise rules on the sale of insurance in the single market. The directive creates a common framework for all types of insurance sales and has been implemented throughout most of Europe. Norway is lagging behind, but its implementation should be expected in the near future.
What is the Insurance Distribution Directive?
Directive (EU) 2016/97, the Insurance Distribution Directive (IDD), repeals and replaces the former Directive 2002/92/EC, the insurance Mediation Directive (IMD).
The purpose of the new directive is twofold. It seeks to further harmonise the rules on insurance while also increasing foreseeability and protection for the consumer. This is achieved by ensuring the same level of protection regardless of who sells the insurance. However, the IDD is a minimum harmonisation directive, meaning states can choose more stringent rules.
Compared to its predecessor, the IMD, the IDD has a more extensive scope. Where the IMD merely applied to insurance intermediaries, the IDD creates a common ruleset for all sales and administration of insurance. As such, the directive applies to all “insurance distributors”, which covers any insurance intermediaries, ancillary insurance intermediaries and insurance undertakings.
EIOPA has conducted a survey from 129 stakeholders from 16 Member States. Responses were received mainly from insurance intermediaries, insurance undertakings, and trade and consumer associations.
According to the report from EIOPA, Stakeholders have indicated that the IDD generally had a positive impact on how insurance is distributed to consumers. However, evaluation of the impact of the IDD on consumers, insurance distributors and supervisors has been challenging due to delays in the IDD application in some Member States, the impact of COVID-19, and the fact that some Member States had strong consumer protection rules in place prior to implementation of the IDD into national legislation.
Status and implementation of the IDD in Europe
The directive came into force on the 1st of October 2018 in the EU and has been implemented in all the EU member states. In the last state to implement it, Spain, the legal changes came into force on the 6th of February 2020.
The EEA joint committee, in decision 214/2018 26th of October 2018, decided to incorporate the Insurance Distribution Directive into the EEA agreement. However, because of constitutional rules in member states, the incorporation is subject to parliamentary approval. So far approval has not been given by the Norwegian parliament, probably awaiting the propositions on required legal changes.
Both Iceland and Liechtenstein have already implemented the IDD. Iceland implemented it in their Insurance Contracts Act and their new Insurance Distribution Act, coming into force 1st of August 2019 and 7th of June 2019 respectively. Liechtenstein implemented it in their new Insurance Distribution Act, coming into force 1st of October 2018.
Draft proposals for implementing the IDD in Norway
Draft proposals for implementing the IDD were sent out for consultation on the 6th of March 2018 by the Ministry of Finance and the Ministry of Justice. The Ministry of Finance is responsible for the public law aspects, which they propose to implement in the Financial Undertakings Act and the new Insurance Distribution Act. The Ministry of Justice is responsible for the private law aspects, which they propose to implement in the Insurance Contracts Act. A summary of changes will be given below.
The Ministry of Justice draft points to a need to update the Insurance Contracts Act. They propose both a general restructuring of the law, changes to implement the IDD and some further modernisation. Proposed changes include:
- A requirement for companies of honesty, decency and professional conduct in the customer’s best interest. This includes both a duty of guidance and of information.
- A “digital first choice” for communication. This allows the fulfilment of information obligations on any durable medium, unless the customer has reserved themselves against digital communication.
- A burden of proof on the company for their fulfilment of the legal requirements.
- A requirement for companies to have effective systems to deal with consumer complaints or demands.
- A rule giving a right to compensation for breach of a duty of guidance or information. This exists in customary law but is proposed to ensure legal clarity and foreseeability.
An overall important objective for the Ministry of Justice is legal coherence in financial regulations. Several of the rules in this draft are intended to mirror rules in the recently adopted Financial Contracts Act. A future proposition on the Insurance Contracts Act can thus be expected to be aligned with what was adopted in the Financial Contracts Act.
The Ministry of Finance draft also proposed several changes, both to implement the IDD and to further strengthen consumer protection and regulation. Changes include:
- Expanded requirement for competence and suitability for people working with insurance distribution, including minimum requirements for yearly training or development.
- Changes in the requirements to register, requiring all insurance intermediaries, ancillary intermediaries and their subagents to register in a central register.
- A limitation on the number of subagents that can be contracted by insurance agent companies, limiting it to 50% of the number of employed insurance agents in the company.
- Requirements for the internal approval procedure for new insurance products.
- Requirements for responsible business conduct.
Status of the draft proposals
The consultation period ended on the 6th and 7th of June 2018. We are currently awaiting parliamentary propositions from both the Ministry of Finance and the Ministry of Justice.
No timetable for when these can be expected have been given. They were not included in the government’s plan for this parliamentary session and could at earliest be expected in the plan for the next session, starting in October of this year.