What is Insurance Distribution Directive?

Insurance Distribution Directive (IDD) is a legislation that was introduced by the European Union to regulate and standardize the distribution of insurance products within the EU member states. This directive was implemented after the European Commission identified the need for a unified distribution framework, which would address the increasing mis-selling of insurance products and improve consumer protection through transparent disclosure of information.

Scope of Insurance Distribution Directive

The IDD applies to all insurance and reinsurance intermediaries, including insurance agents, brokers, and other intermediaries who sell insurance products within the EU. The directive also applies to insurance undertakings, which means the companies that provide insurance products to consumers.

The IDD applies to all insurance products distributed within the EU, including life and non-life insurance products, such as health, travel, and motor insurance. The directive also includes the sale of insurance-based investment products, such as unit-linked insurance products.

Key features of Insurance Distribution Directive

The main objective of the IDD is to protect consumers by ensuring that they receive accurate and clear information about the insurance product they are purchasing. The directive outlines a number of key features that intermediaries and insurance undertakings must adhere to:

Professional requirements

The directive sets out the professional requirements that intermediaries must meet. These requirements include appropriate knowledge and expertise to distribute insurance products, appropriate organizational arrangements, and adequate professional indemnity insurance. The directive also requires intermediaries to complete ongoing training and development to ensure they maintain their knowledge and skills.

Disclosure requirements

The directive requires intermediaries and insurance undertakings to disclose information to consumers. This includes information about the insurance product, its features, and its costs. The information must be presented in a clear and concise manner, and must not be misleading. This ensures that consumers can make an informed decision when purchasing an insurance product.

Product oversight and governance

The IDD requires insurance undertakings to have effective product oversight and governance arrangements in place. This means they must identify the target market for their insurance products, assess their suitability for the target market, and regularly review their products to ensure they remain suitable.

FAQ: Insurance Distribution Directive

Conclusion

The Insurance Distribution Directive is an important legislation that aims to regulate and standardize the distribution of insurance products within the EU. By setting out professional requirements for intermediaries and disclosure requirements for intermediaries and insurance undertakings, the IDD aims to improve consumer protection and ensure that consumers receive accurate and clear information about the insurance product they are purchasing. To comply with the IDD, intermediaries and insurance undertakings must ensure that they have appropriate knowledge and expertise, effective product oversight and governance arrangements, and that they disclose information to consumers in a clear and concise manner.