The clock is ticking: from October 1, 2018, the Insurance Distribution Directive and its transpositions into local law will be binding for the market players in all EU countries. With the two years originally given by the European Commission for preparation for insurance distributors and the delay of another six months, is it already a level playing field?
Local Laws Caught Up
The European countries have had hard times of adjusting their national legislation to the directive by the deadline set for them, thus July 1, 2018. However, the CEE caught up the best with three of the five countries that have communicated full transposition by May 24, 2018.
Belgium, Germany, and Lithuania have partially communicated its readiness, although Germany was considered the first to approve the legislation changes locally. In the rest of the countries, the legislation mostly went underway, too, and only waits for a communication in the official national journals.
One of the last countries to implement the IDD was Italy but even they published the necessary changes to their laws in mid-June. Meanwhile, insurance supervision authority IVASS has launched public consultations for the further development of the rules to prepare for the secondary level legislation changes.
Despite the Brexit hassle, UK also managed, albeit sluggishly, to close the procedure, as it transposed the directive in local law at the end of May. Nonetheless, UK Financial Conduct Authority (FCA) claimed many firms are prepared for the new regulation ahead of the final October deadline and in the latest edition of its handbook promoted an early adoption of legal requirements.
What Practice Makes You Compliant?
The IDD would like to enforce the rights of the customers on an EU-level to receive the same complete information package about an insurance product, including agent fees (that is also the most discussed part of the regulation), regardless of the sales channel. Also, the European Union would like to establish a detailed rule of the requirements necessary for the work of agents and distributors and to create a standard regulation for life and non-life insurance products.
Getting more practical, the European Insurance and Occupational Pensions Authority (EIOPA) has issued detailed guidelines regarding “execution-only” sales or telephone and online sales, a territory most in need of regulation.
The guidelines help assess what products fall into the category of insurance-based investment product and if they are difficult for the customer to understand. Such products pose a risk of buying before reaching readiness and, therefore, should be excluded from phone or online selling, where no advising activities occur, in order to minimize the risk of customer detriment and misselling.
Insurance Distributors Have Launched the Race
Forward-thinking insurance distributors have already prepared their own solutions and they turn to technology to lead the way out of the regulatory chaos.
One of the first products already on the market with compliance with IDD in mind is the new consulting software of insurance group Die Bayerische, called BayRat. The software, developed in partnership with their own IT firm iS2, offers a step-by-step financial analysis starting with an assessment and followed by the creation of an individual concept and a specific consultation. In the end, the consumer gets a 100-page report (a substantial part of the directive is the obligation to provide a standardized and straightforward documentation about the insurance product) and with the agent, they are able to find a tailored solution.
Targeting Millennials is a new challenge that insurers need to tackle but that effort can be aligned with regulatory compliance, Coya’s example shows. The Germany-based insurtech startup, that has recently got a funding of USD 30mn, aims to enter the market with a product that ditches the old practices of neverending paperwork and impersonality of client treatment. By digitalization, effectiveness will live up to the effectiveness expectations of the Millennial generation. Also, the transparency and clarity that generation demands luckily coincides with the requirements of the new regulations like IDD and GDPR.
Even professional associations think IDD is a great opportunity to present a new approach, this time to collaboration. Two financial advisory associations in the Czech Republic, USF, and AFIZ have decided to join forces and establish the Czech Association of Financial Advice and Mediation (ČASF), to improve the conditions for discussions about regulations such as the IDD and promote self-regulation and customer protection. The strongest representation of insurers to date brings 27 market players to the same platform, including Broker Consulting, Fincentrum, OVB Allfinanz, and Swiss Life Select.