How The IDD Will Affect Insurance-Based Investment Products

The Insurance Distribution Directive (IDD) is to insurance what MiFID is to investments. It repeals the directive on insurance mediation and regulates specific insurance-based investments. It must be transposed into national legislation by 23 February 2018, although a delay in when the adopted measures must be applied is currently being discussed. Notably, the directive introduces additional requirements for insurance-based investment products (IBIPs).

Besides the IDD's new requirements, the IBIP regulatory framework consists of an EU Commission delegated regulation that addresses information requirements and conduct-of-business rules for IBIP distributors. In October 2017, the European Insurance and Occupational Pensions Authority (EIOPA) issued guidelines on those IBIPs whose structures make it difficult for the customer to understand the risk involved.

In this article, I'll discuss conflicts of interest surrounding IBIPs, as well as the IDD's definitions of suitability and appropriateness.

What's the best way to identify and handle conflicts of interest?

Insurance intermediaries and insurance undertakings have to identify conflicts of interest that may occur within themselves—meaning managers and employees, as well as anyone linked to them—or between one customer and another. The EU Commission's delegated regulation introduces criteria for identifying conflicts of interest and requires intermediaries and insurance undertakings to put a written conflict of interest policy in place. The policy must detail the circumstances that may give rise to conflicts of interest and the procedures, specifications for which are given in the regulation, for managing them. It must be reviewed annually, at least. Furthermore, a record must be kept of any instances of conflicts of interest that may have an impact on customers.

The delegated regulation also comments on the disclosure of conflicts of interest to...