Product Oversight And Governance Requirements Under IDD

Significant decisions remain regarding the Insurance Distribution Directive (IDD), which is due to be transposed into Luxembourg law in February 2018. (Read my last article on the IDD's new requirements for training). In this article I will address the regulatory framework for product oversight and governance (POG) requirements that this new directive brings, which is relevant to both manufacturers and distributors.

What are the POG requirements for insurance manufacturers?

The European Commission has issued a delegated regulation on POG requirements for insurance undertakings and distributors. It states that, to be considered a manufacturer, the entity must take on a decision-making role in the design and development of an insurance product. The regulation also provides criteria to determine if this decision-making role is met and specifies which activities are not related to the manufacturing of an insurance product.

The POG requirements for manufacturers also address the product approval process: the manufacturer must have a written policy describing the process for designing, monitoring, reviewing, and distributing insurance products, which also includes corrective actions for insurance products that are detrimental to customers. These measures have to be proportionate to the product's complexity, risks, nature, and scale.

The product approval process also involves identifying a target market. This must be done to a sufficiently granular level, taking into account the characteristics, risk profile, complexity, and nature of the product. Only products compatible with the needs, characteristics, and objectives of the customers in the target market are to be designed and brought to the market.

Product testing must also be carried out. The purpose of this is to assess if the product matches the identified target market's needs, objectives, and characteristics. (In contrast to product monitoring and product review, which aim to identify events that could materially affect the product's...

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