The Insurance Distribution Directive And Its Consequences For The Luxembourg Life Insurance Industry

Directive (EU) 2016/97 on Insurance Distribution of 20 January 2016 ("IDD" or "the Directive") harmonises national provisions concerning the distribution of insurance and reinsurance products and insurance-based investment products ("IBIPs") by insurance intermediaries, insurance companies, their employees, and ancillary insurance intermediaries in the European Union.

The objective of the present article is not to summarize the general European legislation, but more specifically to draw out areas of special interest for the leading Luxembourg industry; i.e. insurance companies and brokerage firms active in the field of wealth insurance.

The implementation of the European Directive and the application of corresponding Delegated Regulations has been postponed to 1 October 2018. The European Parliament substantiated this request for postponement by the need to give insurance undertakings and insurance distributors more time to better prepare for a correct and effective implementation of the Directive and to implement the necessary technical and organisational changes to comply with the Delegated Regulations.

The aims and potential consequences of this overwhelming EU legislation on the insurance sector have been already presented and commented by many authors.

Clearly and because good balance between sustainable profits, i.e. remuneration schemes, in the first place, and monitored liabilities in the second place, is key for success, many authors have already commented on the first concern, i.e. the remuneration of distributions networks and the corresponding changes to be introduced.

Remuneration framework - IDD v. MiFID II (for memory)

Unlike Directive MiFID II which considerably restricts the possibility for firms providing the service of investment advice on an independent basis and the service of portfolio management to accept and retain fees, commissions or any monetary and non-monetary benefits from third parties, and particularly from issuers or product providers; IDD generally accepts such remuneration in connection with the distribution of an "insurance-based investment product" as long as the payment of fees, commissions or any non-monetary benefit does not have a detrimental impact on the quality of the relevant service and does not impair the distributor's duty to act honestly, fairly and professionally in accordance with the customer's best interests.

Distributors' liabilities - Life insurance - Specific Luxembourg focus

The specificity of the Luxembourg insurance industry not only pertains to the variety of distributors ('bancassurance' entities combining investments services, investment and insurance products, EEA banking institutions having created insurance brokerage units aiming at...