European ministers back delay to Insurance Distribution Directive

Out-Law News | 20 Feb 2018 | 10:04 am | 2 min. read

The European Council has backed a proposal to delay the introduction of new laws on the distribution of insurance products until October 2018.

However, members of the European parliament (MEPs) are not expected to vote on the draft directive setting out the new deadline until March, after the existing February deadline. For that reason, although it is likely that there will be a delay to the application date of the IDD, the final position for firms is not yet entirely certain, according to insurance law expert Edward Lister of Pinsent Masons, the law firm behind Out-Law.com.

The Insurance Distribution Directive (IDD) requires each EU member state to implement its rules into national law by 23 February 2018, but the European Commission has put forward a proposal to extend the implementation deadline for the new rules until 1 July and the deadline for its application to firms until 1 October this year at the latest.

In a statement released last week, EU ambassadors on behalf of the Council said that the delay would "enable the insurance industry to better prepare for the directive and for the changes necessary to comply with implementing rules".

Earlier this month, the UK Treasury and Financial Conduct Authority (FCA) announced that they would not bring their own rules for transposing the IDD into UK law into force until a final decision is made on the Commission's proposal.

"The latest development is not unexpected and does not materially change the position, which only will be clarified once the final form of the directive is eventually adopted by the European parliament," he said.

"The proximity of the European Council's confirmation to the originally-intended application date of the IDD means that some firms' implementation plans already are likely to be in the advanced stages of their development. The FCA, in its latest policy statement, has introduced a 'transition period' in which firms can elect to follow all, or some, of the new IDD rules, provided that they are similar in purpose to the current rules and provide greater, or at least similar, customer protection. Some insurance distributors may want to take advantage of this opportunity, in order to ensure a smooth transition to the IDD rules when they are fully transposed into the UK financial services regulatory regime," Lister said.

Once in force, the IDD will revise and update the EU's framework for regulating insurance brokers, agents and other intermediaries, which is currently contained in the 2002 Insurance Mediation Directive. The UK intends to implement the IDD despite its impending exit from the EU, although the new regime will have less impact on UK firms because it replicated many provisions that are already in force in the UK.

Among the main changes to be introduced by the IDD are the extension of distribution rules to direct sales by insurers and reinsurers, the introduction of new product oversight and governance rules, and the enhancement of product rules for insurance-based investment products (IBIPs), such as insurance bonds and endowment policies.