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Insurance Distribution Directive (IDD)

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The Insurance Distribution Directive (IDD – Directive (EU) 2016/97) is a Directive on insurance distribution (fully recasting the Insurance Mediation Directive (IMD Directive 2002/92/EC on insurance mediation) introduced by the European Parliament and the Council. The objective is to strengthen the rules on the design and distribution of insurance products and to be applied to the sale of all insurance products in the EU. It intends to harmonize national provisions concerning insurance and reinsurance distribution, while not precluding Member States from maintaining or introducing more stringent provisions to protect customers.

The IDD mainly focuses on the following areas:

  • Product oversight and governance (POG) and product distribution arrangements (PDA);
  • Conflicts of interest;
  • Client’s information and conduct of business;
  • Suitability assessment (and information to customer)
  • Professional training and competencies.

The IDD is a minimum harmonizing directive, and its provisions are specified by two Delegated Regulations: Commission Delegated Regulation (EU) 2017/2358 on product oversight and governance requirements and Commission Delegated Regulation (EU) 2017/2359 on information requirements and conduct of business rules.

In August 2021, the Delegated Regulation (EU) 2021/12/1257, amending Delegated Regulation (EU) 2017/2359, adopted by the Commission integrated sustainability factors and preferences into the product oversight and governance requirements for insurance undertakings and insurance distributors, as well as into the rules of conduct of business and investment advice for insurance-based investment products.

Article 2 of the Delegated Regulation (EU) 2021/1257 introduces the definition of “sustainability preference” as a (potential) client’s choice, to be expressed in the IDD questionnaire, to integrate one or more of the following financial products into its investment:

  • a product where a minimum proportion shall be invested in environmentally sustainable investments as defined by the EU Taxonomy Regulation (EU Taxonomy[1]); and/or;
  • a product where a minimum proportion shall be invested in a minimum proportion of sustainable investments as defined in Article 2, point 17 of the Sustainable Finance Disclosure Regulation (SFDR)[2]; and/or;
  • a product considering Principal Adverse Impacts (PAI)[3] on sustainability factors.[4]

Visit the EU Taxonomy section and the SFDR section for further information.

Following the amendments to the IDD, the European Insurance and Occupational Pensions Authority (EIOPA) issued a Guidance on the integration of the customer sustainability preferences (“Guidance on the integration of the customer’s sustainability preferences in the suitability assessment under IDD”) to promote a better understanding of the new rules and facilitate their implementation.

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Notes:
[1] Environmentally sustainable investment’ means an investment in one or several economic activities that qualify as environmentally sustainable under this Regulation.
[2] “Sustainable investments” are defined by Article 2, point 17 of the SFDR as investments in an economic activity that contributes to an environmental objective, as measured, for example, by key resource efficiency indicators on the use of energy, renewable energy, raw materials, water and land, on the production of waste, and greenhouse gas emissions, or on its impact on biodiversity and the circular economy. It can also be an investment in an economic activity that contributes to a social objective, in particular, an investment that contributes to tackling inequality or that fosters social cohesion, social integration and labour relations, or an investment in human capital or economically or socially disadvantaged communities, provided that such investments do not significantly harm any of those objectives and that the investee companies follow good governance practices, in particular with respect to sound management structures, employee relations, remuneration of staff and tax compliance”.
[3] “Principal Adverse Impacts” (PAI) are environmental and social-related indicators that assess the (negative) impacts that investment decisions taken by FMPs have on sustainability factors, such as environmental and social issues.
[4] “Sustainability factors” refer to environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters as defined in Article 2, point 24 of Regulation 2019/2088 on SFRD.