IDD explained

IDD explained

The Insurance Distribution Directive is coming in great strides. All EU’s insurers must comply with it starting from October 1. That means you, too. Are you all set for the new reality? Here’s a quick brush-up on what’s what.



The IDD (Insurance Distribution Directive) regulates the way insurance products are sold. A fundamental principle of the Directive is always acting honestly, fairly and professionally in accordance with the best interests of customers.

This is all, obviously, in the name of a broader customer protection. In general, customers know little about insurance, may not be aware of risks or understand the complexities of an offer, so the protection is a countermeasure to unfair sales practices. It’s about giving people clearly understandable and relevant information about an insurance product, so they can make an informed purchase decision.

This means greater transparency in the price and costs of insurance products, clearer information on the products, new business conduct to help customers avoid buying the products they don't actually need...or more options to opt in or out.

For example, the information about possible conflict of interest is obligatory. Distributors must disclose their connections to all insurers or intermediaries, be it in the form of capital or shareholding and voting rights. It has to be clear, too, if an intermediary offers products from many insurers or cooperates with just one exclusively, and how remuneration for the service is constructed.

As soon as requirements are met, a distributor is obliged to perform customer “demands and needs” test. If the customer is provided with advice, a written recommendation must be delivered to them each time. At the same time, each offer must be supplemented with the Insurance Product Information Document (IPID) containing plainly laid out comparison of other offers.  

The noble idea the new regulation builds upon is to create a level playing field between all distribution channels and encourage insurers to simplify their products.

The skeptics will say the ultimate goal was reached by a great deal of sacrifice because now there are too many rules and procedures to follow, which leads to sales process being even longer and more complicated. Moreover, customers may view IDD as a threat to their privacy, being forced to share their full financial condition and family situation, so that a distributor can probe their needs.

All things considered, the transition to a post-IDD reality might be somewhat painful for both customers and insurers - but what awaits at the end of the road is a transparent, customer-first culture, and that benefits everyone in the long run.