On 4 October 2018, the Belgian government finally submitted its draft law (“Draft Law”) implementing Directive 2016/97/EU on insurance distribution (“IDD”) in Belgium. IDD repeals and replaces Directive 2002/92/EC on insurance mediation (“IMD”) and entered into force (following several delays) on 1 October 2018. Belgium is therefore late in implementing IDD, but the Draft Law should be adopted in the next few weeks or months at the latest. The current Draft Law states that it should enter into force on 1 October 2018.
The main objectives of IDD are to ensure a level playing field among insurance distributors and to significantly enhance consumer protection. Belgium kept ahead of the field when implementing the AssurMiFID set of regulations, but IDD will still bring major innovations to the Belgian insurance market. Below is an overview of the main changes brought by IDD.
As the directives’ names imply, IDD now covers any distribution channels (i.e. including insurers selling their insurance products to clients directly), whereas IMD only covered mediation activities (i.e. all types of insurance intermediary). The existing Belgian regime already included insurers, so a limited impact is expected.
IDD introduces a separate legal framework for intermediaries that perform insurance distribution as an ancillary activity to their main profession. IDD does not apply to ancillary insurance intermediaries, provided certain conditions are met.
An important innovation is the requirement for the manufacturer of an insurance product to apply product governance prior to the launch of a new insurance product or to significantly amend an existing insurance product. This covers the determination of the target market and the strategy for distributing the product, testing the product and informing future distributors about the product.
Another important change is that the sale of a package, where one component is an insurance product, will have to meet specific requirements and increased disclosure obligations.
IDD strengthens the requirements related to the professional knowledge of insurance intermediaries and such requirements are now extended to employees of an insurer engaging in direct distribution. The new requirement is 15 hours of training per year, while previously it was 30 hours over three years for brokers and agents, and 20 hours over three years for sub-agents.
From mediation to distribution
As the directives’ names imply, IDD now covers any distribution channels (i.e. including insurers selling their insurance products to clients directly), whereas IMD only covered mediation activities (i.e. all types of insurance intermediary). The existing Belgian regime already included insurers, so a limited impact is expected.
Ancillary insurance intermediary
IDD introduces a separate legal framework for intermediaries that perform insurance distribution as an ancillary activity to their main profession. IDD does not apply to ancillary insurance intermediaries, provided certain conditions are met.
Product governance
An important innovation is the requirement for the manufacturer of an insurance product to apply product governance prior to the launch of a new insurance product or to significantly amend an existing insurance product. This covers the determination of the target market and the strategy for distributing the product, testing the product and informing future distributors about the product.
Cross-selling
Another important change is that the sale of a package, where one component is an insurance product, will have to meet specific requirements and increased disclosure obligations.
Professional knowledge
IDD strengthens the requirements related to the professional knowledge of insurance intermediaries and such requirements are now extended to employees of an insurer engaging in direct distribution. The new requirement is 15 hours of training per year, while previously it was 30 hours over three years for brokers and agents, and 20 hours over three years for sub-agents.
Note the points below, which are of particular interest for the Belgian market:
Client categorization
Belgium used the option under IDD allowing member states to apply a different regime for professional clients (as opposed to retail clients). Certain information, such as information about costs and charges, inducements, etc., will not need to be provided to a professional client (as defined under MiFID II).
Inducements
Under the AssurMiFID regime, Belgium applied the “quality enhancement” principle, meaning that inducements are only permitted if they enhance the quality of the services to the client. We understand from the Draft Law that the Belgian government decided to step back and align with the IDD’s principle, i.e. that inducements are only permitted if they do not have a detrimental effect on the quality of the services provided to the client.
Conflicts of interest
While IDD establishes a MiFID-like conflicts of interest regime applicable to insurance-based investment products, the Draft Law retains the regime implemented under AssurMiFID, i.e. that conflict of interest procedures should be implemented for all types of insurance product.
Territorial scope of the Draft Law
The Belgian implementation of IDD will apply to any insurance distribution activities performed in the Belgian territory. There is no specific exclusion if the risks and commitments are located outside the EEA.
Benoît Vandervelde, Counsel, benoit.vandervelde@cms-db.com
Guillaume Platteau, Junior Associate, guillaume.platteau@cms-db.com
