Insurers and other insurance distributors will face significant challenges while implementing the requirements of the German law transposing IDD. Impacts on distribution models, training requirements and increased duties and obligations in distribution will need to be considered. In addition, there are a number of compliance issues, such as conflicts of interest, cross-selling and considerations regarding the commission structure. With regard to insurance products there are also new requirements, such as product oversight and governance (e.g. the definition of the target market, product approval and regular review), the draft of a standardized insurance product information document (IPID)) and the revision of insurance contract documentation regarding payment protection policies (Restschuldversicherungen). A proper implementation is even more relevant, as the fines and other sanctions applicable in case of non-compliance have been increased, and now include new measures such as public statements.
BaFin pointed out on 28 July 2017 that insurers need to be prepared for substantial burdens in their implementation of the new German law transposing IDD, particularly in the following areas:
- Product Oversight and Governance (POG);
- Additional consulting requirements regarding insurance investment products;
- Compliance with pass-through requirements in the event of mediation by insurance consultants mediating without commission, but against a fee paid by the customer (in order to ensure that the customer receives a “net” product);
- Compliance with distribution requirements by employees of insurers; and
- Compliance with distribution requirements in the event of direct sales by insurers via the internet.
Insurers have already started considering and implementing strategies, even though some details on a German and EU level are still outstanding and can only be considered when available.
Timeline for IDD implementation in Germany
The extensive implementation work and challenges caused in particular by the German law transposing IDD are also reflected in the timeline.
- In general, the IDD legislation will become effective in Germany on 23 February 2018.
However, there are some exceptions before and after that general date, e.g.:
- Effective immediately is the prohibition (subject to some exemptions) for insurance distributors to pass on commission or other benefits to the policyholders or insured persons. This is now included in the German insurance supervisory law (as opposed to regulations issued by the ministry).
- Effective only as of 1 July 2018, i.e. at the end of the timeline, is the obligation of life insurers with participating products to provide additional information in the annual notification to the policyholder.
Specifications on a German level to be considered – expected later this year
On a German law level, further details are expected for later this year by way of one or more new regulations covering, amongst others, the following areas with regard to insurance distributors:
- Procedures regarding authorization (including information to be submitted by the applicant);
- Scope of duties of insurance distributors regarding (i) information requirements vis-à-vis the policyholder, (ii) provision of collateral, surety etc., potentially including documentation requirements and an audit (iii) guidance regarding training requirements (regelmäßige Weiterbildung), (iv) governance requirements for the business, (v) books and records and documentation requirements, (vi) complaints handling and out-of-court settlements and (vii) avoidance and disclosure of conflicts of interests;
- Requirements relating to the economic independence of insurance consultants mediating without commission, but against a fee paid by the customer (Versicherungsberater);
- Scope and requirements regarding third party liability insurance (Haftpflichtversicherung), which is an authorization requirement;
- Content and procedure (including a certain committee) regarding exams, exemptions and equivalence, and the competence of local Chambers of Commerce;
- Equivalence requirements regarding qualifications obtained in other EU member states; and
- Certain administrative law sanctions.
In addition, an obligation regarding “the documentation and retention requirements of insurance distributors regarding advisory telephone calls and electronic communication” is expected to be implemented by way of regulation.
Practical guidance from BaFin expected – upon review of its circular regarding insurance distributors
BaFin announced that it will comprehensively revise its 2014 circular regarding Cooperation with Insurance Intermediaries, Risk Management in Distribution (Vermittlerrundschreiben). The revision will include details and practical guidance regarding the IDD implementation, e.g. regarding certain commission issues.
The German Supervisory Authority (BaFin) also stated that due to the German law transposing the IDD the following German regulations will need to be amended: the Regulation on Insurance Mediation (Versicherungsvermittlungsverordnung (VersVermV)) (relating e.g. to annual training obligations) and the Regulation on Information Obligations for Insurance Contracts (Verordnung über Informationspflichten bei Versicherungsverträgen (VVG-InfoV)) (e.g. alignment with PRIIPs Regulation, in order to ensure that only one information leaflet will be needed for insurance investment products).
Delegated Acts by the Commission to be considered – expected in fall 2017
At the European law level, further details regarding insurance distribution are expected to be made via directly applicable Delegated Acts and implementing acts of the European Commission. The Delegated Acts are expected for fall 2017 and will likely concern the following areas
- Product Oversight and Governance (POG), Article 25 (2) IDD;
- Product Disclosure (IPID), Article 20 (9) (implementing act; EIOPA to submit draft to Commission by 23 February 2017);
- Conflicts of interest (investment products), Article 28 (4) IDD;
- Payment and receipt of inducements (investment products), Article 29 (4) and (5) IDD;
- Information to customers (investment products), Article 30 (6) IDD; and
- Suitability (investment products), Article 30 (6) IDD.
It is expected that the various special interest groups in the industry will continue to lobby hard that outstanding regulations at the German and European law level will not lead to unreasonable additional burdens for their members.