Insurance Distribution Directive – Implementation in Belgium
- 23 november 2018
- Janson Nieuws
Insurance Distribution Directive (“IDD “) was supposed to be implemented at the latest on 1 October 2018. The Belgian parliament just adopted on 14 November 2018 the draft law implementing IDD (the “New Law”). The New Law is still to be published.
The IDD has different components. It regulates the status of insurance intermediaries and imposes knowledge requirements and professional and good repute skills that apply to the persons directly involved in distribution activities. It also imposes information obligations and rules of conduct that are applicable to all distributors of insurance products.
IDD was aimed at minimum harmonization and did therefore not preclude Member States from maintaining or introducing more stringent provisions in order to protect customers.
Here are the main Belgian specificities :
1. Conflicts of interest
Conflict of interests will apply to all types of insurance contracts, not just insurance-based investment products (“IBIPs”).
2. Ancillary insurance intermediaries
The New Law shall not apply to ancillary insurance intermediaries carrying out insurance distribution activities when the amount of the premium paid for the insurance product does not exceed EUR 200 (instead of EUR 600 in IDD) calculated on a pro rata annual basis.
3. Inducements
Provisions of the IDD on inducements are not extended to products other than IBIPs. For these insurance products, organizations representatives of the insurance sector will have to establish (within 6 months) a list of proscribed inducements having a negative effect on the quality of the service provided to the customer, and define criteria for determining when fees, commissions or benefits do not respond to the interests of clients.
The New Law softens therefore the current inducement mechanism that is replaced by a negative condition : the inducement cannot negatively affect the quality of the services provided.
4. Extension of the IBIP definition
IBIPs are insurance products with a duration of life or a surrender value that is totally or partially exposed to market fluctuations. These are mainly the insurance products of branch 23 which are targeted, as are most branch 21 products, unless they offer no beneficial participation. Under the New Law, the concept of "savings and insurance products" is extended to insurance underwritten under the third pillar pensions or savings insurance of the branch 21 that offer a fixed return.
5. Categorization of clients
The New Law also authorizes insurance distributors to categorize each client as professional client (to be defined by Royal Decree) and retail client. Only retail clients will benefit from the highest requirements (information, suitability test). Under conditions to be determined by Royal Decree a retail client can be treated as a professional client.
6. Independent advice
The New Law introduces the option under IDD to require from the intermediary a broader assessment. Where an insurance intermediary informs the client that advice is given independently, the intermediary shall assess a sufficiently large number of insurance products available on the market which are sufficiently diversified with regard to their type and product providers to ensure that the client’s objectives can be suitably met and shall not be limited to insurance products issued or provided by entities having close links with the intermediary.
7. Cross-selling
Cross selling, including at least one insurance product, is authorized under certain conditions (to be further described by Royal Decree).
8. Entry into force
The New Law will enter into force 10 days after its publication. Most provisions of the New Law will be immediately applicable. The New Law needs however to be implemented by Royal Decrees on certain aspects (knowledge and professional skills for intermediaries, cross-selling for example).
IDD was aimed at minimum harmonization and did therefore not preclude Member States from maintaining or introducing more stringent provisions in order to protect customers.
Here are the main Belgian specificities :
1. Conflicts of interest
Conflict of interests will apply to all types of insurance contracts, not just insurance-based investment products (“IBIPs”).
2. Ancillary insurance intermediaries
The New Law shall not apply to ancillary insurance intermediaries carrying out insurance distribution activities when the amount of the premium paid for the insurance product does not exceed EUR 200 (instead of EUR 600 in IDD) calculated on a pro rata annual basis.
3. Inducements
Provisions of the IDD on inducements are not extended to products other than IBIPs. For these insurance products, organizations representatives of the insurance sector will have to establish (within 6 months) a list of proscribed inducements having a negative effect on the quality of the service provided to the customer, and define criteria for determining when fees, commissions or benefits do not respond to the interests of clients.
The New Law softens therefore the current inducement mechanism that is replaced by a negative condition : the inducement cannot negatively affect the quality of the services provided.
4. Extension of the IBIP definition
IBIPs are insurance products with a duration of life or a surrender value that is totally or partially exposed to market fluctuations. These are mainly the insurance products of branch 23 which are targeted, as are most branch 21 products, unless they offer no beneficial participation. Under the New Law, the concept of "savings and insurance products" is extended to insurance underwritten under the third pillar pensions or savings insurance of the branch 21 that offer a fixed return.
5. Categorization of clients
The New Law also authorizes insurance distributors to categorize each client as professional client (to be defined by Royal Decree) and retail client. Only retail clients will benefit from the highest requirements (information, suitability test). Under conditions to be determined by Royal Decree a retail client can be treated as a professional client.
6. Independent advice
The New Law introduces the option under IDD to require from the intermediary a broader assessment. Where an insurance intermediary informs the client that advice is given independently, the intermediary shall assess a sufficiently large number of insurance products available on the market which are sufficiently diversified with regard to their type and product providers to ensure that the client’s objectives can be suitably met and shall not be limited to insurance products issued or provided by entities having close links with the intermediary.
7. Cross-selling
Cross selling, including at least one insurance product, is authorized under certain conditions (to be further described by Royal Decree).
8. Entry into force
The New Law will enter into force 10 days after its publication. Most provisions of the New Law will be immediately applicable. The New Law needs however to be implemented by Royal Decrees on certain aspects (knowledge and professional skills for intermediaries, cross-selling for example).
