The Insurance Distribution Directive - Deloitte · PDF fileThe Insurance Distribution Directive ... insurance contract ... sold, as well as the nature of distribution

The Insurance Distribution DirectiveAn evolving insurance landscapeDeloitte, 2017

The Insurance Distribution DirectiveAn evolving insurance landscape

© 2017. For information, contact Deloitte Malta. 2

Insurance distribution in Malta

Yet there are 356 registered individual tied insurance intermediaries with the MFSA.

More than 1 every km2!!

316 km2




It seems that insurance is well distributed in Malta!!

Some other Key facts

4 Non-life insurance companies

1 Composite insurer

3 Life insurers

20 + Brokers

14 Insurance agents

93 Corporate TIIs

356 Individual TIIs



Insurance distribution in MaltaBreakdown of non-life insurance premiums by distribution channel

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

Germany Spain France Ireland Italy Luxembourg Malta Netherlands UnitedKingdom

DE ES FR IE IT LU MT NL UK

Direct writing Agents Brokers Bancassurance Other



Insurance distribution in MaltaBreakdown of life insurance premiums by distribution channel

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Germany Spain France Ireland Italy Luxembourg Malta Netherlands UnitedKingdom

DE ES FR IE IT LU MT NL UKDirect writing Agents Brokers Bancassurance Other




Malta’s per capita uptake is well below half the EU average. For 2014, per capita spend was € 910 whilst in Europe its € 1,993.

For non-life insurance, such as home and business insurance, the figures are even lower: almost a third of the European average.

On health insurance, Malta’s spend is around €25 per capita while the European average is just over €200.

Yet…

Source: Insurance Europe 2015 report



“The Insurance Distribution Directive is a significant milestone to strengthen consumer protection in Europe.

This work goes hand in hand with the fact that EIOPA places consumer protection at the very centre of its strategic objectives.“

Gabriel Bernardino, Chairman of EIOPA



Changes arising from by the IDD

Expanding the scope of the Directive to cover all sellers of insurance products.

Stricter requirements surrounding conflicts of interest and remuneration disclosures.

Special disclosure requirements for bundled products and other product oversight requirements similar to those of MiFID II.

Exploring what will change from the IMD



Changes arising from the IDD

Additional requirements for insurance based investment products (IBIPs) and the insurance products information document (IPID) for non-life insurance products.

Stricter administrative sanctions and other measures, including pecuniary sanctions.

Exploring what will change from the IMD



EIOPA is bolstering its efforts on consumer protection and has made it a strategic priority for 2017.

This will mean senior management taking responsibility for ensuring adequate product oversight and governance arrangements throughout the life of a product



What will be the main focus from regulators?Changes ushered by the IDD

1Product

oversight and governance

2Conflicts of

interest

3Inducements

4Cross selling

5Continuous Professional Development



Key elements and impacts Product Oversight & Governance (POG) developments in one shot

What?

Why?

Improve industry

reputation

Putting clients first

Who?

Insurance undertakings

Insurance product

manufacturers

POG

Integrated EU market

Before IDD comes into force Customer protection

Mitigating mis-selling

Insurance distributers

Target market

When?

Guidelines issued by EIOPA on 20 February 2017



Getting a clear understanding of the requirements around POGFocus on product governance

CPD requirementsProfessional requirements for distributers and manufacturers of insurance products.

Product monitoringOngoing monitoring to be done by both distributers and manufacturers.

RemunerationRemuneration needs to be reviewed in light of conflict of interest rules.

Consumer needsTo manufacture and distribute products which are in line with the particular consumer needs

New productsDesigning product and pre-contractual information for consumers in line with target market.

Product update

Remedial

Product distribution

Training

Product design

Monitoring

Suitability & Appropriateness

IDD Framework

POG

POG

Target market

Target market

Updating current product offering in line with identified target market.

Product GovernanceBuilding an internal product approval process with senior management oversight will be key

Target MarketOngoing monitoring to be done by both distributers and manufacturers



Product information documentFocus on product governance

The IDD introduces a detailed standardized Insurance Product Information Document (IPID) for all non-life insurance products.

The PID is intended to be a pre- contractual and stand-alone document which aims to allow consumers to make an informed decision.

The PID has to be short, comprehensible, accurate and not misleading.



Cross selling

For each bundled item, the distributor must inform the customer about the components:

The customer must be given the opportunity to buy these components (product or service) separately.

Product bundling

Cost Charges Risks

Local example: Travel insurance bundled with local credit cards offered by banks?



Managing conflicts of interest

Conflicts of interests' management will now be subject to higher standards. These should be further detailed in the delegated acts.

If conflicts of interest cannot be sufficiently managed, the general nature or sources of the conflict should be disclosed to the customer.

Insurance companies must ensure that any potential conflicts of interests between themselves and their customers are prevented during distribution activities.

A conflicts of interest policy should be prepared or an existing one updated in line with the new requirements.

Higher standards and increased scrutiny by regulators



InducementsSetting a fair and transparent policy

Offer products in line with the

consumer’s best interests

Act honestly, fairly and

professionally

Prevent a negative effect on the quality

of product

Develop policy relating to

conflicts and inducements

Customer is informed about

fees, commissions or benefits

Managing inducements



Insurance product which are suitability and appropriateInducements

Suitable recommendations

Professional advice

In line with customer expectations

Bundled products

Recommend to the customer or potential customer the IBIPs that are suitable for that person.

Advice has to be consistent with the customer’s investment goals, financial situation.

Financial ability to bear losses, and their knowledge/experience level.

An assessment must consider whether the overall bundled package is appropriate.

The suitability assessment is conducted by insurance companies that provide advice to customers on insurance-based investment products (IBIPs)



Inducements and conflicts of interestWhat needs to be disclosed

Financial interest

Related parties

Nature of remuneration

The basis of the remuneration

Where intermediary and insurer have a form of remuneration agreement.

Where the insurer and intermediary are part of the same group.

The type of remuneration received in relation to an insurance contract (e.g. percentage of sale, fixed fee etc).

Whether it is in the form of a fee paid by the customer, a commission included in the premium, an economic benefit of any kind given in connection with the insurance contract, or a combination of these.



Enhancing the competence of employees and agents selling insurance products

Continuous professional development

Competency and continuous professional development will need to be ensured by all intermediaries, proportionally to the complexity of the products sold, as well as the nature of distribution.



The distribution of insuranceWhat does the future holds for the insurance market?



Ongoing innovation will distinguish insurersWhat does the future holds for the insurance market?

Early adopters

“I’m always keen to use new technology and develop innovative products for the market.”

Late adopters

“I only replace technology when they are obsolete and stick only to traditional, tried and tested products.”

Vs

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The Insurance Distribution Directive - Deloitte · PDF fileThe Insurance Distribution Directive ... insurance contract ... sold, as well as the nature of distribution