On 20 January 2016, the European Council adopted the Insurance Distribution Directive (IDD). The purpose of this directive was to create a level playing field among the distributors of insurance products, to strengthen the confidence of customers and to make regulatory treatment of the distribution of insurance products more uniform in order to ensure an adequate level of customer protection across the European Union.
The original transposition and entry into force deadline was 23 February 2018. In March 2018, the European Parliament delayed the transposition deadline until no later than 1st July 2018, and the entry into force deadline until 1st October 2018 at the latest.
Belgium, however, has not been able to implement the IDD into national law within these deadlines.
The Transposition Act of 6 December 2018 was published in the Belgian Official Gazette of today 18 December 2018. It will enter into force on the tenth day after publication, i.e. on 28 December 2018. In Belgium therefore the entry into force has been delayed for almost three months compared to other countries but this avoids the Transposition Act having a retrospective effect.
While Belgium already implemented some of the MiFID rules of conduct in 2014, which has led to some major changes over the last few years, IDD will still bring some innovations to the Belgian insurance market.
1. To whom will the Transposition Act apply?
The Transposition Act will apply to both insurance companies and insurance intermediaries, including intermediaries on an ancillary basis.
In particular:
All distribution channels are included, whether the customer enters into a contract directly with an insurance company or indirectly through an intermediary.
All kinds of distribution are also included, which includes all activities in the field of advice, presentation, preparatory work for the conclusion of insurance contracts, assistance in the management and performance of insurance contracts, in particular in the event of a claim. As a consequence, even websites or other comparator media, at least when the customer, at the end of the process, has the possibility (directly or indirectly) to conclude an insurance contract, are also included.
The category of “intermediaries on an ancillary basis” has been created for people carrying out the activity of distributing insurance only in addition to another professional activity, or offering insurance products in addition to other goods or products (this corresponds to the so-called “connected contracts exemption”). They still fall outside the scope of the Transposition Act if they meet certain conditions. Important to notice compared to the previous regime is that now life insurance and liability insurance products are included. The Belgian legislator, however, has sharpened the European legislator’s intentions and has lowered the threshold of the annual premium, in order to benefit from this exemption, from 600 EUR to 200 EUR. This is an important element for all insurance distributors active in Belgium, as they will not benefit from the same conditions as in the other countries.
Introductory activities (i.e. the provision of simple information on insurance to potential policyholders, an insurance company or an intermediary) are still excluded from the scope of the IDD Directive. Belgium already recognised the category of “clients’ contributors” (“apporteurs de clients” / “klantenaanbrengers”)
2. What are the information obligations and rules of conduct provided for by the Transposition Act?
a) Basic rule of conduct and duty of care
The Transposition Act still recognises the so-called “fundamental rule of conduct”, including the clear obligation for insurance distributors to act honestly, fairly and professionally in the interest of their customers. In addition, the information provided to (potential) customers must be fair, clear and not misleading. Insurance distributors also have a duty of care, meaning that they must determine the customer's demands and needs and must ensure that the insurance product they offer meets those needs and expectations.
b) Obligation to provide information
The Transposition Act slightly modifies the information that insurance distributors will have to provide to their clients at a pre-contractual stage. It should be noted that this information duty is still largely not applicable to large risks and partly not to professional clients.
An important new element concerns the so-called “collective insurances”. The Transposition Act only covers insurance where each member cannot individually decide to join (automatic membership). In this case, it is the responsibility of the group representative (the collective policyholder) to communicate to the members (the insured) the required information it has received in advance from the insurance distributor.
c) Transparency for inducements
While AssurMiFID imposed on insurance providers that inducements had to improve the quality of the service provided to the clients (positive condition), only a negative obligation is now be imposed (the inducements may not have a negative impact on the quality of the service provided to the clients).
In addition, the Transposition Act requires representative organisations in the sector to draw up a code of conduct which should include criteria to assess whether intermediaries receiving inducements comply with the obligation to act honestly, fairly and professionally in the best interests of the client, as well as to establish a non-exhaustive list of prohibited remunerations having a negative effect on the quality of the service provided to the clients.
d) Requirement to issue an IPID
Certain basic information on the insurance contract will have to be transmitted to clients in a standardised form, by means of a document entitled “Information document on the insurance product”, the so-called IPID.
Such an IPID will have to be transmitted at a pre-contractual stage, not with each annual tacit renewal. A new IPID should be provided in the case of modification of essential elements of an insurance contract (i.e. modification of general terms and conditions). In Belgium particular attention will have to be paid to the coordination between the Dutch and French versions.
e) Additional requirements for insurance-based investment products
The Transposition Act also contains some additional requirements for insurance-based investment products (the so-called “IBIP’s”). When proposing an IBIP, the same due duty or care will apply, and the suitability or appropriateness of the product will have to be assessed. (Potential) clients should also receive sufficient information in advance on insurance with an investment component, as well as on the costs and charges associated with it. These additional requirements are already included in Belgian law, since the AssurMiFID rules introduced them in 2014 and rendered them applicable to all life insurance products (savings and investment).
3. What about joint offers?
Under the term “cross-selling”, the Transposition Act refers to the joint offer of at least one insurance product. Unlike the current Belgian legislation, which prohibits joint offers when one of the components is a financial service such as insurance, the Transposition Act introduces the possibility of offering them jointly as long as they meet certain conditions.
4. Will it be necessary to set up a “Product Validation Process”?
The Transposition Act now provides that, before an insurance product is marketed (or a significant change is made to an existing product), insurance distributors developing insurance products (“the designers”) must apply a product-validation process, determining the target market and the distribution strategy in relation to that target market. Although it can be assumed that designers already have some internal validation or approval procedures in place before a product is marketed, these procedures will now be regulated by law and their implementation will be monitored by the FSMA.
5. Conclusion
Although Belgium has been a pioneer in the “Mifidisation” of the insurance sector by imposing the AssurMiFID rules since 2014, the new Transposition Act introduces several fundamental changes.
Compliance with the current AssurMiFID rules will not be sufficient to meet the requirements of the Transposition Act.
Each insurance distributor will, if necessary, have to evaluate its current documentation, processes, and practices in order to make the necessary adjustments.
