XPRIMM: Which are the key issues that the IDD introduces to the regulatory landscape?
Paul CARTY: There are quite a few changes. The biggest change relates to scope. The scope of the IDD extends well beyond that of the IMD. It applies to all distributors of insurance - intermediaries, direct writers, aggregators and to ancillary intermediaries such as service providers and distributors of goods who conduct insurance mediation on an ancillary basis. The IDD covers all insurance products, including IBIPS (insurance based investment products). Other key changes are that the IDD introduces a PID (product information document) for non-life products, it introduces enhanced professional requirement including continuous professional development and it also introduces product governance requirements (known affectionately as POG). Other changes are the introduction of cross selling disclosures and of a new division of competence and powers for home and host Member States. Perhaps of greater importance, there are additional specific requirements in relation of insurance based investment products (IBIPS) relating to conflicts of interest which encompasses assessment of suitability and appropriateness - reporting to customers though unlike MIFID the legislators did not introduce a ban on commission for independent advice.

XPRIMM: What will likely be the most important challenge in the introduction of IDD, starting January 2018?
P.C.: To avoid goldplating and the introduction of measures that go beyond the requirements specified in the directive. The IDD is a minimum harmonisation directive. In other words, Member States as they transpose the Directive into national law cannot do less than is required under the directive but they may introduce additional measures if they deem it to be necessary to ensure the protection of consumers in their market.

Another challenge will be to also have effective level 2 and level 3 measures that do not provide additional layers of requirements. It must be remembered that all of this regulation is cumulative and is extremely costly. I expect that over the next few months in particular a great deal of attention will be given to the drafting of level 2 measures in particular. The timetable will be short as the European Commission will shortly request EIOPA for its technical advice on IDD delegated acts. It is expected to respond by the end of the year or early in 2017.

XPRIMM: What will be, in your opinion, the main IDD-related effects for consumers, considering that some hot topics have been left for the secondary legislation?
P.C.: The IDD will further enhance consumer protection: The IDD will allow customers to receive, on a contract by contract basis, clear and meaningful information, so that they can take an informed decision about their insurance products.

It ensures a level playing field for policyholders, ensuring they are afforded comparable information and protection wherever they buy their insurance".  BUT from a consumer protection perspective, exemptions from the IDD scope could have been further limited: The exclusions provided to ancillary intermediaries in the IDD are too broad and as a result it could exclude most of the insurance distribution activities of the travel or car rental industry. "Simple" travel "cancellation" insurance - most travel insurance such as assistance insurance - are not simple or uncomplicated products and consumers need advice. There are sometimes more than 20 different sections within a policy with all sorts of complicated requirements and exclusions (e.g. premedical conditions that would render the cover void). If not provided with the adequate cover, customers could end up for example with a large medical bill that is not covered. This can have serious consequences.

It could also exclude for example any household content insurance provided by (often multinational) web shops selling furniture, bicycles, electronics, etc., or any package assistance linked to an e-connected car that will be sold in the near future. The IDD has unfortunately not been future proofed.

XPRIMM: Are insurance intermediaries prepared for the implementation of this Directive cost-wise?
P.C.: The broad issue of cost is a central issue and not just for intermediaries. Let's set the record straight! All costs will be borne by the consumer in the form of the cost of the products or services - that is the reality. The question therefore of value for money from the perspective of the consumer cannot be far from our mind.

As to the specific answer to your question, intermediaries will have no choice other than to bear the initial cost of preparing for the Directive. The absence of choice fixes the mind! However, it will not be possible to prepare fully until the level 2 (delegated acts) and level three requirements have been finalised. They are not likely to be finalised until Q1 in 2017 and it is only at that stage that intermediaries and their service providers (especially the IT providers) will be able to properly commence the work to prepare for the implementation of the Directive in Q1 2018. Clearly the change being introduced by the IDD will have greater impact in some Member States more than in others; consequently the amount of preparatory work will also be different.

On the subject of cost, my greatest fear is that the Level 2 and 3 regulations have the potential, even before goldplating by member states, to heap on additional and mostly unnecessary costs. Sometimes well-meaning regulators including EIOPA, the Commission and Member States NCA's (national competent authorities) target abuses that whilst serious are thankfully very peripheral to the market with measures that have consequences for all contracts of insurance and all policyholders who are experiencing no difficulties what so ever. It's akin to a doctor addressing a common cold in a patient with chemotherapy! I firmly believe that regulators have to develop a sense of perspective and restraint!

XPRIMM: Will the implementation of this Directive result significant additional investment particularly in IT by insurance distributors?
P.C.: As i said earlier it depends!  On implementation at national level, as in some markets, the IDD won't have an important impact. It also depends on level 2 measures.  The IDD empowers the Commission to adopt Delegated Acts to specify various regulatory requirements on a variety of issues (Product Oversight and Governance Arrangements, and for IBIPs: Management of Conflicts of Interest, Inducements, etc).

XPRIMM: What is your opinion upon commission transparency and how should this be regulated, considering the number of remuneration solutions used by intermediaries all over Europe and have you any comments on the subject of conflicts of interest?
P.C.: The IDD states for the sake of better consumer protection, that insurance distributors will have to act honestly, fairly and professionally in accordance with the best interests of their customers. In particular, they cannot make any arrangements by way of remuneration or sales target that could provide an incentive to recommend a particular product to a customer when they could offer a different product that would better meet the customer's needs.

Before the conclusion of the contract, consumers will be provided with clear information about the professional status of the person selling the insurance product and about the nature of remuneration which will they receive. This does not apply for large risks and for reinsurance distribution activities.

I believe that that the disclosure of these pieces of clear, meaningful and relevant information at contract level will help consumers to make informed decisions when purchasing insurance products. I believe that for non-life insurance and for pure risk life insurance, any additional disclosures would result in distortion and weakening of competition of which ultimately consumers will be the victim. It would also lead to a distraction of consumers away from the relevant information regarding his or her insurance policy such as levels of coverage, levels of service, policy exclusions or total premium.

However, the Directive states that EU Member States may limit or prohibit the acceptance or receipt of fees, commissions or other monetary or non-monetary benefits paid or provided to insurance distributors by any third party, or a person acting on behalf of a third party, in relation to the distribution of insurance products.

However my own view is that member states don't need to take matters further than the information and professional requirements and behaviours outlined in the directive. Indeed, I believe that doing much more would be counterproductive form a consumer perspective.

Regarding insurance-based investment products (IBIPs), there is no ban on commission or fees introduced in the IDD.  I welcome this situation as every intermediary has the right to be fairly remunerated for his or her services.  A pure fee-based market, for example, would exclude many people from access to any level of advice or assistance in their search for an appropriate insurance product, as has been the practical experience in Member States that have prohibited commission payment approaches. 

In order to comply with the conflicts of interest requirements, intermediaries and insurers can receive a fee or commission only where the payment does not have a detrimental impact on the quality of the relevant service to the customer. However, Member States may impose stricter requirements and prohibit or further restrict the offer or acceptance of fees, commissions from third parties in relation to the provision of insurance advice. Delegated acts should be issued on that aspect. The IDD does not introduce a ban on non-advised sales for IBIPs. An important footnote to this is the fact that the European legislators looked at this and decided (correctly in my opinion) not to do so. So it's not as if they didn't consider all options - they did and decided against!

XPRIMM: How do you feel about the current Key Information Document for PRIIPs? Will this document indeed help retail customers or just add red tape to the selling process?
P.C.: I think that for all products that include an investment risk, specific, proportional and relevant pre-contractual information should be available. I support the production and supply of a KID for consumers produced by the product manufacturer. I cannot judge how effective the KID will be as we have to wait for the final Regulatory Technical Standards (consultation closed end January) to see what the KID will look like. The timetable of getting this into the place by the end of the year may be problematic as the RTS hasn't been finalised.

XPRIMM: You are an experienced professional in this industry. What advice can you give to the developing markets from the CEE, from your perspective? How will the IDD reflect upon this future?
P.C.: My advice is less is more! Don't over regulate as it will be self-defeating. Therefore my strong advice is that each Member State treats the IDD as a maximum (and not a minimum) harmonisation directive.  I don't accept that market specificities in any market require that it be taken further. If they are they should be viewed with suspicion. Quite frankly some markets introduce measures to protect the specificities of their domestic market more to protect their domestic markets rather than the consumers within those markets. My experience (as you call it) over the years has led me to come to the firm conviction that most if not all of the significant consumer type issues that have arisen in various markets over the last decade were not as a result of inadequate regulation but the ineffective implementation of existing legislation. Quite frankly it's easier to blame inadequate regulation than a failure to use existing powers. So my advice is use the powers that exist as they are in my opinion fit for purpose and stop adding to the sum of existing regulations which as they expand are becoming more and more remote and an ever increasing cost which is being borne by consumers and by the economy at large.