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EU Insurance Mediation Directive II: What’s Changing?

The Insurance Mediation Directive (IMD) is an EU directive that regulates the point of sale of insurance products in order to help safeguard the rights of the retail insurance customer.

The Insurance Mediation Directive (IMD) is an EU directive that regulates the point of sale of insurance products in order to help safeguard the rights of the retail insurance customer. The directive was introduced to establish rules for conducting insurance mediation activities by natural and legal persons who are established in an EU state.

“Insurance mediation” is defined in the directive as being any of the following:

Introducing, proposing, or carrying out other work in preparation for the conclusion of contracts of insurance.
Concluding contracts of insurance.
Assisting in the administration and performance of insurance contracts, particularly in the event of a claim.

Several organizations not currently within the scope of the IMD1 will be brought within the scope of the IMD2, including insurers that sell directly to customers, some price-comparison websites, claims management companies, loss adjusters, and firms that sell insurance only as an ancillary activity.

The changes IMD2 effects are of particular importance to third-party writers and captives, which apart from covering group risks, provide insurance products to the general public through their existing network of business units. Under the current rules, if these insurance products cover loss of or damage to the parent’s core product or service offering, the mediation activities conducted by the distribution network in relation to contracts of insurance ancillary to such products or services are exempted from the requirement of enrollment under the Insurance Intermediaries Act, subject to certain conditions being satisfied.

Once the IMD2 goes into effect, only insurance policies that are complementary to goods supplied, where such insurance policy covers the risk of breakdown, loss of or damage to the goods supplied by that provider, fall within the de minimis exemption. Insurance policies sold ancillary to the sale of services will be captured within the scope of the IMD2.

In addition, the IMD2 will:

Be a minimum harmonization directive, which means that it will continue to be possible for individual EU member states to impose more onerous rules.
Introduce a general principle for intermediaries requiring them to act in their customers’ best interests and to disclose the basis and amount of their remuneration.
Require member states to publish the “general good” provisions applicable in their territories and make them easily accessible to European Economic Area (EEA) insurers and intermediaries selling into their state on a “freedom of services” basis.
Introduce new provisions governing the bundling of products, under which the customer will need to be informed that the products may be purchased separately, and about the costs and charges of each component forming the package.

The proposed directive is in the process of being approved by all three European institutions: the European Commission, the European Parliament, and the Council. The European Parliament and the Council are currently in the process of formulating their position on the Commission’s proposals. The IMD2 is expected to go into effect in 2015.

Marsh Insights: Captives, December 2013

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EU Insurance Mediation Directive II: What’s Changing?

Related insights

Risk in Context Podcast: Unlocking captive potential through strategic optimization

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Captive insurers continue expanding coverage in property, casualty, and beyond