EU Insurance Distribution Directive (IDD)

“Don’t oblige insurers and intermediaries to provide advice when engaging in distance selling”

The legislator is working on new rules for insurance distribution. Gerhard Müller, Chairman of the GDV Distribution Committee, shares his views on reducing bureaucracy for internet-based sales and comprehensive advisory services for all customers.

Mr. Müller, the national implementation of the EU Insurance Distribution Directive (IDD) governing distribution activities is nearing completion. The German Bundestag (Parliament) will hold its first reading of the draft law at the end of March. How happy are you with the draft as it now stands?
Gerhard Müller:
The draft implements the European rules without adding many extra provisions, so that’s positive. It means first and foremost that commission-based distribution and fee-based advice can remain side by side. Commission-based distribution has proven its worth and is the preferred method in Germany: it guarantees a comprehensive advisory service for all, regardless of how much money is involved.

So there’s no downside?
I wouldn’t go that far. I definitely think some aspects could be improved, especially regarding distance insurance selling, via the internet for example. I don’t think the proposed rules reflect the reality.

Gerhard Müller is CEO of the Sparkassen-Versicherung Sachsen and, since the beginning of 2017, board member at the German Insurance Association (GDV).

He is also Chairman of the GDV Distribution Committee.


What do you mean by that?
In the future, insurers will have to advise customers when making distance sales and keep records of their advice. However, our experience tells us that people who take out insurance through the internet aren’t interested in receiving advice. So the benefit of this requirement is questionable to say the least. It will only add further work load and cost to the process and that isn’t in anyone’s interest. We aren’t advocating special treatment for insurers either; intermediaries should be exempt from having to provide advice when engaging in distance selling, too. After all, they also have to digitalise their business to give the customers what they want. Besides, if customers signal that they do want advice they will of course receive it.

The Bundesrat picked up on that during its session last Friday. But what if the legislator won’t come around?
In that case, I would hope that customers will at least be able to opt out more easily. Today they need to sign a separate document if they don’t want advice. The new bill only stipulates that the choice must be exercised in text form. So a customer could, for example, send an e-mail to say they don’t want to be advised. That would be really convenient as it would enable communication without discontinuity of media and allow for rapid processes. However, this simplification should apply to intermediaries too, which is currently not the case. After all they also offer digital services.

The federal government also wants to promote fee-based advice and enable insurance advisors to distribute policies in future. The customer would pay for the advice separately and receive a commission-free product in return. How do you feel about that?
If the legislator wants to promote fee-based advice, that’s fine by me. However, again, tied agents or brokers should also be allowed to accept a fee from the consumer when they broker commission-free products. They have only been allowed to accept payment from the insurers until now, so they have no incentive to offer commission-free products. They don’t want to work for free after all.

The federal government’s proposals are designed to make a clear distinction between commission and fee-based distribution. Your suggestion would blur the boundaries. Is it not confusing for customers when intermediaries provide advice for commission in some cases and charge a fee in others?
I don’t see a problem with that. According to the IDD, intermediaries have to disclose the nature and source of their remuneration. The customer can therefore see who is paying whom. It’s more important not to have the consumer paying more than once. If the customers have already paid for the intermediation and advice, they shouldn’t have to pay commission as well. Or, by the same token: if the premium already includes remuneration for the advice and intermediation, the customer shouldn’t have to pay another fee to the intermediary.

The Bundesrat also wants to change job titles to distinguish between fee and commission-based distribution. Insurance advisors are to be known as “independent insurance advisors”. What are your thoughts on that?
We need to avoid promoting fee-based advice at the expense of other job descriptions. In my opinion, this would clearly disadvantage brokers who also work independently of insurers. They are the customer’s trustees, i.e. the customer gives them a mandate and they deliver the same advice as an insurance advisor would do. So, the term “independent insurance advisor” does not really provide a clear-cut differentiation.

The EU Commission is currently working on the details of the distribution directive within the delegated acts, again including distribution remuneration. In mid-2016, the insurance supervisory authority EIOPA presented its initial proposals on the conditions under which commissions would remain permissible. The GDV was very critical of these plans as it considered them tantamount to a ban on commission payments. Is that danger still there after EIOPA presented its final proposals to the EU Commission in February?
We just don’t want commissions, which in principle are permissible under the IDD, to be made de facto inadmissible by subsequent provisions. In the summer, it still looked as if EIOPA considered up-front remuneration per se a risk factor for good quality advice – without chance for its legitimisation. However, in the meantime EIOPA has advocated a more reasoned approach. Anyway, in the final analysis it comes down to what the EU Commission puts down on paper and we probably won’t know about that before May.

What are the next milestones on the legislative roadmap?
The IDD has to be implemented at a national level by February 2018. With the parliamentary elections coming up in the autumn, we really only have until the summer recess to progress on that front. It’s important to get that going as companies will need to adjust their IT processes and working procedures to the new regime. We’re still no wiser as to whether we will receive the IDD delegated acts at the same time as the implementation at national level. It depends in the first instance on the EU Commission: then the European Parliament and Council have to state their position. We also don’t know whether the supplementary rules will be issued as a delegated directive or a delegated regulation. A directive would still have to be transposed into German law, whereas a regulation would be directly applicable. Hopefully we will know by the autumn exactly what’s coming from Brussels.

Interview: Karsten Röbisch