New rules for insurance distribution
New rules for insurance distribution in the EU
The IDD regulates the distribution of insurance both indirectly by intermediaries and directly by insurance undertakings. The directive stipulates the general principle of honesty, fairness and professionality in the customer's best interest, and derives various duties therefrom.
A key aspect of the new IDD are the increased duties attached to the distribution of insurance-based investment products (among others: unit-linked life insurance policies). The focus lies on the avoidance of conflicts of interest, hence the introduction of enhanced remuneration requirements, increased information duties, duties in connection with the provision of advice as well as record-keeping and reporting duties.
In this context, it is worth mentioning the Regulation (EU) No 1286/2014 on key information documents for packaged retail and insurance-based investment products ("PRIIPs Regulation"), which has been in force in the EU since 31 December 2016. PRIIPs include, among other things, unit-linked life insurance policies. Under the PRIIPs Regulation, PRIIPs manufacturers must produce a key information document ("KID") in compliance with mandatory rules as to their format and content. PRIIPs distributors are obliged to provide the KID to the customers. The purpose of the KID is to enable comparisons between different products and to simplify the analysis of risks.
Implementation in the EEA member state Liechtenstein
In anticipation of the incorporation of the IDD and the PRIIPs Regulation into the EEA Agreement and, consequently, their binding effect also for the EEA member state Liechtenstein, said jurisdiction already proceeded to a new codification of its domestic law on insurance mediation (“Insurance Mediation Act”). Indeed, the Liechtenstein Parliament is currently discussing the draft of the fully amended Insurance Mediation Act (to become the new “Insurance Distribution Act”). Upon its incorporation into the EEA Agreement, the PRIIPs Regulation will also be immediately applicable in Liechtenstein.
Significance of this development for Swiss insurance undertakings and intermediaries
The rules governing cross-border activities of insurance undertakings and intermediaries between Liechtenstein and Switzerland are set out in the Treaty on Direct Insurance and Insurance Mediation between these two jurisdictions (“Direct Insurance Treaty”). Based on the Direct Insurance Treaty, Swiss insurance carriers and intermediaries do not require additional authorization to carry on insurance business or mediation activity in Liechtenstein. They are subject in Liechtenstein to the same rules as insurers and intermediaries from an EEA state. Accordingly, Swiss insurance carriers and intermediaries also need to comply with the new Liechtenstein Insurance Distribution Act and the PRIIPs Regulation as soon as these rules are enacted and incorporated into the EEA Agreement.
The current Direct Insurance Treaty is based on the principle of equivalence of supervision of Liechtenstein and Switzerland. With the full amendment of the Liechtenstein Insurance Mediation Act and the application of the PRIIPs Regulation, this equivalence will need to be reexamined. This will however not take place in connection with the revision of the Insurance Mediation Act, but in more general context. Consideration should be given to the fact that Switzerland is currently also contemplating tightening its distribution requirements for financial products. However, in the autumn session of 2017, the National Council followed the Council of States in deciding to exclude insurance undertakings und intermediaries from the scope of application of the new Financial Services Act (commonly known as “FIDLEG” or “LSFin”) and to provide for enhanced customer protection rules for their respective activities at a later stage, i.e. in connection with the amendment of the Insurance Supervision Act. The tightening of the distribution rules for insurance products has therefore been postponed to a later point in time. Whether and to what extent the Direct Insurance Treaty will therefore need to be amended is currently being evaluated.