Directive to change the game rules on selling insurance – Customer protection will improve

The Finnish Government has presented a proposal for the implementation of the Directive on Insurance Distribution (IDD). The Insurance Mediation Act will be repealed and there will be changes to the Insurance Contract Act and the Insurance Companies Act, among others. The changes are scheduled to take effect on February 23, 2018. The entry into force of the insurance distribution legislation depends on the start date of the implementation of Commission’s delegated acts. The likely entry into force date is October 23, 2018.

Changes for insurance companies and agents– also new actors within the scope of regulation

The distribution of insurance online, e.g. through comparison sites, will be more clearly within the scope of regulation.

The majority of the new obligations apply also to intermediaries who sell insurance on an ancillary basis. Included within the scope of regulation are, e.g., many car dealers and companies distributing insurance alongside leasing agreements. However, some of the obligations, like the training obligation, have been lightened for ancillary insurance intermediaries.

The category of ordinary ancillary insurance intermediaries does not include certain ancillary insurance intermediaries, who must comply with only a fraction of the provisions of the new law. Travel agencies, opticians, and cell phone and home appliance stores often sell product- or service-related insurance as an ancillary service and fall within the scope of this more lightly regulated category.

The definition of certain ancillary insurance intermediaries corresponds largely to activities that are excluded from the current law on insurance mediation. The new law imposes information disclosure requirements, and provisions on, e.g., the marketing, inducements and cross-selling apply also to these actors.

Some of the law’s regulations apply also to the distribution of reinsurance and high-risk insurance products.

The categorization of insurance intermediaries from insurers to independent insurance brokers and other agents remains unchanged.  The prohibition on the acceptance of fees by insurance brokers is also retained.

Good reputation and professionalism

• The good reputation requirements are expanded to the management and owners of insurance intermediary undertakings.
• Collective professional requirement for management of insurance intermediaries.
• An annual 15-hour training obligation for individuals who are directly involved in insurance distribution.
• The insurance intermediaries’ personnel registration requirement drops from 50 percent to 30 percent.

Renewed ways of operating

• Insurers are obligated to maintain an insurance approval process (product oversight and governance system). The insurance approval process must define particular target markets for each insurance product.
• Sales targets and inducement arrangements that are in conflict with the best interests of the customer are prohibited. A fee or benefit must not be an incentive to recommend to a customer other than the insurance that would best meet the customer’s needs. The customer must be informed about the nature of the fees.
• The cross-selling prohibition in consumer sales or in sales that are comparable to a consumer relationship. The customer must be offered the possibility to buy the insurance and the good or service separately. The service provider can legitimately require that the customer insure the good or service they have purchased or leased. However, a condition of the offering cannot be that the customer concludes an insurance contract with a specific insurer.
• Cross-selling will be limited and the information disclosure requirement will be expanded to also others than consumer customers.
• A standardized document for non-life insurance products.
• For sales of investment insurance products, also requirements related to incentives, conflicts of interest, and assessment of suitability and appropriateness.

We will gladly provide further information: 

Katja Flittner, Associate, puh. +358 50 410 0512, [email protected]