Following the strategic update by the European Insurance and Occupational Pensions Authority (EIOPA) regarding the Supervisory Convergence Plan for 2024, it is important to reflect on the impact of the Insurance Distribution Directive (IDD).
Since its enactment on 1 October 2018, the IDD has played a crucial role in regulating the distribution and design of insurance products within the European Union. Under the oversight of EIOPA, the IDD aims to establish minimum regulatory standards across the EU insurance market, with a primary focus on enhancing consumer protection. According to Article 41(4) of the IDD, “EIOPA shall prepare a report on the application of this Directive” every two years. EIOPA’s first report on the application of the IDD was published in January 2022.
Changes and Impact
On 15 of January, EIOPA released its highly anticipated second report on the implementation of the IDD, shedding light on key developments in insurance distribution over the past two years.
Firstly, the report notes a continued decline in the overall number of intermediaries, indicating a changing market structure within the insurance distribution sector. This trend, already observed in previous reports, suggests ongoing transformations in the way insurance products are distributed and accessed by consumers.
Despite this decline, the report highlights improvements in the quality of advice and sales methods in certain Member States. These improvements are attributed, in part, to corrective measures implemented by national competent authorities (NCAs). However, it is important to note that supervisory activities conducted by these authorities have also uncovered deficiencies in the application of rules regarding remuneration and conflicts of interest.
Of particular concern are instances where incentives in the form of monetary payments have been identified by NCAs as potentially fostering conflicts of interest. Such practices undermine the integrity of the insurance distribution process and pose risks to consumers.
Overall, while there have been positive developments in certain areas, challenges remain in ensuring consistent adherence to regulatory standards across the EU insurance market. The findings of EIOPA's report underscore the need for continued oversight and enforcement efforts to safeguard consumer interests and maintain the integrity of the insurance distribution framework.
Conclusion
As mandated by Article 41 of the IDD, EIOPA's report provides valuable insights into the implementation of the directive, offering a comprehensive analysis for each country within the EU. While progress has been made in certain areas, challenges persist, necessitating continued vigilance and collaboration among regulatory authorities to ensure the effective enforcement of consumer protection measures across the insurance distribution landscape.
For Cyprus, in particular, the outcome based on the data provided in the country-by-country analysis of the IDD includes the following key points: Cyprus has a relatively small share of the total European Economic Area (EEA) population, (Re)insurance Gross Written Premium, and number of (re)insurance undertakings compared to the overall EEA figures. The number of registered insurance intermediaries in Cyprus is 2322, representing 0.3% of the total EEA. The Insurance Companies Control Service is the national competent authority overseeing insurance activities in Cyprus.
Overall, the data suggests that Cyprus plays a modest role in the EEA insurance market based on the parameters analysed in the report. There are a few areas where Cyprus could potentially focus on improvement:
- Increase Market Share: Cyprus could work on strategies to increase its market share within the EEA.
- Enhance Regulatory Framework: Cyprus could consider enhancing its regulatory framework for insurance intermediaries to ensure compliance with the IDD requirements. This may involve strengthening the powers of the national competent authority, the Insurance Companies Control Service, to effectively oversee and regulate insurance activities in the country.
- Promote Cross-Border Activities: Given the increasing trend in cross-border activities from Cyprus, the country could further promote and facilitate such activities to expand its presence and influence in the EEA insurance market.
By addressing these areas, Cyprus may be able to enhance its position and participation in the EEA insurance market as outlined in the report.
By Eva Manolova
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