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Luxembourg insurance and intermediaries are mostly ready for IDD implementation.Photo: Lukas 

Delano: How are companies in Luxembourg dealing with IDD so far?

Anthony Dault: It is difficult to argue against the fact that the IDD comes in the wake of several other highly business and operations impacting new regulations (Solvency 2, PRIIPS etc), and has placed further strain on resources that are already being stretched. However, actors in Luxembourg have again proved resilient in dealing with what represents the last “big piece” of the regulatory tsunami experienced over the last 10 years, at least on the consumer protection front.

Overall, the Luxembourg market seems well set to be compliant on the key aspects of the directive when it comes into force on 1 October 2018. Although it is reasonable to believe that a soft-landing phase will occur to allow the fine-tuning of processes and systems in order to fully comply with the new requirements, most actors have taken the opportunity of the delay granted by the EU legislator to get themselves prepared and avoid too much of a “finish line rush”.

Delano:  Will they be ready on time?

AD: Actors,in my view, may have in some instances started IDD projects a bit late and too sequentially (Solvency 2, then PRIIPs, then GDRP, then IDD…), rather than tackling the issue sooner and running some of the projects at the same time, where relavent. But again,as mentioned, this is not necessarily easy given the flurry of development to be addressed in a short period of time, and the number of internal and external stakeholders to mobilise. Some aspects of the IDD have, I think, also been underestimated, as insurers/intermediaries may have been under the impression that they broadly complied with key requirements with their existing processes and organisation, and that little adjustment would be necessary.

However, many IDD provisions are way more far reaching when you start to look at the detailed requirements and how to apply them (e.g. POG/PDA, conflict of interests, remuneration). Also, IDD, which is more governance oriented, has sometimes been viewed having less impact from an operational implementation perspective, compared to the PRIIPs regulation for example. The reality is that IDD also requires some systems and process adjustments.

 

Delano: Are insurers and intermediaries working together?

AD: To a certain extent, a similar issue to the that experienced with PRIIPs and Solvency 2 implementation has been observed.  That is, discussions between manufacturers and intermediaries have been late in starting. In fact, we have observed very few cases where manufacturers have worked with selected intermediaries to devise the solution together. This could create a deadlock when the time comes for insurers and intermediaries to actually get in touch, and agree on revised collaboration and distribution agreements. However, such discussions have largely picked up in the last few months and should be handled without too much disruption.

Delano:  How about insurers working in wealth management?

AD: The fact that IDD affects not only the insurers and intermediaries, but also the other stakeholders in the whole insurance contract ecosystem, may have slowed implementation. For example, asset managers and custodian banks are fully part of this ecosystem and come with their own regulatory constraints (e.g. MiFID2) affecting the insurance part of their operations and the economic equilibrium of this ecosystem.

Finally, the challenges that come with IDD are not the same for all insurers: cross-border business vs local business, agent vs broker distribution channels etc. imply very different considerations. In this context, for insurance groups working on different business lines, a “one size fits all” IDD approach is not always possible and, thus, requires multiple dedicated projects.

Please note:

This Q&A is based on available information at the date of writing. In addition, in several instances, it reflects the personal views of Anthony Dault and not necessarily the views and position of PwC Luxembourg as a whole.

Additional information on IDD

  • For cross-border distributors in Luxembourg, monitoring the way IDD is implemented in their various countries of distribution is of the utmost importance to ensure the tailoring of processes and ensuring relationships with intermediaries are fully compliant with local requirements.
  •  The Luxembourg law transposing the IDD has not yet been voted (a revised text was submitted on 5 July 2018 following the comments from the “Conseil d’état” on 28 June 2018). The text is expected to be voted shortly after summer ( possible by the end of July, as recommened by the Chamber of Deputies). The Luxembourg draft law does not contain any particular gold plating (of interest:  giving advice will be mandatory, with possible opt-out clause prior to conclusion of the contract. Also, the current draft text does not foresee any ban in respect of remuneration and inducements).