Insurance Distribution In Europe & Wider Implications For The Middle East Insurance Market – Insurance

Insurance distribution in the Middle East has taken traditional
form over the years, either through insurance brokerages or on a
direct basis and to a limited extent through banks and agents.
While the age of insurtech is upon us, the Middle East markets have
not taken up or embraced the concept as much as other international
markets. This in part is down to the legislature frameworks of the
Middle East finding a way to fit within the pace of technology,
which is often way behind technological developments. However, we
may see this change in due course in terms of how other insurance
markets have embraced technology with insurance distribution and
how this might impact on the Middle East. One such market is
Europe, which may actually have an indirect impact on the Middle
East markets given that much of the insurance risk is ceded out to
this market.

On the 1st October 2018, the Insurance Distribution Directive
((EU) 2016/97) (IDD)¹, (Insurance Distribution Directive
(IDD)) and its statutory provisions came into effect and apply to
all EU distributors of insurance products and replace the Insurance
Mediation Directive (2002/91/EC) (IMD)².

The IDD provides wider application in terms of extending
compliance of the rules to insurance and reinsurance companies
distributing insurance products on a direct basis to its customer
base. The application of the IMD was restricted to insurance
intermediaries only³. The IDD reflects a real change to
provide uniform compliance in EU insurance distribution with the
goal of protecting consumers through transparency and disclosure
obligations while raising the competency standards of insurance
distributors through further training and knowledge base
requirements such as obligatory common professional development
(CPD) for staff member⁴.

Many EU insurance/reinsurance distributors, including direct
risk holders and intermediaries, have already implemented measures
to meet the IDD regulatory and compliance obligations. EU Member
States, such as the United Kingdom and Ireland have promulgated
legal instruments to implement the IDD legal requirements: the
Insurance Distribution (Regulated Activities and Miscellaneous
Amendments) Order 2018 (UK); and the European Union (Insurance
Distribution) Regulations 2018 (S.I. No. 229 of 2018)
(Ireland).⁵

What are the implications, if any, for Middle East Insurance
Providers?

The IDD does not regulate insurance or reinsurance distribution
activities carried outside the EU in third countries as a general
starting point.⁶ However, with local market practice in
the Middle East, many international insurance carries/undertakings
partner with local licensed insurance companies to distribute their
insurance products through compliant channels, often ceding some,
or all risks back to the international insurance
carries/reinsurers⁷. To this end, application of the IDD
provisions may come in to play for those EU international
insurance/reinsurance distributors albeit in a third country
jurisdiction.

By way of illustration, many EU insurers offer global group
medical/life insurance coverage and will work with the Middle East
local insurance partners to provide compliant solutions for
admitted products in various jurisdictions. Those products are for
all intents and purposes distributed through the local insurance
partners but originate from an EU source, such as a Head Office
based in France where the policyholder sits and some of its staff
members may be based in Abu Dhabi as beneficiaries. Accordingly,
there is scope to suggest that some of the relevant IDD legal
provisions and its protections extend to those beneficial members
in Abu Dhabi as the global policy is incepted in the EU albeit that
some of the risks sit outside the EU. Paradoxically, the
counter-argument is simply that the Abu Dhabi risks are locally
admitted policies through the local licensed insurance partner
rather than stem from the group coverage in France. Local cedents
will also cede their risks out to European insurers/reinsurers and
it could be argued that these insurers/reinsurers are using the
cedents as distribution channels and thus fall under part of the
provisions of the IDD albeit on an indirect basis.

In any event, EU insurers may be deemed to be outsourcing their
distribution obligations under the IDD, such as staff competency
and knowledge, fit and proper requirements of staff and
disclosure/transparency obligations to locally licensed insurance
partners by default. To this end, it would be wise for EU insurers
distributing in the Middle East through locally licensed insurance
partners to review their local procedures and apply the same
standards of the IDD, where this is possible for consistency and to
reduce any potential regulatory and compliance risk.

Footnotes

1. Directive (EU) 2016/97 of the European Parliament
and of the Council of 20 January 2016 on insurance
distribution

2. Directive 2002/92/EC of the European Parliament
and of the Council of 9 December 2002 on insurance
mediation

3. CHAPTER I, SCOPE AND DEFINITIONS, Article 1 -
Scope

4. CHAPTER IV – ORGANISATIONAL REQUIREMENTS – Article
10 – Professional and organisational requirements & CHAPTER V -
INFORMATION REQUIREMENTS AND CONDUCT OF BUSINESS RULES – Article 17
– General principle

5. legislation.gov.uk by The National Archives &
An Reinn Airgeadais – Department of Finance – S.I. 229 of 2018
European Union (Insurance Distribution) Regulations
2018

6. CHAPTER I – SCOPE AND DEFINITIONS- Article 1 -
Scope pare 6.

7. This is a typical global policy of a group risk
that may include riders for other jurisdictions

Originally published July 2020.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.