DORA – Exclusion of the ancillary insurance intermediaries of the scope of the regulation

Summary: The European Commission has, in response to a question, concluded the definition of ancillary insurance intermediary’ under DORA is to be understood as not covering ancillary insurance intermediaries that are exempted from the application of IDD pursuant to Article 1(3) of the IDD.

Since its adoption in 2022, the EU Regulation 2022/2554 of 14 December 2022 on digital operational resilience for the financial sector (DORA) has led to numerous questions being raised on every aspect of the Regulation. The joint Q&A published (published on the joint ESAs website) by the European Supervisory Authorities (ESAs) provides answers to some of those questions.

DORA aims to achieve a high level of digital operational resilience for regulated financial entities. As a result, the framework introduced by DORA is to be considered as a horizontal financial legislation that complements the European and national sectorial financial legislation with regard to entities regulated under those legislations (paragraph 105 of the preamble).

In terms of the scope of DORA, the goal has always been to capture as many financial entities within its ambit as possible. That is the reason why DORA applies to 21 types of entities, among which are insurance intermediaries and ancillary insurance intermediaries (defined by DORA and IDD as defined below as “any natural or legal person, other than a credit institution or an investment firm, who, for remuneration, takes up or pursues the activity of insurance distribution on an ancillary basis, provided that all the following conditions are met: (a) the principal professional activity of that natural or legal person is other than insurance distribution; (b) the natural or legal person only distributes certain insurance products that are complementary to a good or service; (c) the insurance products concerned do not cover life assurance or liability risks, unless that cover complements the good or service which the intermediary provides as its principal professional activity.”).

However, in paragraph 40 of the preamble to DORA, it is expressly stated that DORA acknowledges the specificities of the insurance intermediation market structure, with the result that ancillary insurance intermediaries qualifying as microenterprises or as small or medium-sized enterprises should not be subject to it. This is reflected in article 2.3 of DORA which specifically provides that ancillary insurance intermediaries which are microenterprises or small or medium-sized enterprises are not in the scope of DORA.

Despite this exemption, DORA does not address the point of the ancillary insurance intermediaries which are exempted from directive (EU) 2016/97 of 20 January 2016 on insurance distribution (IDD).

Paragraph 15 of the preamble to the IDD mentions that the IDD should not apply to persons practising insurance distribution as an ancillary activity where the premium does not exceed a certain amount and the risks covered are limited. Accordingly, article 1.3 of IDD stipulates that IDD “shall not apply to ancillary insurance intermediaries carrying out insurance distribution activities where all the following conditions are met:

(a) the insurance is complementary to the good or service supplied by a provider, where such insurance covers: (i) the risk of breakdown, loss of, or damage to, the good or the non-use of the service supplied by that provider; or (ii) damage to, or loss of, baggage and other risks linked to travel booked with that provider;

(b) the amount of the premium paid for the insurance product does not exceed EUR 600 calculated on a pro rata annual basis;

(c) by way of derogation from point (b), where the insurance is complementary to a service referred to in point (a) and the duration of that service is equal to, or less than, three months, the amount of the premium paid per person does not exceed EUR 200.”.

Consequently, ancillary insurance intermediaries that meet these conditions, do not have to register with a competent authority in their home Member State.

This exemption was not taken into account during the drafting of DORA thus DORA does not consider persons practising insurance distribution to be an ancillary activity, out of scope of DORA.

This gap led to a question being raised with the ESAs.

Given the purpose of DORA, it was consistent that such insurance intermediaries should not be in scope of DORA but the text of DORA has not included this exception, only the exception for microenterprises and SMEs.

The question was taken over by the European Commission: 3074 - DORA096 - EIOPA.

The European Commission recalled that “DORA’s principal objective is to develop the Single Rulebook regulating the Union financial sector and the system of supervision to also cover digital operational resilience, by strengthening the mandates of competent authorities to enable them to supervise the management of ICT risk in the financial sector in order to protect the integrity and efficiency of the internal market, and to facilitate its orderly functioning.”.

The European Commission concluded that since the definition of ancillary insurance intermediaries is the same in DORA and the IDD, and the objective of DORA is to complement the Single Rulebook to ensure the ICT resilience of regulated financial entities, the definition of “ancillary insurance intermediary” under DORA does not cover the ancillary insurance intermediaries that are exempt from the application of the IDD.