If your embedded insurance marketplace will serve customers in multiple jurisdictions, you need to understand how different regulatory frameworks apply. The two major frameworks are:
- United States: State-by-state producer licensing based on "solicit, negotiate, effect" activities
- European Union: Insurance Distribution Directive (IDD) with harmonized rules across member states
These frameworks take fundamentally different approaches, and what works in one jurisdiction may not work in another.
The author is licensed to practice law only in California, USA. The EU/international information on this page is for general educational context only and does not constitute legal advice for any jurisdiction outside California. For EU regulatory questions, consult local counsel in the relevant EU member state.
The Insurance Distribution Directive (EU) 2016/97 establishes a harmonized regulatory framework for insurance distribution across all EU member states. It replaced the earlier Insurance Mediation Directive (IMD) in 2018.
- Applies to all "insurance distribution" activities in the EU
- Member states must implement IDD into national law (with some variations)
- Sets minimum standards for conduct, disclosure, and authorization
- Includes both intermediaries (brokers, agents) and direct sales by insurers
- Advising on insurance contracts
- Proposing insurance contracts
- Work preparatory to concluding contracts
- Concluding contracts
- Assisting in administration/performance
Key IDD Requirements for Distributors:
- Registration/Authorization: Must be registered with national competent authority
- Professional requirements: Knowledge, competence, and good repute standards
- Conduct of business: Must act honestly, fairly, and professionally
- Information disclosure: Must provide standardized product information documents
- Demands and needs: Must assess customer needs before proposing products
- Conflicts of interest: Must disclose and manage conflicts
Any person (natural or legal) who takes up or pursues insurance distribution for remuneration.
Requirements:
- Full registration with national competent authority
- Professional indemnity insurance or comparable guarantee
- Knowledge and ability requirements for staff
- Continuing professional development (15 hours/year minimum)
- Full conduct of business obligations
Passporting: Once registered in one EU member state, can passport to other member states for cross-border business.
A person whose main business is not insurance but who distributes insurance as ancillary to their main goods/services.
Examples:
- Car dealers selling motor insurance
- Travel agencies selling travel insurance
- Electronics retailers selling product protection
Requirements (generally lighter):
- Registration required (unless exempt—see below)
- Appropriate knowledge and ability
- Reduced professional indemnity requirements in some cases
The insurance company itself when selling directly to customers.
Insurance undertakings are regulated under Solvency II for their insurance operations, but IDD conduct of business rules also apply when they distribute insurance directly.
Article 1(3) of the IDD provides an exemption from registration for certain ancillary insurance intermediaries. This exemption may apply when all of the following conditions are met:
- The insurance is complementary to the goods or service supplied
- The insurance covers risk of breakdown, loss, damage, or cancellation of that good/service
- The annual premium does not exceed €600 (or pro rata for policies under 3 months)
- The person provides specified information before the contract is concluded
This exemption is narrowly construed:
- The insurance must be directly complementary to the specific good/service being sold
- €600 threshold applies per person per year from that distributor
- Member states may still require registration even for exempt intermediaries
- Conduct of business rules still apply even if registration is not required
For a marketplace facilitating M&A transactions where the embedded insurance is rep & warranty or transaction liability coverage, the exemption is unlikely to apply. The annual premium for such coverage typically far exceeds €600, and the insurance may not be considered "complementary" in the required sense.
While IDD provides a harmonized framework, member states have some discretion in implementation:
- Germany: Generally follows IDD exemption criteria; registration through BaFin or local Industrie- und Handelskammer
- France: Registration through ORIAS required; exemption criteria narrowly applied
- Netherlands: AFM registration; some gold-plating of IDD requirements
- Sweden: Finansinspektionen oversight; generally follows IDD framework
- Ireland: Central Bank of Ireland; important for many EU market access strategies
Always verify specific requirements with local counsel in the relevant member state.
| Aspect | EU (IDD) | US (State Licensing) |
|---|---|---|
| Regulatory structure | Harmonized directive, national implementation | 50+ separate state regimes, NAIC model acts |
| Trigger for regulation | "Insurance distribution" - advising, proposing, concluding | "Solicit, negotiate, effect" insurance |
| Passporting | Yes - register in one state, passport to others | No - must license in each state separately |
| Exemptions | Ancillary intermediary exemption (narrow, €600 limit) | Referral exception (fact-specific, varies by state) |
| Commission rules | Disclosure required; some member states have inducement bans | Generally allowed; unlicensed persons cannot receive |
| Conduct of business | Standardized demands/needs assessment, IPID documents | Varies by state; suitability standards in some lines |
| Professional requirements | 15 hours CPD/year minimum EU-wide | Varies by state; typically 24 hours every 2 years |
The biggest practical difference: EU allows passporting across member states once authorized in one country, while the US requires separate licensing in each state. This makes EU market access potentially simpler once you're in, but the initial authorization can be more demanding.
Both EU and US frameworks recognize that pure technology provision may fall outside regulation:
EU approach:
- IDD Recital 13 notes that "websites that compare insurance products" are not automatically caught
- However, if the website allows customers to conclude contracts, it likely is distribution
- Pure referral websites may escape, but the line is fact-specific
US approach:
- Technology providers that don't solicit, negotiate, or effect may avoid licensing
- The more the platform facilitates the transaction, the harder this argument becomes
- State regulators have become more sophisticated about embedded insurance tech
Since Brexit (December 31, 2020), the UK is no longer part of the EU regulatory framework. Key implications:
- UK firms lost EU passporting rights
- EU firms lost UK passporting rights
- UK has retained IDD-derived rules in domestic law (for now)
- FCA regulates insurance distribution in the UK
- Separate authorization needed for UK vs EU market access
UK Regulatory Framework:
The UK Financial Conduct Authority (FCA) regulates insurance distribution under rules derived from IDD, now part of UK domestic law. Key points:
- Authorization: Must be FCA-authorized or appointed representative of an authorized firm
- Appointed representative model: Common for embedded insurance—marketplace becomes AR of an authorized principal
- Consumer Duty: New FCA rules (from 2023) impose enhanced conduct standards
Option 1: FCA Authorization
- Apply directly to FCA for insurance distribution permission
- Full regulatory obligations and oversight
- Significant time and cost to obtain
Option 2: Appointed Representative
- Partner with an FCA-authorized principal
- Principal takes regulatory responsibility
- Faster market entry; principal shares in economics
- Common model for embedded insurance startups
Option 3: Introducer Model
- Pure introduction to an authorized firm
- Very limited activities permitted
- Similar to US "referral-only" model
For a marketplace serving customers in multiple jurisdictions, the regulatory analysis becomes complex:
The key question for cross-border operations is: which jurisdiction's rules apply?
General principles:
- Location of the customer/policyholder is typically determinative
- Location of the risk matters for some insurance types
- Where the distribution activity takes place may also be relevant
Example scenario:
A Swedish startup operates a marketplace used by a California buyer to purchase rep & warranty insurance for an M&A transaction involving a German target company. Which jurisdiction's distribution rules apply?
- If the buyer is in California → US/California rules likely apply to the distribution
- If the marketplace is targeting EU customers → IDD may apply
- The location of the insurer also matters for insurance contract law
Operating online does not automatically exempt you from local regulation. Most jurisdictions apply their rules when you are actively targeting their residents or when local residents purchase through your platform. Geoblocking may be necessary if you want to avoid certain jurisdictions.
Structure A: Hub-Based Model
- Establish authorized intermediary in one EU member state (e.g., Ireland, Luxembourg)
- Passport to other EU member states
- Separate authorization for UK
- Partner with US licensed broker for US customers
Structure B: Partnership Model
- Partner with established brokers in each target market
- Marketplace provides technology/leads only
- Local broker handles distribution (and licensing)
- Economics shared via referral/tech fee arrangements
Structure C: Geofenced Model
- Only operate in jurisdictions where properly licensed/authorized
- Geoblock users from other jurisdictions
- Expand jurisdiction by jurisdiction as you obtain authorization
For the Swedish startup serving US customers:
If the marketplace will serve US-based buyers of M&A insurance, US state producer licensing rules apply regardless of where the marketplace company is located. The analysis on the other pages of this hub applies fully.
- Need to determine which US states will have customers
- Either obtain producer licenses, partner with US licensed broker, or operate as referral/tech-only
- EU authorization (if any) doesn't help for US compliance
For serving EU customers:
- IDD framework applies; determine if activities constitute "distribution"
- If distribution: need authorization (direct or via partnership/AR model)
- Consider hub strategy—Ireland popular for English-language operations
- Ancillary exemption unlikely for high-value M&A insurance
For a marketplace that wants to serve both US and EU customers, the common approach is:
- EU: Obtain authorization in one member state + passport, OR partner with EU-authorized intermediary
- UK: Separate FCA authorization or appointed representative arrangement
- US: Partner with multi-state licensed broker, OR obtain licenses in target states
The technology platform can be shared, but the regulatory "wrapper" differs by region.