Commission aims for more binding rules
By Manon Malhère | Tuesday 03 July 2012
Sellers of life insurance contracts will be obliged to provide potential clients with information on the remuneration they receive in connection with the contract. Insurance investment products and structured life insurance products will also have to meet additional client protection requirements. These key measures are found in the legislative proposal revising the Insurance Mediation Directive (IMD, 2002/92/EC) presented by the European Commission, on 3 July.
The EU executive presented in parallel a draft regulation on packaged retail investment products (PRIPs) and a revision of Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions on certain UCITS, or undertakings for collective investment in transferable securities (see separate articles). The objective of all three texts submitted to the Council and European Parliament is to better protect small investors in financial markets.
Adopted in 2002, the IMD regulates access to and exercise of insurance and reinsurance mediation activities (protection of clients' interests, professional requirements, clear explanations on client advice). The directive is implemented differently from one state to the next, however, explains the Commission. Some of its terms are vague and its scope is far too restricted.
The Commission therefore proposes to widen the IMD's scope to all sellers of insurance contracts. In addition to intermediaries, insurance companies will now have to be registered in their member state of establishment. Also concerned to a proportional extent are car rental companies and travel agencies.
Conflicts of interest
Overall, the more complex the product, the more binding its sales rules. These rules aim to improve the advice given to clients and above all to mitigate conflicts of interest between sellers and insurers prior to conclusion of an insurance contract. "When a broker sells a contract, the client must have information on the broker's connection to the contract issuer," explained a European source.
Before concluding a life insurance or similar contract, intermediaries must give clients information on the remuneration they will receive on the contract in question. This is an obligation that will take effect as soon as the text comes into force. For non-life contracts, the seller will not be obliged to provide such information unless the client requests it and the obligation will be introduced after a five-year transitional period.
Another key measure is the introduction of an entire chapter that adds further client protection requirements for sales of high-risk insurance investment products. The Commission aims here to apply rules of conduct (appropriate information, requirements on advice, concept of independent advice, etc) similar to those contained in the draft MiFID II Directive (Articles 2 to 25). The executive clarifies the bases on which advice may be considered independent (evaluation of the product and prohibition on accepting third-party remuneration concerning services provided to clients).
The Commission proposes to apply mutual recognition between member states, in particular on professional knowledge and capacity (highlighted with registration). It further harmonises administrative sanctions to be applied in case of infringement of key provisions of the legislative text.
Eurofinas, representing specialised consumer credit providers in Europe, in particular commends "the European Commission for proposing a regulatory framework that takes into account the differences between the various distribution channels as well as the complexity and nature of the various products distributed, thereby avoiding the pitfall of an ill-suited one size fitsall approach".