Explanatory Memorandum to COM(2012)360 - Insurance mediation (recast) - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2012)360 - Insurance mediation (recast). |
|---|---|
| source | COM(2012)360  |
| date | 03-07-2012 |
The Directive 2002/92/EC of the European Parliament and the Council on insurance mediation (IMD1)[1] is the only EU legislation which regulates the point of sale of insurance products so as to ensure the rights of the consumer. It was adopted on 9 December 2002 and had to be transposed by Member States by 15 January 2005. The Directive is a minimum harmonisation instrument containing high level principles and has been implemented in the 27 Member States in substantially different ways. The need to review IMD1 was already acknowledged during the implementation check carried out by the Commission in 2005-2008.
Current and recent financial turbulence has underlined the importance of ensuring effective consumer protection across all financial sectors. In November 2010, the G20 asked the OECD, the Financial Stability Board (FSB) and other relevant international organisations to develop common principles in the field of financial services in order to strengthen consumer protection. The draft G20 high level principles on financial consumer protection underline the need for proper regulation and/or supervision of all financial service providers and agents that deal directly with consumers. These principles stipulate that consumers should always benefit from comparable standards of consumer protection. The current review of IMD1 should be seen in the light of these guidelines and related international initiatives.
During the discussions in the European Parliament on the directive which regulates the risk-based approach to capitalisation and supervision of insurance undertakings (Solvency II)[2], adopted in 2009, a specific request was furthermore made to review IMD1. Some Members of the Parliament and some consumer organisations considered that there was a need for improved policyholder protection in the aftermath of the financial crisis and that selling practices for different insurance products could be improved. In particular, strong concerns have been raised with regard to the standards for the sale of life insurance products with investment elements. In order to ensure cross-sectoral consistency, the European Parliament requested that the revision of IMD1 would take into account the ongoing revision of the Markets in Financial Instruments Directive (MiFID II)[3]. This means that, whenever the regulation of selling practices of life insurance products with investment elements is concerned, the proposal for a revised Directive (IMD2) should meet the same consumer protection standards as MiFID II.
The revised Directive (IMD2) seeks to improve regulation in the retail insurance market in an efficient manner. It aims at ensuring a level playing field between all participants involved in the selling of insurance products and at strengthening policyholder protection.
The overarching objectives of the current review are undistorted competition, consumer protection and market integration. In concrete terms, the IMD2 project should achieve the following improvements: expand the scope of application of IMD1 to all distribution channels (e.g. direct writers, car rentals, etc.); identify, manage and mitigate conflicts of interest; raise the level of harmonisation of administrative sanctions and measures for breach of key provisions of the current Directive; enhance the suitability and objectiveness of advice; ensure sellers' professional qualifications match the complexity of products sold; simplify and approximate the procedure for cross-border entry to insurance markets across the EU.
The objectives of the proposal are consistent with the policies and objectives pursued by the Union. The Treaty provides for action to ensure the establishment and functioning of the internal market with a high level of consumer protection as well as the freedom to provide services.
The current proposal is tabled for adoption as part of a Consumer Retail Package together with the PRIPs proposal on investment products' disclosures and UCITS V. The PRIPs initiative aims at ensuring a coherent horizontal approach to product disclosure with regard to investment products and insurance products with investment elements (so-called insurance PRIPs[4]), and provisions on selling practices will be included in the revisions of the IMD1 and MiFID.
The proposal is furthermore consistent with, and complementary to, other EU legislation and policies, particularly in the areas of consumer protection, investor protection and prudential supervision, such as Solvency II, MiFID II, and the PRIPs initiative.
IMD2 will regulate selling practices for all insurance products from general insurance products such as motor insurance, through to life insurance policies, including those which contain investment elements, e.g. unit-linked life insurance products.
IMD2 would continue to have the features of a minimum harmonisation legal instrument. This means that Member States may decide to go further if necessary for the purposes of consumer protection. However, the minimum standards of IMD1 will be raised significantly. Some parts of the new Directive will be reinforced by Level 2 measures in order to align the rules with MiFID: in particular, in the chapter regulating the distribution of life insurance policies with investment elements.
The Commission Services requested advice from the European Insurance and Occupational Pensions Authority (EIOPA) (formerly CEIOPS) on numerous issues relating to the revision of the IMD. EIOPA's final report was delivered in November 2010.[5] During 2010-2011, the Commission Services regularly met with representatives of the insurance sector, consumer organisations and supervisors to discuss the forthcoming review. A public consultation relating to the IMD1 revision was carried out by the Commission Services from 26 November 2010 to 28 February 2011. The results of the consultation were also broadly supportive of the direction of the revision as outlined by the Commission Services.[6] On 10 December 2010, a public hearing was held on IMD2. The discussion focused on the scope of the Directive, information requirements for insurance intermediaries, conflicts of interests, cross-border trade, and professional qualification requirements.[7] On 11 April 2011 a meeting was organised with experts from Member States and EIOPA to discuss the results of the public consultation and the possible structure and contents of IMD2. The large majority of the stakeholders present at these meetings supported the direction of the revision of IMD1 as outlined by the Commission Services.
In line with its Better Regulation policy, the Commission conducted an impact assessment of policy alternatives. Several specific studies ordered by different Commission Services were used to prepare the impact assessment. Firstly, DG MARKT contracted PricewaterhouseCoopers (PWC) to conduct a study to provide a comprehensive overview of the functioning of insurance distribution in the EU. The report was finalised in July 2011 and published on the Commission's website[8]. Secondly, this proposal takes into account the results of a study commissioned in 2010 on the costs and benefits of potential changes to distribution rules for insurance products and for insurance investment products.[9] Thirdly, the findings of a study seeking to assess the quality of advice being offered across the EU have been considered.[10] A fourth study seeking insights from behavioural economics on the different factors relating to investor decision making has also been taken into account.[11]
The policy options discussed in the impact assessment were assessed against different criteria: market integration for market players, customer protection and confidence, a level playing field for various market players, and cost-effectiveness, i.e. the extent to which the options achieve the sought objectives and facilitate the operation of insurance markets in a cost-effective and efficient way.
Overall, the estimate of the administrative burden on the basis of the above mentioned PWC study and industry statistics, reworked by the Commission Services, is that in view of the large number of undertakings affected (about 1 million), the proposal will result in a relatively moderate cost of, on average, about 730 euro per undertaking.
The impact assessment work finished in 2012. The European Commission Impact Assessment Board's recommendations were taken on board especially concerning the impact on SME's. For instance, SME intermediaries which are currently outside the scope and which will be brought into scope by the current proposal are essentially businesses whose principal activity is other than insurance mediation (so mediation is purely ancillary to their main business such as travel agents or car rentals). These intermediaries will be subject to a light touch regime (declaration procedure, Article 4 of the current proposal) as a proportionate approach to the ancillary nature of the mediation they perform. In general, proportional requirements have been introduced to take account of SME's concerns and to respect the principle less complex products, less rules. For instance, some investment products are wrapped as life insurance policies. A more stringent regime for the selling practices of those products (life insurance policies with investment elements (insurance investment products or insurance PRIPs)) will be introduced (Chapter VII).
Contents
- Legal elements of the proposal
- BUDGETARY IMPLICATION
- 1.1. Objectives of the proposal
- 1.2. Consistency with other policies and objectives of the Union
- 2. Results of consultation with interested parties and impact assessment
- 3.1. Legal basis
- 3.2. Subsidiarity and proportionality
- 3.3. Compliance with Articles 290 and 291 TFEU
- 3.4. References to other directives
- 3.5. Detailed explanation of the proposal
- Chapter II - Registration requirements
- Chapter III - Declaration procedure
- Chapter IV - Freedom to provide services and freedom of establishment
- Article 23 contains additional conflicts of interest provisions, requiring such conflicts to be identified. It gives the Commission power by delegated act to
The proposal is based on Article 53(1) and 62 of the TFEU. It will replace Directive 2002/92/EC and deals with the harmonisation of national provisions on insurance intermediaries and other sellers of insurance products. It brings within its scope certain ancillary sellers and after-sales businesses such as loss adjusters and claims handlers. It clarifies the exercise of the freedom of establishment, of the freedom to provide services, and the powers of supervisory authorities of home and host Member States in this regard. The main objective and subject-matter of this proposal is to harmonise national provisions concerning conduct of business rules for all sellers of insurance products and other market entities present on insurance and reinsurance markets, the conditions for their governance, and their supervisory framework.
According to the principle of subsidiarity (Article 5(3) of the TEU), action at EU level should be taken only when the aims envisaged cannot be achieved sufficiently by Member States alone and can therefore, by reason of the scale or effects of the proposed action, be better achieved by the EU.
Most of the issues covered by the revision are already covered by the current IMD1 legal framework. Further, insurance markets are increasingly cross-border in nature. The conditions under which firms and operators can compete in this context, whether they be rules on transparency or customer protection, need to be comparable across borders and are all at the core of IMD1 today. Action is now required at European level in order to update and modify the regulatory framework laid out by IMD1 in order to take into account developments in insurance markets since its implementation. Because of this integration, isolated national intervention would be far less efficient and would lead to a fragmentation of markets, resulting in regulatory arbitrage and distortion of competition.
EIOPA should play a key role in the implementation of the new EU-wide framework. Specific competences for EIOPA are necessary in order to improve the functioning of the insurance markets.
The proposal takes full account of the principle of proportionality, namely that EU action should be adequate to reach the objectives and not go beyond what is necessary. It is compatible with this principle, taking into account the right balance of the public interest at stake and the cost-efficiency of the measures: in particular, the need to balance customer protection, efficiency of the markets and costs for the industry have been central in laying out these requirements.
In view of that principle the proposal differentiates between the different selling channels for insurance products and imposes less burdensome registration and professional qualification requirements on those selling simple insurance products. For example, the sellers of ancillary insurance products of low risk, such as car rentals and travel agents are subject to a simplified declaration procedure instead of registration as insurance intermediaries. The proposal also differentiates between the life insurance products and the general insurance products in respect of the remuneration transparency requirements. These proportionality measures are taken in view of the different levels of complexity and consumer risks related to the different insurance products and also in view of the intention to reduce the administrative burden for the SMEs selling insurance products.
On 23 September 2009, the Commission adopted proposals for Regulations establishing EBA, EIOPA, and ESMA. In this respect, the Commission refers to the Statements in relation to Articles 290 and 291 TFEU it made at the adoption of the Regulations establishing the European Supervisory Authorities, according to which: As regards the process for the adoption of regulatory standards, the Commission emphasises the unique character of the financial services sector, following from the Lamfalussy structure and explicitly recognised in Declaration 39 to the TFEU. However, the Commission has serious doubts whether the restrictions on its role when adopting delegated acts and implementing measures are in line with Articles 290 and 291 TFEU.
Since Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II) is currently not yet applicable; this proposal refers to the definitions as laid down in Directive 73/239/EEC, Directive 2002/83/EC and Directive 2005/68/EC. Directives 73/239/EEC, 2002/83/EC and 2005/68/EC will be repealed by Directive 2009/138/EC.
Chapter I – Scope and Definitions
Article 1 enlarges the scope of IMD1 to include sales of insurance contracts by insurance and reinsurance undertakings without the intervention of an insurance intermediary. It also covers claims management activities by and for insurance undertakings, loss adjusting and expert appraisal of claims.
The de minimis exclusion from the scope in IMD1 remains the same (seller of insurance policies ancillary to sale of goods, under 500 euro premium on an annualised basis and satisfying other criteria under the exemption) except that the premium limit on an annualised basis is increased to €600 pro rata (less than €2 per day). The above mentioned €2 is the amount of the premium per contract and per day. For instance, opticians selling complementary insurances on glasses still remain out of scope of the Directive.
The insurance policies sold ancillary to the sale of services fall in the scope of the Directive after the revision. This is for example the case of travel insurance policies sold by travel agents, general insurance policies sold by car rental companies and leasing companies.
Article 2 restates the definitions in IMD 1 with some changes and new definitions.
· Insurance mediation is extended to include the extension of scope in Article 1 and specifies that certain activities by insurance aggregator websites constitute insurance mediation. The activity of introducing is removed. Reinsurance mediation is amended likewise.
· Insurance investment products are defined to follow the definition of investment product in the Regulation on key information documents for investment products (Regulation on PRIPs).
· Tied insurance intermediary is extended to include intermediaries working under the responsibility of another insurance intermediary.
· Advice is defined as the provision of a personal recommendation to a customer, on request or otherwise.
· Professional customer is defined for the purposes of exclusion from the information provisions.
· Cross-selling practice defines a practice where two or more products are bundled together in a single sale.
· Contingent commission is defined as a commission where the amount payable is based on the achievement of agreed targets.
· Close links defines arrangements with connected persons and arrangements which might affect a supervisor's ability to supervise effectively.
· Remuneration is defined to include not only payments (fees, commission, etc.) but also economic benefits of any kind.
· The definitions of home Member State, host Member State, insurance intermediary, reinsurance intermediary and durable medium are the subject of clarifying amendments.
Article 3 leaves the registration requirements of IMD1 largely unchanged, but requires the establishment of a single electronic register by EIOPA (linking of national databases) and requires disclosure of certain arrangements with other persons. This single electronic register shall function as a portal linking back to national registers. It also exempts from registration persons within the scope of the declaration procedure (see Article 4).
Article 4 establishes a simplified procedure which exempts two groups of persons from the registration procedure mentioned above, enabling them to carry on mediation activities by way of a simple declaration. They are
· those who conduct insurance mediation as an activity ancillary to their principal professional activity, and who meet certain other conditions (such as travel agents). Broadly, the other conditions are that the products are complementary to another product or service, do not cover life assurance or liability risks other than incidental cover, and
· those whose activities are limited to the professional management of claims and to loss adjustment.
The declaration procedure mainly covers travel agents, car rentals selling insurance products as well as loss adjusters and claim handlers.
Articles 5, 6, and 7 reflect the provisions in Article 5 of IMD1, the revised MiFID proposal and the Luxembourg Protocol[12]. They also address the division of competence between Home and Host Member State supervisors, particularly in situations where an insurance or reinsurance intermediary is not meeting its obligations when transacting business in the Host Member State.
Chapter V – Other organisational measures
Article 8 sets out the professional and organisational requirements that comprise Article 4 in IMD1: requirement to have appropriate knowledge and ability; requirement to be of good repute; requirement to hold professional indemnity insurance and measures to protect against the intermediary's inability to transfer premium to the insurance undertaking or claims money or return premiums to the insured. It also includes a requirement for continuous professional development. In order to achieve a proportionate impact, the rules applying to those pursuing intermediation activities on an ancillary basis, or whose activities are limited to the professional management of claims, will be proportionate to the complexity of the product sold. Accordingly, Article 8 is not applied in full to such intermediaries.
The Commission is empowered to adopt delegated acts to specify the notion of adequate knowledge and ability.
Article 9 concerns the publication of general good rules. This article has changed from Article 6 in IMD1 and now requires Member States to publish the general good rules and requires EIOPA to collect and publish information about such rules (for an indicative exposition of the principles of general good in relation to the Third Insurance Directives, see the Commission's Interpretative Communication on freedom to provide services and the general good in the insurance sector 2000/C 43/03).
Articles 10 to 12 restate the former Articles 7, 9 and 10, on competent authorities, exchange of information between Member States and complaints.
Article 13 concerns procedures for the out-of-court settlement of disputes involving customers, and strengthens the former Article 11 of IMD1, by requiring (rather than encouraging) Member States to set up procedures and ensure participation in them.
Article 14 concerns the restriction on the use of intermediaries. It extends the former Article 3(6) of IMD1 to reinsurance undertakings and insurance and reinsurance intermediaries, and takes into account the declaration procedure (see Article 4).
Chapter VI – Information requirements and conduct of business rules
Articles 15 to 20 restate the disclosure requirements, the large risks exemption, the stricter provisions in ex-Article 12, and the information conditions of ex-Article 13. They also set out the following additional provisions:
· general principle for intermediaries that they should act in the best interest of their customers;
· similar information requirements for insurance undertakings;
· a requirement to disclose the basis and amount of the remuneration by insurance intermediaries;
· a requirement to disclose the amount of any variable remuneration received by the sales employees of insurance undertakings and intermediaries;
· a mandatory full disclosure regime for the sale of life insurance products and an 'on–request' regime (i.e. on customer's demand) for the sale of non-life products with a transitional period of 5 years. After the expiry of the 5 years transitional period, the full disclosure regime will automatically apply for the sale of non-life products as well. During the transitional period, the proposal differentiates between the life and non-life products. In case of the sale of life products, the remuneration (commission) tends to be higher. Also, life products are also closer to investment products and buying such a product constitutes a long-term investment. For non-life products, the situation is different. The remuneration is usually lower (commission is about 5%-10% of the premium) and the product involves less risks. In most of the EU countries, consumer can switch to another, substitutable product very easily and on an affordable manner.
· an obligation on insurance undertakings and intermediaries to give the customer, prior to the conclusion of a contract, sufficient information about the insurance product to allow him to make an informed decision;
· a requirement that EIOPA ensures that information it receives relating to stricter national provisions is communicated to insurance undertakings, intermediaries and consumers; and
· further exceptions to the general requirement for information to be given through a durable medium.
In terms of achieving higher consumer protection, these provisions offer higher transparency compared to the original Directive (2002/92/EC) regarding the nature, the structure and the amount of the intermediary's remuneration and provide clarity with regard to the principal-agent relationship, including how this may impact on advice. Consumer protection has moved forward significantly over the last years, and consumers are today increasingly information-seeking and cost-conscious. Disclosure of the different elements of the total price - including the intermediary's remuneration - will enable the customer to choose on the basis of insurance cover, linked services (for example if the intermediary does claims-handling) and price. This will further ensure suitable, cost-efficient products and intermediary services for consumers. Mandatory disclosure of remuneration should have positive effects on competition in insurance distribution as it would ensure that consumers receive wider information on products and costs, as well as possible conflicts of interest. It will be easier for consumers to compare insurance covers and prices between products sold through different distribution channels. Several EU Member States do already require remuneration disclosure for some insurance products, and MiFID II will require this for investment products. This new information will give consumers more complete information about what services the intermediary performs and what are the related costs. The remuneration disclosure must however be implemented in a way that the comparison between intermediaries and direct writers is ensured. Information about the price of cover as well as the distribution costs will provide comparability. In particular - for avoiding situations of conflict of interest insurance undertakings should also disclose the basis for the calculation of their employees' variable remuneration resulting from the sale of a product. These provisions furthermore address certain key problems related to cross-border provision of insurance intermediary services: lack of legal certainty and lack of comparability. If the harmonised legal framework is improved, intermediaries as well as their customers may more readily take the step of selling or buying insurance products cross-border. Improved disclosure will facilitate comparison between products and distribution channels (as mentioned above), which is today particularly difficult in cross-border trade situations.
Article 21 introduces a provision on bundling products together and requires that the customer be informed that the products may be purchased separately and be given certain information in this regard. It also requires EIOPA to develop, and thereafter update, guidelines for the supervision of such practices.
Chapter VII – Additional customer protection requirements in relation to insurance investment products
Article 22 covers the scope of these additional provisions, applying them to an insurance intermediary or undertaking when they sell insurance investment products.
Article 23 contains additional conflicts of interest provisions, requiring such conflicts to be identified. It gives the Commission power by delegated act to
· define steps that may be required to identify, prevent, manage and disclose such conflicts; and
· to establish criteria for specifying types of conflicts which may damage the interests of customers.
Article 24 is based on Article [23] of MiFID II. It sets out the MiFID II requirement to
· act honestly fairly and professionally in accordance with the best interests of customers;
· ensure that information is fair clear and not misleading;
· provide information about the insurance undertaking or intermediary and its services (in particular whether any advice is provided on an independent basis), about the scope of any market analysis (whether on-going suitability assessment will be provided), about proposed products and investment strategies, and about costs.
It also specifies the basis on which advice may be said to be independent, which includes a requirement as to the assessment of products on the market and a requirement not to accept remuneration from third parties.
The Commission is empowered to adopt delegated acts to ensure compliance with this article.
Article 25 sets out how suitability and appropriateness is to be assessed, and requires information to be obtained from the customer. For non-advised sales, the intermediary or undertaking must obtain information about a customer's knowledge and experience to determine the appropriateness of the product for him. For advised sales, it must obtain the customer's financial situation and investment objectives to determine suitability. Where a product is not appropriate or suitable, as the case may be, it must warn the customer of this. The seller must also keep records of the terms on which it will provide services to the customer, and provide reports to the customer. The Commission is empowered to adopt delegated acts to ensure compliance.
Chapter VIII – Sanctions
Article 26 requires Member States to ensure that effective, proportionate and dissuasive administrative sanctions and measures are taken by competent authorities for breach of the national provisions adopted pursuant to the Directive.
Administrative sanctions and measures must apply to those natural or legal persons which, under national law, are responsible for a breach.
Competent authorities must be given all necessary investigatory powers, and must co-operate on cross-border cases.
Article 27 requires publication of the sanctions or measures imposed for breaches.
Article 28 specifies certain breaches and sets out the administrative sanctions which apply to the intermediaries including withdrawal of registration, bans against persons responsible for the exercise of management functions, and pecuniary sanctions of up to twice as much as the benefit derived from the breach if that benefit can be determined.
Criminal sanctions are not covered by this proposal.
Article 29 sets out the factors to take into account in imposing sanctions and measures, including benefits derived from the breach; losses caused to third parties, and the level of cooperation of the responsible person, and requires EIOPA to issue guidelines in respect of the sanctions. It also requires communication of any sanction or measures to the intermediary or undertaking, together with justification of that sanction.
Article 30 requires effective mechanisms to encourage reporting of breaches and an appropriate protection for whistle-blowers and their personal data, as well as the protection of data of natural persons allegedly responsible for breaches.
Article 31 requires annual reporting of aggregate information regarding breaches to EIOPA as well as publication of that information by EIOPA. The Commission is empowered to adopt implementing technical standards in this respect, which EIOPA is to develop and submit to the Commission [6] months after the publication of the Directive.
Chapter IX – Final provisions
Articles 32 to 39 restate (updated where relevant) the final provisions in IMD1 concerning the right to apply to the courts, transposition and entry into force, repeal of prior legislation and addressees. In addition, Articles 33 and 34 set out conditions applying to the Commission's power to adopt delegated acts as specified in the Directive, and Article 35 provides a process for review and evaluation by the Commission of the Directive after its entry into force. This review shall in particular consider the impact of the disclosure rules in Article 17(2) on non-life insurance intermediaries that are small and medium-sized undertakings.
Specific budget implications for the Commission are also assessed in the financial statement accompanying this proposal. The specific budget implications of the proposal relate to tasks allocated to EIOPA as specified in the legislative financial statement accompanying this proposal.
The proposal has implications for the Community budget.
ê 2002/92/EC (adapted)