Insurance consumer protection

Latest developments at EU level

William Vidonja, Head of Single Market & Social Affairs, CEA

Budapest, 19 October 2011

European insurance and reinsurance federation, founded in 1953

Represents around 95% of European insurance market by premium income

Committed to creation of favourable regulatory and supervisory framework for insurers at European and international level

About the CEA

CEA members

32 national associations:

26 EU member states

6 non-EU markets

Croatia, Switzerland, Iceland, Norway,

Turkey, Liechtenstein

2 associate members

Serbia, San Marino

3 partners

Russia, Ukraine, Kosovo

Contribution to the economy

Stakeholders in the international environment

European institutions

International institutions

AMICE

European Commission

European Parliament

Council of Ministers

EIOPA

ESRB

CFO Forum

Insurance industry stakeholders

CRO Forum

PEIF

ICISA

RAB

Other stakeholders

Business EuropeBEUCEFAMA

IAIS

OECD FSB

G-20

National insurance associations

Insurance companies

IMF

IASB

UNI-Europa

EWLAge Platform Europe

SEPASEPA

Tying & bundling

MiFIDE-commerceE-commerce

PRIPs

Age and disability

EU consumer protection initiatives

related to insurance

EU contract law

EU contract law

UCP

Financial educatio

n

Financial educatio

n

Data protection

Data protection

Consumer rights

Consumer rights

IGSIGS IMD

Collective redress

Collective redress

ADRADR

Gender

Anti-discrimination

The need to restore trust (1)

Do you remember... before the crisis?Very high consumer satisfaction and loyalty (2007 IPSOS)

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The need to restore consumer trust (2)

Do you remember... before the crisis?Very low consumer dissatisfaction (2007 IPSOS)

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The need to restore consumer trust (3)

Crisis impact Consumers distrust the industry as a whole (German confidence in financial institutions, GfK Marktforschung, 2009, based on 1,013 individuals surveyed)

13% (17%) have complete confidence in insurance companies in general (banks)

40% (60%) trust their own insurer (bank)

Need to rebuild trust in the sector as a whole

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The need to restore consumer trust (4)

Impact on regulationCall for further consumer protection

(German consumer monitoring, GfK Marktforschung, 2009, based on 700 telephone interviews)

2007: 65% (extreme) satisfaction with existing measures in insurance

2009: 45%

Demand for active improvements in consumer/ investor protection

50% see competent advice as being of primary importance

39% see trust, seriousness and reliability in 2nd (only 11% in 2007)

5% place particular value on returns and profit opportunities

23% want safe investments and less risk Top of the list!

Solutions requested from policy-makers: more rights in case of negligent advice, more financial education in schools, accreditation standards for financial advisors etc.

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The need to restore consumer trust (5)

Impact on regulation

Regulators have to restore trustin themselvesin financial services and insurance 11

Tying & bundling

MiFIDE-commerceE-commerce

PRIPs

Age and disability

EU consumer protection initiatives

related to insurance

EU contract law

EU contract law

UCP

Financial educatio

n

Financial educatio

n

Data protection

Data protection

Consumer rights

Consumer rights

IGSIGS

SEPASEPA

IMD

Collective redress

Collective redress

ADRADR

Gender

Anti-discrimination

Distribution: IMD (conduct of business) and PRIPs (disclosures)

Q1 2011: EC retail package

Insurance guarantee schemes (IGS)Q4 2012: EC legislative proposal

Anti-discrimination issuesDec 2011: EC guidance on the ECJ Test-Achats ruling (gender)Draft Directive on age & disability pending in the EU Council

Consumer redress: collective redress & alternative dispute resolution (ADR)

End 2011: EC com on principles on collective redress + legislative proposals on ADR/ ODR + recommendation to strengthen FIN-Net

European contract law2012: EC work on an insurance optional instrument

Etc.

EU consumer protection initiatives

related to insurance

Consumer empowerment (1)Information requirements

CEA supports high level of consumer protection and recognises importance of improving information provided to consumers

Information requirements should not create additional burden without providing any benefit to consumers

Not a case of more information, but better information for consumers

CEA has developed a Key Information Checklist (KIC) for unit-linked life insurance A short list of simple, clear information headings on key product

characteristics to help consumers understand and compare products consistently across Europe

Consumer empowerment (2)Conduct of business rules

Enhancing conduct of business rules Important to recognise the diversity of insurance distribution markets across the EU, reflecting differing consumer needs

EU-wide “one-size-fits-all” legislation will not capture differences between existing national distribution structures Minimum harmonisation approach is necessary

CEA has proposed high-level principles on selling practices for all insurance contracts

Aim: to guarantee consumers an appropriate level of protection, regardless of the distribution channel, while accommodating diversityCover fair treatment of the customer, advice, analysis of customer needs etc.Flexible enough to allow a proportionate approach 15

Consumer empowerment (3)Financial education

Importance of financial education to ensure European citizens are equipped with the knowledge,

confidence and skills necessary to improve their understanding of financial products and concepts, and to make informed choices of financial services to suit their particular needs

CEA publication “Financial education and awareness – European insurance industry initiatives”

Overview of industry initiatives across EuropeCalls for European Day of Financial EducationWelcomes work done at international level (OECD, EIOPA)

EC has suspended its activities on financial education:Discontinued Expert Group on Financial EducationDiscontinued European Database for Financial EducationNo longer plans to issue Recommendation on financial education

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Is there a case for IGS?Policyholders should be protected against the consequences of an insurer going insolventPreference for measures preventing insolvency (Solvency II)

IGS entails side-effects in relation to costs, moral hazard and unfairness, which IGS design options can limit to a certain extent but not eliminate

Open question about IGS effectiveness:

Real or fake consumer protection tool?The risk in concentrated marketsThe risk in non-concentrated markets

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Insurance guarantee schemes (IGS)

Gender in insurance pricing (1)

Gender Directive 2004/113/EC Prohibition of gender-based differentiation in insurance pricing (Art.5§1)MS option allowing such differentiation (Art.5§2)

ECJ Test-Achats ruling, 1 March 2011Art.5§2 invalid with effect from 21 Dec 2012The ruling addresses the structure of the Gender Directive, but leads to challenge the way private insurance works

Implications for insurersTechnical challenge for insurers to adapt (deadline)Legal certainty needed asap

EC guidelines expected in Dec 2011Ruling only applies to new contracts concluded for the 1st time after 21 Dec 2012

General implications for consumersReduced competition, innovation and consumer choiceRisk inadequate pricing: risk of premium increase, withdrawal of products (adverse selection and moral hazard)

Gender in insurance pricing (2)

General examples of consequences for consumers

Term life insurance– Women live longer than men & pay less– Expected premium increase eg for a single young mother

looking for a term life insurance to secure her mortgage

Motor insurance– (Young) women have less driving offences and claims, and

therefore pay lower premiums – Unisex premiums may result in higher premiums for them

Annuities– Men may stop buying annuities and prefer banking/investment

products with no biometric risk coverage– Expected social impact on levels of retirement savings in the

context of financial pressure on state pension schemes

Gender in insurance pricing (3)

National examplesBelgium

Motor third party liability (MTPL) insurance: the introduction of unisex rates resulted in 2008 in premium reductions of 3–4% for young men and premium increases of 7–15% for young women

The UKMotor insurance: women aged 25 and under could see the cost of cover rise by up to 25%; men of same age costs could fall by up to 10% (based on an average motor premium of £1,682 for  female aged 17-22 (AA Premium Index), it would mean an extra £420 a year)Annuities: men (and dependants) could see a 8% reduction in benefits, while those for women could only rise by 6%Term life insurance: expected rise of up to 35-50% in the cost of cover for women, while men could see a fall of 0-10%

Gender in insurance pricing (4)

Age and disability in insurance pricing

Draft Directive on age & disability

Risk of spill-over effect

Similar structure as Gender Directive

Need for absolute legal certainty on use of age and disability in

risk assessment and insurance pricing

A ban on the use of these factors would lead to the end of the

current insurance business model, to the detriment of

consumers…

Conclusions

Good intentions behind EU initiatives, but must strive for effective and intelligent consumer protection and consider the wider implications

Enhance level of consumer protection, rather than introduce more regulation - quality vs. quantity

Important to respect the diversity of markets and the differing demands and needs of consumers across the EU

Competition allows for increased choice, lower prices and better access to insurance

Proposals need to avoid “unintended consequences” for the economy, businesses, consumers and taxpayers

Professional, precise and evidence-based IA, testing and consultation

 

CEA publications

CEA Annual Report

The use of gender in insurance pricing

Financial education and awareness:

European insurance industry initiatives

European Insurance in Figures

Briefing note: Insurance distribution

Insurance Distribution Channels in Europe

For more information www.cea.eu

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