InsuranceMediationDirective II

Dr. Matthew BianchiPartnerInsurance & Pensions

1. THE CONTEXT.

Dr. Matthew Bianchi

IMD Today – An Overview

IMD

Definition ofIntermediary

RegistrationRequirements

Transparency&

Remuneration

IMD

PassportingRequirements

ProfessionalRequirements

Dr. Matthew Bianchi

Issues – why IMD 2?

Ambiguous definition of insurance intermediariesactivities;

Divergent approaches to transposition = No levelplaying-field;

Barriers to single market in insurance intermediationowing to various general good requirements in relationto passporting;

Inconsistent remuneration disclosure requirements.

Ambiguous definition of insurance intermediariesactivities;

Divergent approaches to transposition = No levelplaying-field;

Barriers to single market in insurance intermediationowing to various general good requirements in relationto passporting;

Inconsistent remuneration disclosure requirements.

Dr. Matthew Bianchi

The Impact of Solvency II Solvency II is one of the drivers for the review

of IMD. Recital 139 Sol II Directive mandatedEU Commission to present review proposalsof IMD.

For instance, intermediaries may be expectedby Insurers and re-insurers to develop betterdata collection techniques and betterappreciation of their clients’ risk profile forthem.

Solvency II is one of the drivers for the reviewof IMD. Recital 139 Sol II Directive mandatedEU Commission to present review proposalsof IMD.

For instance, intermediaries may be expectedby Insurers and re-insurers to develop betterdata collection techniques and betterappreciation of their clients’ risk profile forthem.

Dr. Matthew Bianchi

The Commission’s Reaction

The Commission issued the ‘Request foradvice regarding the revision of the IMD’ toCEIOPS (now EIOPA) on 27 January 2010.

In its response CEIOPS provided a series ofrecommendations in November 2010 (EIOPAAdvice).

The Commission issued the ‘Request foradvice regarding the revision of the IMD’ toCEIOPS (now EIOPA) on 27 January 2010.

In its response CEIOPS provided a series ofrecommendations in November 2010 (EIOPAAdvice).

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2. THE EIOPA ADVICE.

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EIOPA Recommendations

Scope of EIOPA’s advice –Main issues

LegalFramework

Definition ofintermediaries Passporting

Remunerationdisclosures

Conflicts ofinterest &

TransparencyProfessionalrequirements PRIPS

Key Recommendations (1)

• IMD 2 to be two-part directive• Part 1: organisation of profession and

registration• Part 2: conduct of business requirements• Most commentators, including CEA,

prefer retaining the conventional form ofDirective.

LegalFramework

• Retain activity-based approach• Remove references to

‘introducing’• Direct sales and outsourcing

should form part of definition

Definition ofIntermediaries

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Focus: Defining Intermediaries IMD regulates persons carrying on:

“activities of introducing, proposing or carrying out otherwork preparatory to the conclusion of contracts ofinsurance, or of concluding such contracts, or of assistingin the administration and performance of such contracts, inparticular in the event of a claim”

Direct sales by insurers or their employees are expresslyexcluded

Large risks and reinsurance intermediation are also subject tocarve-outs from information requirements

IMD regulates persons carrying on:“activities of introducing, proposing or carrying out otherwork preparatory to the conclusion of contracts ofinsurance, or of concluding such contracts, or of assistingin the administration and performance of such contracts, inparticular in the event of a claim”

Direct sales by insurers or their employees are expresslyexcluded

Large risks and reinsurance intermediation are also subject tocarve-outs from information requirements

Dr. Matthew Bianchi

Focus: Direct Sales The proposal is to establish a level playing field for the intermediation

and selling of insurance products by subjecting direct selling to the IMD 2regime, a position adopted amongst others also by BIPAR

Insurers and their employees involved in the sales process will also fallwithin the scope of IMD 2

The intention is to enhance customer and policyholder protection bycreating uniformity across the various distribution channels

Broad market approval but CEA expressed reservations as it arguesdirect sales forces are not comparable to intermediaries, ‘as they do notconstitute an interface between insurers and policy holders and do notintermediate.’

The proposal is to establish a level playing field for the intermediationand selling of insurance products by subjecting direct selling to the IMD 2regime, a position adopted amongst others also by BIPAR

Insurers and their employees involved in the sales process will also fallwithin the scope of IMD 2

The intention is to enhance customer and policyholder protection bycreating uniformity across the various distribution channels

Broad market approval but CEA expressed reservations as it arguesdirect sales forces are not comparable to intermediaries, ‘as they do notconstitute an interface between insurers and policy holders and do notintermediate.’

Dr. Matthew Bianchi

Focus: Selling practicesThe CEA proposed 6 high level principles of selling practises for insurance:

1. Selling practices must be focused on the fair treatment of the customer;2. A distributor has to offer advice on request or on own initiative when the

circumstances indicate there is a need;3. A customer should always be informed about any limitation of the

service;4. Advice should be based on an analysis of the customer’s needs, based

on the information provided by the customer;5. Any distributor providing information or advice on an insurance product

must understand this product;6. Before a contract is concluded, the customer should be given the

information about the insurance product, which allows the customer tomake an informed decision.

The CEA proposed 6 high level principles of selling practises for insurance:

1. Selling practices must be focused on the fair treatment of the customer;2. A distributor has to offer advice on request or on own initiative when the

circumstances indicate there is a need;3. A customer should always be informed about any limitation of the

service;4. Advice should be based on an analysis of the customer’s needs, based

on the information provided by the customer;5. Any distributor providing information or advice on an insurance product

must understand this product;6. Before a contract is concluded, the customer should be given the

information about the insurance product, which allows the customer tomake an informed decision.

Dr. Matthew Bianchi

Key Recommendations (2)

• Retain notification system• Changes to initial notification should be

communicated to Host State supervisor• Define freedom of establishment and

freedom to provide services• Central clearing system?

Passporting

• Raise minimum levels of policyholderprotection

• Different remuneration disclosure regimes• “On request” disclosures as minimum level of

harmonisatiion• Introduce mandatory risk-based approach

regime?

Remunerationdisclosures

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Focus: Central clearing system

The proposed central clearing system would be acentral EU notification mechanism. This should:

Contribute to increased efficiency in cross-borderbusiness

Provide easy access on all Member States' "generalgood" rules facilitating the passporting of licencesacross border in the single market

The mechanism could be automated and web based

The proposed central clearing system would be acentral EU notification mechanism. This should:

Contribute to increased efficiency in cross-borderbusiness

Provide easy access on all Member States' "generalgood" rules facilitating the passporting of licencesacross border in the single market

The mechanism could be automated and web based

Dr. Matthew Bianchi

Focus: Remuneration disclosures IMD is silent on disclosure requirements of intermediary remuneration.

Different member states implement varying remuneration disclosureregimes. Broadly of 2 types :

1. on request regime;2. mandatory disclosure on remuneration regime.

CEIOPS proposed a 3rd alternative – mandatory risk-based approach. Thiswould take into consideration the risk profile of the products being soldtogether with the risk of mis-selling such products.

What should be disclosed?All costs related to the services and products which may includecompensation by the insurer to the intermediary.

IMD is silent on disclosure requirements of intermediary remuneration.

Different member states implement varying remuneration disclosureregimes. Broadly of 2 types :

1. on request regime;2. mandatory disclosure on remuneration regime.

CEIOPS proposed a 3rd alternative – mandatory risk-based approach. Thiswould take into consideration the risk profile of the products being soldtogether with the risk of mis-selling such products.

What should be disclosed?All costs related to the services and products which may includecompensation by the insurer to the intermediary.

Dr. Matthew Bianchi

Key Recommendations (3)

• Intermediary should be capable on a setof pre-defined principles to determinewhether able/not able to act inconsumer’s best interest and thereforewhether to accept business or not

• Disclose interests in insurer orentitlement to bonuses / other incentives?

Conflicts ofInterest +

Transparency

• No need for employee registration• MS should have possibility to graduate

knowledge and ability requirements according toactivity pursued or type of intermediary

• Mutual recognition of intermediaries’ knowledgeand ability - strongly supported also by BIPAR

Professionalrequirements

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Focus Conflicts of interest to be disclosed. 2 main types –

1. financial interest - where intermediary and insurer have a form ofremuneration agreement; and2. related parties - where the insurer and intermediary are part of thesame group.

Professional requirements – move towardsstandardisation of qualifications however thismay be detrimental to some markets whichalready have advanced qualifications

Conflicts of interest to be disclosed. 2 main types –

1. financial interest - where intermediary and insurer have a form ofremuneration agreement; and2. related parties - where the insurer and intermediary are part of thesame group.

Professional requirements – move towardsstandardisation of qualifications however thismay be detrimental to some markets whichalready have advanced qualifications

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Packaged Retail InsuranceProducts (PRIPS) Commission is of the view that changes at EU level are

necessary to ensure a more consistent and coherentapproach to the regulation of product disclosure and salespractises

Regulation of selling practises in relation to insurance PRIPSshould therefore be covered by IMD 2

IMD 2 would need to cover 2 potential regimes:

1. One for the sale of general insurance products;2. One for the sale of insurance PRIPS (investments

packaged as life insurance policies)

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Commission is of the view that changes at EU level arenecessary to ensure a more consistent and coherentapproach to the regulation of product disclosure and salespractises

Regulation of selling practises in relation to insurance PRIPSshould therefore be covered by IMD 2

IMD 2 would need to cover 2 potential regimes:

1. One for the sale of general insurance products;2. One for the sale of insurance PRIPS (investments

packaged as life insurance policies)

3. EUROPEAN COMMISSIONPUBLIC CONSULTATION.

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European Commission Consultation

Following the EIOPA advice, the European Commissionpublished a Consultation document on the Review of theInsurance Mediation Directive (IMD) and invited MemberStates and interested parties to submit comments on theoptions identified in the consultation by 28 February2011.

Following the EIOPA advice, the European Commissionpublished a Consultation document on the Review of theInsurance Mediation Directive (IMD) and invited MemberStates and interested parties to submit comments on theoptions identified in the consultation by 28 February2011.

Dr. Matthew Bianchi

European Commission Consultation – cont.

A majority of the respondents agreed with the Commission proposal to extend thescope of the Insurance Mediation Directive to cover all market players which haveinsurance mediation as part of their activities

There was a general sense that there is a need for a definition of the freedom ofestablishment and freedom to provide services in the revised directive in order torender the cross-border process more effective

Respondents suggested that a central clearing system through which notificationscould be submitted would be useful

General consensus that the level of policy holder protection embodied in EU lawon insurance intermediaries needs to be raised. This conclusion is shared byconsumer organisations, as well as by public authorities and financial advisors.

A majority of the respondents agreed with the Commission proposal to extend thescope of the Insurance Mediation Directive to cover all market players which haveinsurance mediation as part of their activities

There was a general sense that there is a need for a definition of the freedom ofestablishment and freedom to provide services in the revised directive in order torender the cross-border process more effective

Respondents suggested that a central clearing system through which notificationscould be submitted would be useful

General consensus that the level of policy holder protection embodied in EU lawon insurance intermediaries needs to be raised. This conclusion is shared byconsumer organisations, as well as by public authorities and financial advisors.

Dr. Matthew Bianchi

References SUMMARY OF RESPONSES TO THE CONSULTATION ON THE REVISION OF THE INSURANCE

MEDIATION DIRECTIVE - Internal Market and Services DG - 4 April 2011

Consultation document on the Review of the Insurance Mediation Directive (IMD) Commission Staff WorkingPaper - 26 November 2010

CEIOPS Advice to the European Commission on the revision of the Insurance Mediation Directive(2002/92/EC) (CEIOPS CCP-59/10; 10 November 2010);

CEA preliminary comments on IMD revision (CEA Reference: SMC-DIS-10-039; 13 July 2010)

European Commission - Request for advice regarding the revision of the Insurance Mediation Directive – 27January 2010;

CEIOPS Protocol - Relating to the Cooperation of the Competent Authorities of the Member States of theEuropean Union in Particular Concerning the Application of Directive 2002/92/EC of the European Parliamentand of the Council of 9 December 2002 on Insurance Mediation (CEIOPS-Doc-02/06; Rev 1 Oct 2008).

Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurancemediation

SUMMARY OF RESPONSES TO THE CONSULTATION ON THE REVISION OF THE INSURANCEMEDIATION DIRECTIVE - Internal Market and Services DG - 4 April 2011

Consultation document on the Review of the Insurance Mediation Directive (IMD) Commission Staff WorkingPaper - 26 November 2010

CEIOPS Advice to the European Commission on the revision of the Insurance Mediation Directive(2002/92/EC) (CEIOPS CCP-59/10; 10 November 2010);

CEA preliminary comments on IMD revision (CEA Reference: SMC-DIS-10-039; 13 July 2010)

European Commission - Request for advice regarding the revision of the Insurance Mediation Directive – 27January 2010;

CEIOPS Protocol - Relating to the Cooperation of the Competent Authorities of the Member States of theEuropean Union in Particular Concerning the Application of Directive 2002/92/EC of the European Parliamentand of the Council of 9 December 2002 on Insurance Mediation (CEIOPS-Doc-02/06; Rev 1 Oct 2008).

Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurancemediation

Dr. Matthew Bianchi

THANK YOU.

Dr. Matthew Bianchi