The European Parliament's Committee on Economic and Monetary Affairs (ECON) has published its draft report on the recast Insurance Mediation Directive, known as IMD2.
ECON has made some significant amendments to the European Commission’s proposal including removing mandatory disclosure requirements and granting member states far more discretion in implementing the regime. Provisions relating to professional and training requirements, and the amount and suitability of information provided to consumers, are less onerous in ECON’s draft.
Overall, the industry is likely to welcome the latest draft, particularly the rethink on remuneration disclosure which had been widely criticised.
The report sets out the European Parliament’s legislative resolution on IMD2, together with an explanatory statement of the proposed amendments which include the following main changes:
- Scope. Claims managers and loss adjusters are removed from scope. The sideline sale of travel and car-hire insurance is also excluded. ECON also proposes removing ancillary providers from scope so that IMD2 will only apply to those selling insurance products "as a main professional activity."
- Professional and organisational requirements. Interestingly, ECON has proposed removing various references to the quality of advice to be provided in the sale of insurance products. To prevent mis-selling the Commission’s proposal had stated that products “should be accompanied with honest and professional advice”. Article 8 has undergone numerous amendments such as removing the requirement that insurers and intermediaries demonstrate “appropriate professional experience relevant to the complexity of the products they are mediating”. Similarly, there is no requirement that undertakings update their knowledge and ability through continuing professional development. In addition, ECON amends the minimum professional indemnity insurance cover held by intermediaries to €1 million for each claim and in aggregate €2 million per year for all claims.
- Conflicts of interest and transparency. ECON disagrees with the Commission that there is a need to introduce mandatory disclosure of the status of direct insurers and intermediaries, but states that it is worth considering. Significantly, ECON removes the provisions requiring intermediaries to disclose the nature and amount of the remuneration received. Intermediaries will however, prior to concluding any insurance contract, have to disclose whether they are working on the basis of a fee or a commission. Furthermore, ECON removes the requirement that insurers or intermediaries provide customers with information about any variable remuneration that any employee will receive for distributing or managing insurance products. Given the existing disparities in the EU insurance market, ECON grants member states the freedom to introduce disclosure requirements over and above those suggested in its draft.
- Cross-selling. ECON rejects the Commission’s suggestion that cross-selling (tying or bundling products) can lead to inadequate consideration of consumers’ interests. ECON’s proposal states that “cross-selling practices are a common and perfectly appropriate strategy for retail financial service providers” in the EU. Consequently, tying is allowed under article 21. The obligation to offer products sold as a package separately is removed. Insurers and intermediaries are simply required to inform customers if parts of the package are available to purchase separately.
- Insurance investments products. ECON argues the distinction between insurance and purely investment products must be taken into account. For insurance investment products only, insurers and intermediaries should be obliged to inform the customer about the costs and fees applicable to the product. Again ECON proposes that member states should be given the freedom to introduce additional measures in relation to insurance investment products, provided they are kept in proportion to the level of consumer protection being sought.
- Delegated acts and level of harmonisation. ECON proposes removing the Commission’s power to adopt delegated acts under articles 8, 17, 23, 24 and 25. The general view is that delegated acts can complicate the directive structure. ECON argues that IMD2 should be clear and simple and instead proposes allowing member states to determine the detailed arrangements in areas such as professional qualification requirements. As a minimum harmonisation directive, member states will have greater flexibility in applying the regime in accordance with their perceived market requirements.
In addition, ECON imposes less onerous requirements under Chapter VI in relation to information requirements and conduct of business rules. Undertakings are no longer required to act “honestly and fairly” and "in the best interests of its customers". Instead, undertakings must act “professionally in accordance with the interests of its customers”. Similarly, information provided to the customer must be clear and not misleading but is not required to be fair. Insurers and intermediaries are likely to welcome these changes which effectively reduce their liability exposure.
A further change provides that, where direct insurers or intermediaries are using only distance communication channels (i.e. online) to conclude insurance contracts, the requirement to specify the underlying reasons for any advice given will not apply.
Finally, in relation to breaches, ECON has removed the provision allowing member states to impose an administrative sanction of up to 10 per cent of a firm’s total annual turnover. This had been particularly controversial because, in the event that a subsidiary was in breach, the sanction would be applied to the annual turnover of the parent undertaking. Instead, ECON states that pecuniary sanctions will be decided by member states in line with the range of penalties applied by the national supervisory authority.
For further information: ECON draft report on IMD2