The European Commission has now published a provisional draft of its proposed Directive on Insurance Mediation (IMD2). This will replace the Insurance Mediation Directive of 2002 (IMD1).
IMD2 has as its ostensible purpose the improvement of the regulation of retail insurance sales and distribution practices across the single European market. That said, it will also have a significant impact on commercial insurance business, and will regulate selling practices in all areas of insurance, from general insurance products through to life insurance products.
IMD2 is intended to do the following:
- Extend the application of IMD1 beyond agents and brokers to all distribution channels. Direct sales by insurers will be covered as well as price comparison websites, claims management activities and loss adjusting
- Require all firms involved in insurance distribution to identify, manage and mitigate conflicts of interest
- Increase uniformity in approach when it comes to disciplining and sanctioning those firms that breach provisions
- Impose key conduct of business requirements on the distribution of life insurance products
- Enhance the suitability and objectivity of advice, and impose obligations that encourage jargon-free and non-legalistic coverage information
- Ensure sellers’ professional qualifications match the complexity of the products they sell
- Simplify and harmonise the procedures for cross-border entry to insurance markets across the EU
Other points to note:
- Because the Directive is one of minimum harmonisation, it will continue to be possible for individual EU countries to impose more onerous requirements. We anticipate, though, that the UK Government will avoid putting its insurance industry at a competitive disadvantage by creating a “super-equivalent” UK regime.
- IMD2 will introduce a general principle for intermediaries that they should act in the best interests of their customers and disclose the basis and amount of their remuneration. Remuneration will include not only payments (fees, commission etc) but also economic benefits of any kind. Note, however, that the disclosure rules exclude “large risks”, reinsurance and “professional customers” as defined in IMD2. This will be significant as the obligation to disclose will extend to all but the largest businesses
- Member states will be required to establish procedures for out-of-court settlement of disputes between insurance undertakings or those selling insurance products and customers. This may effectively require an ombudsman scheme to be put in place
- IMD2 will require a single electronic register of persons providing insurance mediation services. This is to be set up and run by the European Insurance and Occupational Pensions Authority (EIOPA) and will link national databases
- EIOPA’s remit is to be extended to enforcement and disciplinary issues. It is likely that EIOPA will issue guidelines to national authorities on the types of administrative measure and sanction that should apply in the event of transgressions. Uniformity in this area will encourage those who believe that, while a copy-out of EU Directives means a common rule book across member states, the existence of a level playing field is undermined by very different attitudes to the enforcement of those rules
It is anticipated that the Parliament and the Council will adopt IMD2 in 2013 and the Commission and EIOPA will work on the level 2 measures during 2013/2014. New national regimes – incorporating IMD2 into domestic law – are expected to come into force sometime in 2015.