The financial crisis emphasised the importance of effective consumer protection across all financial sectors including insurance mediation. The current Insurance Mediation Directive (IMD) (2002/92/EC) governs the selling practices for all insurance products. This includes general insurance products such as motor insurance as well as life insurance policies with investment elements such as unit-linked life insurance products.
The IMD has been implemented differently between Member States, therefore:
- EU insurance markets are currently fragmented;
- there are significant inconsistencies in the information requirements imposed on sellers of insurance products; and
- consumers are more likely to misunderstand the risks, costs and features of insurance products.
As a result, on 3 July 2012, the EU Commission adopted a Proposal for a revision of the Insurance Mediation Directive (IMD II). The aim of the Commission's Proposal is to improve consumer protection in the insurance sector through establishing common standards in the provision of insurance products and advice.
What are the key changes?
Currently, only agents and brokers are covered by the IMD. Under the new Proposal:
- The scope of the revised IMD will be extended to all sellers of insurance products, including insurance companies that sell directly to consumers. Other market players who sell insurance products on an ancillary basis such as car rental companies and travel agents will fall within the scope of the revised IMD.
- Rules that address more effectively the risk of conflicts of interest through mandating the disclosure of remuneration by intermediaries will be introduced.
- Enhanced requirements will apply to life insurance products with investment elements, standards of the sales process and the management of conflicts of interest. A ban on commission for independent advice will also be introduced.
- Once evidenced by registration and proof of professional qualifications acquired in another Member State, there will be mutual recognition of professional knowledge and experience across the Community.
- Where suppliers bundle products together, special information requirements will apply imposing an obligation to inform the consumer that there is an option to purchase either of the two products separately.
- Effective, proportionate, and dissuasive administrative sanctions and measures by competent authorities in respect of breaches will be required of Member States.
When will the new rules come into force?
The Proposal is expected to be adopted by the EU Parliament and Council during 2013. Work on subsequent technical measures to give effect to a number of elements of the Proposal will commence soon thereafter with an entry into force expected during 2015.
A link to the provisional text of the Proposal is available here.