The EU Directive governing the regulation of insurance intermediaries is likely to change in 2011 following the conclusion of the Commission’s consultation on insurance mediation.
The Insurance Mediation Directive (2002/92/EC) (“IMD” or “Directive”) was adopted on 9 December 2002 and was transposed into Irish law in January 2005. It introduced a Europe-wide regime for insurance intermediaries, setting out principles of the single European passport and basic standards of consumer protection in respect of insurance intermediation.
The implementation of the Directive in Ireland has not been without controversy, as the Directive definition of what constitutes “insurance mediation” is so broad that it catches outsourced support functions and back-office activities that do not sit between the insurer and the customer in the value chain.
In a report published in March 2007, the Committee of European Insurance and Occupational Pensions Supervisor (CEIOPS) highlighted Commission findings that the implementation of the Directive varied considerably between Member States. The Commission had even received complaints regarding alleged wrongful transposition of the Directive in three Member States.
The Commission launched a review of the IMD in January 2010 following which it published a consultation paper inviting comments on the IMD and on a number of possible changes. The consultation period closed at the end of February 2011. It is currently anticipated that a new IMD will be adopted by the Commission during the fourth quarter of 2011.
The consultation process covered a number of key areas where the Commission believes there are opportunities for improvement and modernisation. Those likely to be of specific relevance to Irish insurance intermediaries are:
- the scope of mediation activity
- the professional requirements of a regulated intermediary
- cross-border issues
- selling practices; and
- consumer protection.
Scope of Mediation Activity
Clarity around the scope of the IMD would be very welcome from an Irish perspective given the breadth of the definition of insurance mediation as set out in the Irish regulations. Unlike the position in the UK, the concepts of an introducer or an appointed representative were not included in the Irish regulations meaning that it is often difficult to determine whether limited promotional and introductory activities which are a number of steps removed from the entry into an insurance policy fall within the scope of the regulations.
The Commission proposes to remove the reference to “introducing” potential customers from the definition of mediation activity. It is also proposed that the new IMD will apply to direct sales by insurers, in addition to sales on an insurer’s behalf. This proposal arises as the Commission believes that consumers who purchase policies directly from insurers are currently at a disadvantage to those buying through intermediaries that are the subject of the IMD.
The Commission wishes to harmonise the knowledge and ability requirements applying to those selling insurance products by establishing basic common principles for professional requirements, regardless of the method of distribution.
As Irish insurers and insurance intermediaries are already required to ensure that their sales staff satisfy the Central Bank of Ireland’s (“CBoI”) minimum competency requirements it is to be hoped that any professional requirements introduced into Irish law would be consistent with the applicable existing requirements.
The current notification process for Irish authorised insurance intermediaries who wish to carry on cross-border activities requires those intermediaries to wait for at least 30 days following receipt of authorisation from the CBoI before they commence those activities.
The Commission wishes to modernise the notification system throughout the EU. The current system is considered burdensome and does not encourage cross-border insurance mediation business. The process for passporting under the IMD is likely to become more efficient and transparent, based on the principle of registration with a home Member State. The Commission also intends to integrate the definition of Freedom of Services and Freedom of Establishment into the IMD in order to make the cross-border insurance mediation process more effective.
Guidance around the distinction between freedom of establishment and freedom of services is to be hoped for. At a practical level under the current Directive it can be difficult to distinguish between activities which tend to characterisation as a branch (freedom of establish) and those which tend to characterisation as services (freedom of services).
Various different selling practices have been introduced throughout the Member States in respect of the sale of insurance policies. Some Member States have introduced additional requirements on the distribution of insurance products to those provided for in the IMD while other Member States have left this area unregulated.
A more consistent approach throughout the Member States would be beneficial to Irish insurance intermediaries who operate on a cross-border basis. Under the current system an Irish insurance intermediary carrying on insurance mediation activities in another Member State is required to comply with the mandatory selling requirements contained in the Irish regulations even where those requirements are stricter than the local selling requirements. This clearly puts the Irish intermediary at a disadvantage to local operators.
It is proposed that the new Directive would contain provisions in relation to the transparency of insurance which would affect the distribution of all insurance products. There are currently no provisions in the IMD dealing with remuneration leaving Member States free to impose their own remuneration requirements on those selling insurance products. The Commission is considering imposing requirements in respect of the disclosure of brokers’ remuneration. In Ireland, the CBoI’s Consumer Protection Code requires a regulated entity to provide a consumer with details of all charges which will be passed on to the consumer. In certain cases it can be difficult to determine whether the a commission to be paid to an intermediary is a charge for the purpose of the Code. Further clarity around this area would be welcomed.