The European Parliament voted on various amendments to the draft Insurance Mediation Directive (or “IMD2”) on February 26, but did not vote on the underlying legislation as a whole. The IMD2 procedure file had indicated that the Parliament would vote either to accept or amend the text before the first Council reading. By voting on the amendments, Parliament has reaffirmed its position while leaving open the possibility of negotiating a first-reading agreement.
Trialogue discussion on IMD2 is not expected to resume before the elections for the new Parliament (due to take place in May 2014). The legislative timeline is now uncertain. Commissioner Barnier has indicated that there is still some way to go but expects agreement to be reached by the end of the year at the latest.
The amendments adopted by the Parliament were made to the latest iteration of the IMD2 text produced by the Parliamentary Committee on Economic and Monetary Affairs (ECON) published on February 4. ECON’s draft included a number of ignificant changes to the original proposal following considerable negotiation. Proposed changes that have been adopted by the Parliament include:
- Scope. The scope of the proposed IMD2 no longer extends to claims managers, loss adjusters or the expert appraisal of claims. Insurers and reinsurers selling directly to customers are brought into scope. IMD2 will not apply to those who undertake insurance mediation as an ancillary activity to another profession so long as they do not take any additional steps to assist the customer in concluding the contract. Price comparison websites remain within the scope of regulation under IMD2.
- Commission disclosure is not mandatory, but “on request” from the customer. The payment and receipt of commission is allowed but the draft requires greater disclosure about the source of any commission (or other remuneration). This will not affect the ban on commissions under the Retail Distribution Review as Member States are given discretion to impose additional requirements. Where an insurer sells directly they will be required to disclose to the customer whether any variable remuneration is paid to employees for distributing the policy in question. This will have the effect of disclosing the nature of any incentive structures for selling the policy.
- Increased standards. IMD2 will raise the standard of professional qualifications for intermediaries and requires that at least 200 hours of continuing professional development are undertaken within a five year period (adapted proportionately for those who are not undertaking mediation as their main activity).
- Intermediaries to act “honourably”. A general principle is introduced to ensure that intermediaries “always act honestly, fairly, trustworthily, honourably and professionally in accordance with the best interests of their customers”.
- Cross selling. Tying and bundling are allowed although EIOPA is given the power to draft guidelines for the assessment of such practices. The European Parliament adopted a further provision allowing Member States to require national supervisors to adopt or maintain additional measures to address cross selling practices that are detrimental to consumers. Under the Parliament’s amendments, insurance offered as part of a package will be subject to the Unfair Commercial Practices Directive which provides a set of safeguards for customers purchasing tied or bundled products.
- Alignment with MiFID. For insurance investment products IMD2 requires that conduct of business standards are aligned with those in MiFID with the result that the two regimes are consistent. Adopted amendments provide that the European Parliament will seek to ensure the alignment of IMD2 with MiFID II both during and in its negotiations with the Council.
Points of concern
The purpose of the revision of the original IMD was to ensure that there was greater harmonisation across the EU. The latest IMD2 text, although peppered with references to ensuring a “level playing field” and minimising differences in national regimes, allows for extensive Member State discretion. This would therefore seem to undermine the very point of revising the original directive.
The introduction of an overriding duty to “act in the best interests of customers” particularly extends the liability of intermediaries and insurers selling non-life products.
It is hoped that the opportunity for further trialogue negotiation will provide much needed clarity on the final text.