On 15 November 2016, the International Association of Insurance Supervisors (IAIS) published its application paper (the Paper) on approaches to supervising the conduct of intermediaries. The Paper provides its members, who include the Prudential Regulation Authority and the Financial Conduct Authority, with a range of approaches to apply to its supervisory regime and in turn to promote the role of the insurance intermediary.
The IAIS is a voluntary organisation responsible for promoting an effective and globally consistent approach to the supervision of the insurance industry for the protection of customers/policyholders. On account of this objective, the IAIS works with other international bodies such as the Financial Stability Board and the International Organisation of Securities Commission, who promote and develop principles or standards for the global financial system.
Insurance intermediaries are recognised as playing a key role between the customer/policyholder and the insurer and from a supervisory perspective are seen as being able to build public trust and confidence in the insurance sector. For the IAIS, this is largely helped by supervisors and their entry requirements, e.g. licensing and conduct requirements.
Section 3 of the Paper discusses the approaches of interest for insurance supervisors. The IAIS describes the approaches as “relevant considerations”, which on reading are not uncommon or new to the existing approach taken by the FCA. Some of these “considerations” include:
- Tri-partite relationship: intermediation by its nature means that the intermediary acts as a “go-between” for the insurer and the customer/policyholder. Supervisors are asked to consider this relationship and ensure their framework takes account of this to ensure the fair treatment of customers/policyholders.
- Proportionality principle: the supervisory framework should take account of the nature and scale of the insurers operating in a particular jurisdiction as well as the range and complexity of the insurance products offered to different types of customers. Interestingly, this approach notes that the licensing and supervisory requirements should not pose unreasonable barriers to entry for emerging intermediaries.
- Broker vs. Agents models: the legal framework in some jurisdictions differentiate between brokers and agents. Where this distinction applies, the common approach is to consider the insurer as responsible for the conduct of its agent and brokers as acting for the customer.
- Licensing requirements: traditional regulatory requirements and licensing categories may need to be reviewed and adapted to accommodate new business models and new insurance distribution methods.
The Paper may be of use to some supervisors and regulators but it seems that its main aim was to gather insight into supervisory practices across a range of jurisdictions and understand the challenges faced by supervising insurance intermediaries.
In view of the incoming changes to insurance mediation brought on by the Insurance Distribution Directive (IDD), European supervisors and regulators may wish to consider the approaches that promote good conduct of business as discussed in section 4 of the Paper to assist with their implementation of the IDD.