In the past month, the Council of the European Union (EU) has published two Presidency compromise texts of the revised Insurance Mediation Directive (IMD2) indicating that trialogue negotiations have resumed.
There have been a number of changes made to the proposals since the European Commission (the Commission) first published a proposal for IMD2 in July 2012.
The points to note from the latest texts of IMD2 are:
- A general principle to act in the best interests of the customer has remained.
- The name of the directive has changed to reflect the focus on regulating the distribution of insurance products and is therefore called the Directive on insurance distribution, rather than mediation. Insurance ‘distributors’ include both brokers and other intermediaries (both ‘intermediaries’ under IMD2) and insurers and reinsurers.
- Intermediaries and distributors who manufacture insurance products should operate and regularly review processes for the approval of the product and any adaptations before being distributed to customers. This approval process should specify a target market for each product and ensure that any risks to the market are properly assessed. Where a distributor sells a product which it has not manufactured, it should ensure that it has in place adequate arrangements to obtain sufficient information about the product. The Commission will publish a delegated act (a secondary level of EU legislation written by the Commission) to set out further detail on the requirements for product governance.
- As with previous proposals since the Commission’s first draft, there is no obligation to disclose the amount of any commission paid or received, only the requirement to disclose the nature or basis of any commission or fee (or combination of both). In addition, insurers will be required to communicate to customers the nature of any remuneration received by its employees in relation to the sale of the contract.
Next steps for the IMD?
Trialogue negotiations are expected to continue in the final quarter of 2014 with a view to adopting IMD2 in early 2015. Once adopted, the European Commission will begin drafting the various delegated acts that will provide more detailed information on conflicts of interest, product governance and the assessment of suitability of insurance-based investments.
IMD2 is likely to be in force during the first quarter of 2017.