Gabriel Bernardino, Chairman of EIOPA, has suggested various methods of enhancing consumer protection in insurance investment products. In a letter to Jonathan Faull, Director General of the European Commission dated 19 September 2013, Mr Bernardino states that, in order to reinforce the protection of policyholders’ interests and promote a higher level of protection for consumers, it is crucial that EU legislation includes specific rules on conflicts of interest and the assessment of suitability and appropriateness of the sale of insurance investment products.
Mr Bernardino is supportive of the general objectives of enhancing cross-sectoral consistency and ensuring a level playing field for financial institutions by having in the Insurance Mediation Directive (IMD) provisions similar to those contained in MiFID II. However, he expressed concern about the potential for a lack of regulatory consistency and the detrimental impact this could have on consumer protection if provisions on the sale of insurance investment products are included under the scope of MiFID II. In his view, this would increase the risk of such products being sold in accordance with sub-optimal requirements, which could potentially have a detrimental impact on consumers.
Mr Bernardino provides the following three examples as to why he believes the inclusion of rules on the sale of insurance products with an investment element under the regime of the IMD is preferential:
- Keeping the rules on the sale of insurance packaged retail investment products (PRIPs) in legislation designed for diverse forms of insurance distribution;
- Avoiding MiFID-style client categorisation; and
- Maintaining the “demands and needs” test.
With negotiations on IMD II ongoing, Mr Bernardino suggests that a possible way forward could be to include in the current MiFID II legislative process a number of simple amendments to the existing IMD I so as to include provisions on the sale of insurance PRIPs, which are similar to those contained in MiFID II. This, he explains, would have the benefit of keeping the sale of insurance-based investments within the regulation of insurance mediation while at the same time preventing regulatory arbitrage. Proposed draft wording is included in an annex to the letter.
Please click here to view the letter in full.
By way of further update on IMD II, it has recently been confirmed that the European Parliament's consideration of IMD II will take place during its plenary session between 13 and 16 January 2014 and not 9 and 12 December 2013 as previously scheduled.