Submission by the Central Bank of Ireland in response to the EU CommissionConsultation document on the Review of the Insurance Mediation Directive (IMD)
3.ELEMENTS OF THE PROPOSED APPROACH
A. A high and consistent level of policy holder protection embodied in EU law
A 1. Do you agree with the Commission services general approach outlined in the box above? Should information requirements as contained in Article 12 of the IMD be extended to direct writers taking into account the specificities of existing distribution channels?
We support the proposed approach. There should be a consistent approach across all distribution channels. Ultimately, it is the protection of policyholders that is paramount and that is best achieved by insurance companies being subject to the provisions of IMD2.
A 2. Should the exemption from information requirements for large risk insurance products as laid down in Article 12 (4) of the IMD be retained?
Please provide reasons for your reply.
We support the retention of the exemption for large risk insurance products. More sophisticated or institutional policyholders would not require the same level of information from brokers as retail policyholders due to their relative expertise.
A 3. In the context of the information requirements for the mediation of insurance products other than PRIPs, do you think that the possibility for Member States to impose stricter requirements should be maintained? Please provide reasons for your reply.
No. One of the significant weaknesses of the IMD was the inconsistency in approach to implementing national transposing legislation due to the minimum harmonisation character of the IMD. Allowing Member States this discretion may lead to the inconsistent implementation of IMD2. The standardisation of information requirements will assist the harmonised implementation of IMD2, mitigate the divergence of national conduct
of business models and promote the establishment of a Single Market for insurance and reinsurance intermediaries and a consistent level of policyholder protection across the EU.
However, the level of information required should be considered. In Ireland, regulated financial services providers are subject to the Consumer Protection Code which sets out detailed information to be provided to consumers at the outset of a firm’s relationship with the consumer. In addition to the information required under the IMD, firms must provide information about their policy in relation to conflicts of interest, action to be taken in the event of default by the consumer, a summary of the firm’s complaints procedure, details of any compensation scheme, and information about its regulatory status.
A 4. In the context of the information requirements, do you think a definition of "advice" should be introduced? Please provide reasons for your reply?
Yes, the IMD needs to provide a definition for the term ‘advice’.
A 5. If you think that a definition of advice is needed for the mediation of insurance products other than PRIPs, would a definition similar or identical to the definition in MiFID[12] be appropriate? Please provide reasons for your reply.
We would suggest a definition of advice similar to the definition in MiFID, such as “the provision of a recommendation to a consumer, based on a consideration of the consumer’s circumstances, either at the consumer’s request or at the initiative of the firm, to enter into or to become entitled to benefit under, terminate, exercise any right or option under, or take any benefit from one or more financial products”.
A 6. Do you consider that certain insurance products (other than PRIPs) can be sold without advice? If yes, which products would you have in mind and how could possible detriment for consumers be mitigated?
Any products potentially could be sold without advice. In order to mitigate detriment to consumers, the conduct of business rules should apply to both advised and non-advised sales. There should be no exemption from the conduct of business rules except where the consumer has specified both the product and the product provider and has not received any advice from the regulated firm or engaged in any discussion about the product with the regulated firm.
A 7. What practical measures could be envisaged for reducing the administrative burden in this area?
We do not believe that the administrative burden is unreasonable.
B. Effective management of conflicts of interests and transparency
B 1. What high level principles would you propose to effectively manage conflicts of interest, taking into account the differences between investments packaged as life insurance policies and other categories of insurance products?
Regardless of the distribution channel, all potential conflicts of interest need to be disclosed including those relating to remuneration (commission). In relation to remuneration disclosure, direct sales providers such as insurance companies already calculate a figure for Critical Operating Ratio “COR”. This identifies the profit element of the sale by deducting premiums, claims set off and expenses (cost of distribution).
B 2. How could these principles be reconciled for all participants involved in the selling of insurance products?
The MIFID level 1 regime should be the starting point for IMD conflicts of interest mainly for consistency purposes. To try to harmonise the requirements for different products should help firms with meeting compliance as one set of rules would apply to all product sales.
B 3. Do you agree that the MiFID Level 1 regime could be regarded as starting point for the management of conflicts of interests? If not, please explain why.
We believe that the high level principles contained in MiFID should be included in the IMD. These requirements relate to the management and disclosure of conflicts of interest and could be applied equally to any type of regulated firm.
B.4. How can the transparency of remuneration in the sale of non-PRIPS insurance policies be improved for all participants involved in the selling of insurance products, taking into account the need for a level playing field?
In Ireland, under the Life Assurance (Provision of Information) Regulations 2001, regulated firms are required to disclose information on remuneration in respect of life assurance policies.
In addition, the Consumer Protection Code, which has been in place since 2006, is currently being reviewed. The following proposed requirements have been included in a consultation paper setting out proposed amendments to the Code:
INFORMATION ABOUT remuneration
- Prior to offering, arranging or providing a product or service other than a non-life insurance product or service, a regulated entity must disclose in writing to a consumer the existence, nature and amount of any fee, commission or other remuneration received or to be received from a product producer in relation to that product or service. Where the amount cannot be ascertained, the method of calculating that amount must be disclosed. The disclosure must be in a manner that is comprehensive, accurate and understandable.
- Where remuneration is received on an ongoing basis, a regulated entity must disclose in writing the nature of the service provided to the consumer in respect of this remuneration.
- In the case of non-life insurance:
a)A regulated entity must disclose in general terms that it is paid for the service provided to the consumer by means of a remuneration arrangement with the product producer.
b)Prior to the sale of a product, a regulated entity must either inform the consumer of the amount of remuneration receivable in respect of that sale or that details of remuneration are available on request.
- A regulated entity must disclose in general terms any remuneration arrangements with product producers that are not directly attributed to the service provided to an individual consumer but are based on levels of business introduced by the regulated entity to that product producer or that may be perceived as having the potential to create a conflict of interest.
- The disclosure required at Provisions 78 and 79 must be in the terms of business or through some other suitable mechanism, and with renewal notices.
- Where a regulated entity allows the consumer the option to pay for its services by means of a fee, the option of payment by fee and the amount of the fee must be explained in advance to the consumer. Where a regulated entity charges a fee and also receives commission in respect of the product or service provided to the consumer, it must explain to the consumer whether or not the commission will be offset against the fee, either in part of in full.
- A regulated entity must display a schedule of its fees in a public area of its premises.
The consultation period closed on 10 January 2011 and it is anticipated that a revised Code will come into effect in 2011.
B 5. Do you agree that all insurance intermediaries should have the right to be treated equally in terms of the structure of their remuneration, e.g. that brokers should be allowed to receive commissions from insurance undertakings as insurance agents?
In Ireland, brokers are allowed to receive commission from insurance undertakings.
B. 6. What conditions should apply to disclosure of information on remuneration?
Please see response to B4 above.
B. 7. What types/kinds of remuneration need to be included in the information on remuneration?
Please see response to B4 above.
C. Introducing clearer provisions on the scope of the IMD
C 1. In order to guarantee a real level playing field between all participants involved in the selling of insurance products, to what extent should the current IMD requirements also be applicable to direct writers and their employees? Please, specify which particular requirements should apply and reflect on the particularities of direct sales with examples (how, where, under what circumstances, etc.)
Any conduct of business requirements contained in the IMD should apply equally to intermediaries and direct sales forces of insurance undertakings.
C 2. A lack of clarity about the scope of the IMD could lead to unnecessary administrative burden. What are the possible clarifications that could be brought to the current scope of the IMD in this respect?
In relation to the scope of the IMD, it needs to become fully clear as to who it applies to and who is exempt. Elements of the standard exemption need to be clarified such as Article 1(2) (e) regarding the ‘goods supplied’ reference need further clarification. In Article 2(3), the definition of ‘’insurance mediation” needs to be clarified particularly in relation to ‘‘assisting in the administration and performance of contracts’’ in instances other than loss assessing.
There should be consistent classifications of intermediaries across the Member States. The Directive should specify the terms to be used across Member States to describe intermediaries (it should be kept simple – only a small number of terms to be used, perhaps two or three). For example, we would support the proposal to include sub-definitions of the “insurance intermediary” term by including “Brokers”. It is very important that definitions should be based on activities.
It would be useful to have a definition of independent intermediary. In Ireland, the Consumer Protection Code, which has been in place since 2006, is currently being reviewed. The following proposed requirements in relation to independent intermediaries have been included in a consultation paper setting out proposed amendments to the Code:
23.An intermediary may only describe itself as ‘independent’ where all of the following apply:
a)the intermediary provides services on the basis of a fair analysis of the market; and
b)the entity must allow the consumer the option to pay for its services in full by means of a fee; and
c)if the entity is part of a group of companies to which it directs business, it must disclose the name of the group of which it is a part.
Where the regulated entity provides an independent service for some products and a more limited service for other products, it must explain the different nature of the services in a way that seeks to inform the consumer. It must ensure that there is no ambiguity about the range of services that it provides in an independent capacity.
- Where a regulated entity allows the consumer the option to pay for its services by means of a fee, the option of payment by fee and the amount of the fee must be explained in advance to the consumer. Where a regulated entity charges a fee and also receives commission in respect of the product or service provided to the consumer, it must explain to the consumer whether or not the commission will be offset against the fee, either in part of in full.
The consultation period closed on 10 January 2011 and it is anticipated that a revised Code will come into effect in 2011.
C 3. What conditions/reasons for exemption from IMD2 should be in place taking into account the need to ensure legal certainty and consumer protection?
Introducers
Introducing should be excluded from the definition of insurance mediation. However, if it is to be retained, the Directive should clarify what is meant by introducing. There should be no conduct of business requirements where a firm is merely introducing or referring clients to another regulated firm.
Exemptions
Our preference would be for travel agents and car rental firms to be exempted.
C 4. Should a website or a person who just gives information about insurance fall under the scope of the IMD? How could the boundaries be more clearly defined in respect to insurance intermediation?
Where sales or advisory services are provided, the conduct of business rules should apply. However, we consider that price comparison web-sites should be treated the same as introducers (above) and not be considered as insurance mediation.
There should be a clear definition of ‘advice’.
C 5. Do you have examples of activities which, in the majority of Member States, fall under the IMD but which you believe should not be covered, such as sales of certain insurance products by car rental companies? Or conversely, do you have examples of activities which currently do not fall under the IMD but which should be covered?
Please see responses to C3 and C4 above.
C 6. Which particular requirements stemming from the Directive on the Distance Marketing of Financial Services (DMFS) need to be taken into account in IMD2? How does the definition of supplier in the DMFS Directive affect the definition of insurance Intermediation[16]?
We do not believe that it is necessary to repeat provisions already contained in the Distance Marketing Directive. The definition of ‘supplier’ in that Directive would not impact on the definition of insurance intermediation.
D. Increased efficiency in cross-border business
D 1. Do you agree with the inclusion of the definition of the freedom to provide services (FOS), as laid down in the Luxembourg Protocol of CEIOP[21], in the text of the IMD?
Yes.
D 2. Is there a need to further clarify the rules regarding freedom of establishment (FOE) and integrate these rules in the IMD?
There is no clarity as to what happens when a firm currently providing services on an FOE basis wants to open up a second or further branch. Does the firm have to re-notify, amend its original notification or does it have to provide any further information?
D 3. How can the notification process be made more efficient and useful?
There are no issues with the notification process as it stands. It is a simple process with a single page notification form between Member States. It would be helpful if notification could only occur where the firm actually intends to passport its services.
D 4. Do you agree that further rules on FOS and FOE should be included in a revised IMD in order to provide more legal certainty?
Consideration should be given to requiring the host State to maintain a public register of firms providing services on an FOE or FOS basis. In addition, some host Member States do not require notification when FOE or FOS firms notify their home States. Because there is no requirement to be notified some host Member States have opted accordingly.
D 5. Are there any issues with regard to the general good rules in relation to the cross-border dimension of insurance intermediation? If so, please provide further details.
Not aware of any.
D 6. What problems do insurance intermediaries face today when selling cross border? How should the IMD be amended to improve the conditions for FOE/FOS activities?
Not aware of any.
D 7. Would the integration of the CEIOPS Luxembourg Protocol clause on mutual recognition in a revised IMD be useful in this respect?
We do not consider it necessary to include this clause. We believe the Directive on mutual recognition would apply in any case.
D 8. Could provisions similar to those contained in the E-Commerce Directive regarding an appropriate and transparent use of general good rules be integrated into the IMD2?
E. Achieve a higher level of professional requirements
E 1. What high level requirements on the knowledge and ability of all participants involved in the selling of insurance products would be appropriate in view of the existing differences in the applicable qualification systems in Member States?
We believe it is important that high standards are achieved across the EU and that a common standard should apply to all financial services providers in all Member States, perhaps linked to the European Qualifications Framework standards. Member States should be able to determine which qualifications meet this standard and are appropriate for specific activities. Failing a common standard, host Member States should be able to impose the same requirements as those applying to firms authorised or registered by that Member State.
In Ireland, the Minimum Competency Requirements require regulated firms to ensure that individuals who provide advice on or sell retail financial products or who undertake certain specified activities on their behalf acquire the competencies set out in the Requirements. Specified activities include claims administration, reinsurance intermediation, management of accredited individuals and adjudicating on complaints.
The Requirements set out specific knowledge requirements for specific categories of retail financial product and we have also set out a number of qualifications which currently meet those knowledge requirements. In addition, individuals are required to undertake a programme of Continuing Professional Development (CPD) on an ongoing basis.
The qualifications recognised for the purposes of the Requirements must be at Level 7 on the National Qualifications Framework. This is equivalent to an ordinary degree level.
E 2. Should these requirements be adapted according to the distribution channel? If so, how?
There should not be a distinction between the qualifications required for different distribution channels. The consumer should be assured of the same level of expertise regardless of the type of provider that provides the service.