6(6)
European Commission
DG Internal Market and Services
Reference Public Consultation on the Review of the Insurance Mediation Directive (IMD)
Response to the consultation
In November 2010, the European Commission launched a public consultation on the review of the Insurance Mediation Directive and invited all interested parties to respond to the consultation by 28.2.2011. As a response to the consultation, we would like to present the following comments.
1. Introduction
We welcome the Commission initiative to reform the Directive 2002/92/EC on insurance mediation (IMD). The Commission is drafting horizontal provisions that as a rule would cover all the distribution channels for insurance products. According to the Commission’s consultation document, the scope of the new IMD would be significantly broader than that of the current IMD, which applies to insurance brokers and agents only.
We find that the new provisions would have an important effect on both the equal treatment of market players and on the promotion of consumer protection.
The Commission has launched three concurrent and closely linked consultations: the consultations on the IMD reform, the PRIPs (Packaged Retail Investment Products), and the MiFID (Markets in Financial Instruments Directive). The interplay between these consultations is illustrated for example by the Commission proposal - significant already in itself - to apply MiFID-inspired sales practices also to insurance products.
As the interaction between these initiatives is still not fully clear, we stress that at this stage these consultation responses can be only preliminary and general in nature.
2. The Finnish Act on Insurance Mediation
In Finland, the IMD has been implemented through the Act on Insurance Mediation (570/2005) that entered into force on 1 September 2005. In the Act, insurance mediators are divided into insurance brokers and agents. Insurance brokers are independent from the insurance undertakings and operate on the basis of the fee agreement they have entered with the client. Agents, on the other hand, operate on behalf of the insurance undertakings, which also are responsible for the agents’ actions. The Act on Insurance Mediation is based on the principle that insurance brokers represent the client and are independent from the insurance undertakings.
The application of the Finnish Act on Insurance Mediation has been actively discussed, and thus Finland follows closely the progress of the IMD reform and looks out for any potential measures following the reform.
Detailed answers
3.1 Policy objectives
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?
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.
A 1–2
It is important for consumer protection that sufficient pre-contractual information is provided to clients irrespective of the distribution channel. The IMD Article 12 does not, however, in its present form cover direct sale situations. For example, the obligation to fair analysis cannot be extended to direct sales. Finland supports rules that place sufficiently equal requirements on all channels.
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.
A 3
We consider that the IMD should be based on the principle of minimum harmonisation and that the possibility for Member States to impose stricter information requirements should be maintained. Due to the divergences of insurance products and various selling situations as well as possible future innovations in this sector, a single set of information requirements fit for all is unlikely to be achievable. Flexibility is needed also to enable Member States at least to retain higher national levels of consumer protection where these already apply.
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.
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 be appropriate? Please provide reasons for your reply.
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?
A 7. What practical measures could be envisaged for reducing the administrative burden in this area?
A 4–7
If the general principles of the provisions covering the investment products (e.g. MiFID) were applied to insurance products, it would be important to ensure that they take into account the special characteristics of the insurance products. Moreover, we consider it important that the possible new provisions would not increase the administrative burden.
Regarding insurance products other than PRIPs, the concept of advice might be difficult to define. Further, it is not always possible to distinguish advice from the general obligation to provide information. The client must always receive sufficient pre-contractual information. Some simple insurance products, possibly in connection with some other products or commodities, could be sold without advice. Even then, however, consumer protection issues must be taken into account.
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?
B 2. How could these principles be reconciled for all participants involved in the selling of insurance products?
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.
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?
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?
B. 6. What conditions should apply to disclosure of information on remuneration?
B. 7. What types/kinds of remuneration need to be included in the information on remuneration?
B 1–7
Finland follows with interest the debate and initiatives regarding ways to efficiently prevent potential conflicts of interest. Transparency of fees and the publication of all information on fees are high level principles that Finland endorses.
It is of key importance for consumer protection that the high level principles apply to all actors taking part in the sales and also in the mediation of insurance products. On the other, it is important to take into account the national differences in the structure of insurance markets and distribution systems. For example, agents are an integral part of the sales network of insurance undertakings as they represent the undertakings and they are in the responsibility of the undertakings. On the other hand, brokers are independent actors and represent their clients. When implementing the insurance mediation directive in Finland, a distinction was made between the distribution channels. The law was written to include a provision to the effect that a broker may accept remuneration from the customer only.
The MiFID Level 1 regime could be a good foundation for the prevention of conflicts of interest and for clarifying the sale of insurance products, taking into account the nature of insurance products and consumer protection.
It should be noted, however, that some insurance intermediaries also provide licensed investment services. For example, the fees of an insurance broker / provider of investment services can vary depending on which provisions apply to the activity practiced. From the client’s point of view, it is not clear which provisions and which practices apply. Here further transparency could be endorsed.
The client should be informed of all the expenses regarding insurance mediation and insurance contracts. In general, Finland endorses all practices that ensure the sustainability of the insurance system and safeguard the interests of the policy holders.
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.)
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?
C 1–2
Concerning the question whether the professional requirements would also apply to employees in insurance undertakings, we find that the requirements should take into account the characteristics of the distribution channel: for example, it is common that insurance undertakings are responsible for the eligibility and skills of their employees as well as for the information provided in the selling of insurance products. Moreover, some administrative requirements, such as agent registration, should not be extended to employees of insurance undertakings.
We are in favour of the proposal that the definition of the scope of the IMD would be activity-based, since the current provisions on exemptions, based on the type of professions, increase the administrative burden. We think that the registration obligation for the car dealers could be reconsidered.
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?
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?
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?
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?
C 3–6
We refer to our response in A 4-7. Furthermore, the situations described in Question C 4 could be excluded from the scope of the IMD, if the sole purpose is to provide information and if the consumer is not prompted to buy the product.
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 CEIOPS, in the text of the IMD?
D 2. Is there a need to further clarify the rules regarding freedom of establishment (FOE) and integrate these rules in the IMD?
D 3. How can the notification process be made more efficient and useful?
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?
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.
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?
D 7. Would the integration of the CEIOPS Luxembourg Protocol clause on mutual recognition in a revised IMD be useful in this respect?
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?
D 1–8
The promotion of this type of regulations is welcome as long as the characteristics of the insurance products are taken into account. Introducing an electronic notification process and online publication of information could improve the efficiency of cross-border service provision.
The national supervisor in Finland has not discerned any significant problems in the cross-border insurance services.
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?
E 2. Should these requirements be adapted according to the distribution channel? If so, how?
E 1–2
It is important for consumer protection that selling of insurance products is always based on sufficient professional skills. We are in favour of paying further attention to this question in the upcoming work in this field.
3.2 Distribution of insurance PRIPs (investments packaged as life insurance policies)
1. What practical challenges do you think should be addressed when drafting new legislation on the distribution of insurance PRIPs?
2. What are the most important practical issues to be considered when applying the MiFID benchmark to the selling of insurance PRIPs?
1–2
We consider that it is in the interests of the consumers that the level playing field is applied to all investment products. In this case, it is, however, of particular importance to take into account the characteristics of the insurance products. Particular attention would be needed in drawing the line between PRIPs and non-PRIPs.
The MiFID Level 1 regime is a good foundation for the prevention of conflicts of interest and for clarifying the sale of insurance products, taking into account the nature of insurance products and consumer protection.