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FERMA's response to the Insurance Mediation Directive (IMD)
 

FERMA's response to the Insurance Mediation Directive (IMD)

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The Federation of European Risk Management Associations (FERMA) welcomes the oppotunity to contribute to the consultation launched by the Internal market and Servicdes Directorate General of the ...

The Federation of European Risk Management Associations (FERMA) welcomes the oppotunity to contribute to the consultation launched by the Internal market and Servicdes Directorate General of the European Commission.

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    FERMA's response to the Insurance Mediation Directive (IMD) FERMA's response to the Insurance Mediation Directive (IMD) Document Transcript

    • FEDERATION OF EUROPEAN RISK MANAGEMENT ASSOCIATIONS FEDERATION EUROPEENNE DE RISK MANAGEMENT, aisbl. February 28, 2011 European Commission Internal Market and Services Directorate General Rue de la Loi, 200 1049 Brussels BelgiumBy e-mail onlyDear Sirs,Re: FERMA response to the consultation document on the review of the Insurance MediationDirective (IMD)The Federation of European Risk Management Associations (FERMA) welcomes the opportunity tocontribute to the consultation launched by the Internal Market and Services Directorate General of theEuropean Commission.FERMA brings together 19 national risk management associations in 17 European countries. FERMA hasover 4,000 individual members representing a wide range of business sectors from major industrial andcommercial companies to financial institutions and local government organizations. Their members play acrucial role within their companies with respect to the management and treatment of complex risks andinsurance issues.FERMA and the European Federation of Insurance Intermediaries (BIPAR) have signed in November2010 a protocol on the transparency of intermediation in business insurance (“the Protocol”). Bothfederations recommend their respective member associations to use this protocol as a guiding frameworkto enable them to agree and issue guidance on intermediary transparency on a national level.The existence of this Protocol shows the need to regulate relationship between corporate buyers ofinsurance and their intermediaries. It reflects that a consensus can be reached with no great difficulties.However we recognize the main limit of this document in the sense that it is not binding and its applicationis left to the goodwill of both parties. Although it is expected to be transposed at national level bymembers of the two federations, there is no guarantee of a uniform application. The review of the IMDrepresents therefore a unique opportunity to incorporate undisputed standards of transparency intobinding European legislation. This would address the concerns raised by DG competition in its 2007business insurance inquiry. • AVENUE LOUIS GRIBAUMONT, 1 • B - 1150 BRUSSELS • BELGIUM • Tel:+ 32-2- 761 94 32• Fax:+ 32-2- 771 87 20• Email: info@FERMA.eu • Website: www.FERMA.eu
    • FEDERATION OF EUROPEAN RISK MANAGEMENT ASSOCIATIONS FEDERATION EUROPEENNE DE RISK MANAGEMENT, aisbl.Furthermore, it is not entirely clear whether, for large risks, the Protocol would close the loophole with theapproach already suggested by CEIOPS in its advice to the Commission in relation to the treatment ofconflicts of interest. While the Protocol is limited to the disclosure of potential conflicts of interest, CEIOPSgoes one step further to suggest that “if the conflict of interest is not manageable or avoidable, theintermediary should consider, according to a set of pre-defined principles, whether or not he is able to actin the customers’ best interest and whether to refuse business”. (See Recommendation 30 of theCEIOPS Advice at pages 12 and 13). CEIOPS also suggests leaving open the possibility for stricternational rules, including a blanket prohibition when the conflict of interest is deemed unmanageable.Indeed, CEIOPS’ Advice would fall short of a minimum level playing field on disclosure remunerationstandards for large risks for at least two reasons: (1) In the absence of EU minimum standards, someMember States may well continue to consider that there is no need to introduce any national rules ondisclosure for large risks; and (2) some other Member States may introduce (or maintain) less stringentrules than those set out in the Protocol. The effective application of the Protocol between FERMA andBIPAR could be jeopardized if none of its core principles are adopted as minimum binding EU standardsas part of the imminent revision of the IMD.FERMA’s comments below reflect the positions taken in this Protocol. FERMA has elected to respondonly to questions most pertinent to the members it represents. The references are the ones used in theconsultation document.A. A high and consistent level of policy holder protection embodied in EU lawQuestion A 2. Should the exemption from information requirements for large risk insuranceproducts as laid down in Article 12 (4) of the IMD be retained?FERMA does not believe that this exemption should be retained for the following reasons:1. The definition of large risks in the Directive is outdated. It was first used for the application of the Freedom of Services Directive but no longer reflects the way intermediaries classify their customer base. These customers should rather be addressed as individuals (“Personal lines”), SMEs and other smaller entities (“Middle markets”) and corporate buyers of insurance (“Large accounts”). In our view, large risk insurance products are addressed to the third category.2. Corporate buyers of insurance, to a large majority, use insurance brokers for the placement of their insurance. Although more professional in their business transactions, they require the same level of transparency as the other consumers. In particular, they should be entitled to receive financial information regarding any type of remuneration received by an intermediary, whether this remuneration is based on the volume or profitability of the insurance business placed, or any other form of commission, work transfer payments, overrides, bonuses etc.3. Disclosure of remuneration had been raised by DG Competition of the Commission in its business insurance inquiry back in 2007. At that time, the Commission considered that “disclosure of relevant information by intermediaries, in relation to remuneration received from insurers and services provided to insurers, may help mitigate conflicts of interest. At present, even where disclosure takes place, it does not always appear to be complete, clear and understandable to the client. In the light of similar situations that arise in other financial sectors, notably in securities and banking, it is questionable, however, if disclosure alone is sufficient to mitigate conflicts of interest, in particular in relation to those types of remuneration that specifically aim at aligning the interest of brokers with that of insurers” (Commission Communication of September 25, 2007 at paragraph 22). • AVENUE LOUIS GRIBAUMONT, 1 • B - 1150 BRUSSELS • BELGIUM • Tel:+ 32-2- 761 94 32• Fax:+ 32-2- 771 87 20• Email: info@FERMA.eu • Website: www.FERMA.eu
    • FEDERATION OF EUROPEAN RISK MANAGEMENT ASSOCIATIONS FEDERATION EUROPEENNE DE RISK MANAGEMENT, aisbl.4. It is our opinion that the principles below outlined in the Protocol signed between FERMA and the BIPAR should be included in the Directive as minimum standards to reduce conflicts of interests and increase transparency in the business insurance sector for the reasons explained above.B. Effective management of conflicts of interests and transparencyQuestion B 1. What high level principles would you propose to effectively manage conflicts ofinterest, taking into account the differences between investments packaged as life insurancepolicies and other categories of insurance products?The following principles are proposed: • Intermediaries should identify, manage and mitigate any potential conflict of interest in an appropriate and transparent manner. • They should provide clear and fair information on the nature of their services and the capacity in which they operate, including any underwriting powers and delegated authorities they may hold from insurers, so that business clients can make informed decisions on the purchase of insurance products. • They should voluntarily inform their clients about the nature of the remuneration directly related to the placing and servicing of the insurance contract, for example whether they are paid a fee or receive commission. • They should disclose the amount of this direct remuneration on request from the client. • Also on request from the client, they should give generic information about other types of payments they may receive from insurers if the business insurance contract of the client is part of the calculation of these payments.Question B 2. How could these principles be reconciled for all participants involved in the sellingof insurance products?These high level principles, although originally intended for intermediaries dealing with large risks, aresufficiently general in scope to be extended to all participants if necessary.Question B 3. Do you agree that the MiFID Level 1 regime could be regarded as starting point forthe management of conflicts of interests? If not, please explain why.FERMA agrees that the MiFID Level 1 regime could be a good starting point for the management ofconflicts of interests. A review of the consultation paper on MiFID is indicative that the Commission islooking to toughen up the investor protection provisions. The Commission seems concerned that clientscurrently considered per se professional have not been immune to misunderstanding and mis-selling. TheCommission refers to local authorities, municipalities and some corporate clients. They seek views onwhether the revised MiFID should remove certain professional clients, such as local authorities andmunicipalities, from the category; or whether more rigor should be introduced for professional clientsoverall. If this is the policy trend, it seems unrealistic to continue to not offer some form of protectionunder IMD for large corporate buyers, including local authorities and municipalities.Question B 5. Do you agree that all insurance intermediaries should have the right to be treatedequally in terms of the structure of their remuneration, e.g. that brokers should be allowed toreceive commissions from insurance undertakings as insurance agents? • AVENUE LOUIS GRIBAUMONT, 1 • B - 1150 BRUSSELS • BELGIUM • Tel:+ 32-2- 761 94 32• Fax:+ 32-2- 771 87 20• Email: info@FERMA.eu • Website: www.FERMA.eu
    • FEDERATION OF EUROPEAN RISK MANAGEMENT ASSOCIATIONS FEDERATION EUROPEENNE DE RISK MANAGEMENT, aisbl aisbl.Yes to the extent that if brokers receive commissions from insurance undertakings these commissionsshould be disclosed to their clients upon req request.Question B. 6. What conditions should apply to disclosure of information on remuneration?Intermediaries should, identify manage and mitigate potential conflicts of interest in an appropriate andtransparent manner. In order to do so, intermediaries will provide fair and clear information to theirbusiness clients about:1. The nature of their services and the capacity in which they operate so that business clients can make irinformed decisions about the purchase of insurance products.2. Any underwriting powers and delegated authorities they may hold from insurers in relation to thecontract.3. The nature of the remuneration they receive for placing and servicing the business insurance contracts.Question B. 7. What types/kinds of remuneration need to be included in the information onremuneration?Intermediaries will inform clients if: a. they operate on the basis of fees and / or b. the remuneration is included in the premium and / or c. remuneration involves a combination theseFurthermore, upon request, intermediaries will provide information about: • The amount or (as appropriate) the basis of the calculation of any remuneration included in the appropriate) premium directly related to the placing and servicing of each business insurance contract. • Any types of payment received by the intermediary* from the insurer* (other than payment payments directly related to placing and servicing) that take into consideration the business insurance contract as part of the calculation of the payments. The intermediary will give a generic description of the nature of the agreement that gives rise to these payments. payments. * including its parent company and / or subsidiary and / or affiliated companyYours faithfully,Peter den DekkerPresident • AVENUE LOUIS GRIBAUMONT, 1 • B - 1150 BRUSSELS • BELGIUM • Tel:+ 32-2- 761 94 32• Fax:+ 32 771 87 20• Email: info@FERMA.eu • Website: www.FERMA.eu 32-2-