Progress has been made recently with the Council of the European Union agreeing its general approach on the Insurance Mediation Directive 2 (“IMD2”) on 5 November 2014. This allows negotiations to begin with the European Parliament.
The European Commission originally presented a proposal for a revised insurance mediation directive in July 2012 and, following initial amendments by the European Parliament, the Council of the European Union has since prepared six compromise proposals. It is the sixth compromise proposal, published on 28 October 2014, which has led to an agreement and is the basis for discussions with the European Parliament.
Once the proposal has been approved and the directive has been adopted, member states will have two years in which to transpose it into national laws and regulations. At the current rate of progress this means that member states will have until early 2017 to implement the IMD2 requirements into national law. As the directive is aimed at minimum harmonization, member states will not be prevented from “gold-plating” (or applying more stringent provisions than) the requirements specified under IMD2.
IMD2 will be introducing a number of important reforms relating to the distribution of insurance. The directive is designed to improve EU regulation in the retail insurance market, increase consumer protection and to improve consistency between the regimes operating in the different member states.
In the UK, HM Treasury gold-plated a number of the requirements when implementing IMD(1) in 2005. This means that, in a number of areas, the UK intermediary regime already incorporates a number of the requirements that are now being implemented by IMD2 (for example in terms of point of sale disclosure requirements).
Over the next few weeks we will be publishing a number of blogs highlighting some of the key changes and areas of debate relative to the UK insurance intermediary regime.
Topics will include:
- Scope:- IMD2 seeks to expand the scope of the insurance mediation directive to cover all sales of insurance products – it will cover sales by insurance intermediaries like brokers or MGAs as well as direct sales by insurers. The directive will introduce a “light touch” authorisation regime for intermediaries that sell insurance products on an ancillary basis.
- Product and selling requirements:- IMD2 introduces a number of detailed provisions regarding point of sale disclosure and advising requirements, advisor training and on-line sales information requirements. Additionally, there are specific rules in relation to product governance for insurers and intermediaries that “manufacture” insurance products.
- Bundled products:- cross-selling practices and tied financial services have come under scrutiny. Intermediaries (in particular high street banks) and insurers that sell insurance bundled together with another product or services will face more stringent product disclosure requirements – the UK regime currently imposes similar requirements for added value current accounts but IMD2 is set to expand the application of these requirements to other tied/bundled financial services.
- Conflicts of interest and remuneration:- IMD2 introduces rules covering the management of conflicts of interest and the disclosure of remuneration received by insurance intermediaries. While the first IMD2 draft originally included mandatory commission and remuneration disclosure requirements those requirements have since been watered down. As it presently stands, IMD2 will require intermediaries to disclose to customers the nature of their remuneration and the specific amount of any fee that the customer is required to pay. IMD2 also includes provisions concerning employee remuneration which seeks to ensure that the quality of sales advice is not compromised by employee remuneration schemes.
- Cross-border trade:- there will be a simplification of the procedure for cross-border entry to insurance markets across the EU with the establishment of a single electronic database of insurance intermediaries.