14 Financial services: insurance
mediation
| (34089)
12407/12 + ADDs 1-2
COM (12) 360
| Draft Directive on insurance mediation (recast)
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| Legal base | Articles 53(1) and 62 TFEU; co-decision; QMV
|
| Document originated | 3 July 2012
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| Deposited in Parliament | 12 July 2012
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| Department | HM Treasury
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| Basis of consideration | EM of 5 October 2012
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| Previous Committee Report | None
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| Discussion in Council | Not known
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| Committee's assessment | Legally and politically important
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| Committee's decision | Not cleared, further information requested
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BACKGROUND
14.1 Insurance mediation is the activity of advising on, or
proposing or carrying out other work preparatory to, the conclusion
of contracts of insurance, concluding such contracts, assisting
in the administration and performance of such contracts, in particular
in the event of a claim, and professional management of claims
and loss adjusting.
14.2 In 2002, the Insurance Mediation Directive, Directive
2002/92/EC, was adopted. It aims to achieve a market throughout
the EU for insurance intermediaries. Member States were required
to implement the Directive by January 2005. The Directive required
the Council and the European Parliament to assess some of its
provisions every five years after its implementation. The review
was greatly delayed as a result of the financial crisis.
THE DOCUMENT
14.3 This draft Directive would recast (consolidate and amend)
the Insurance Mediation Directive. The Commission says the overarching
goal is to upgrade consumer protection in the insurance sector
by creating common standards across insurance sales, ensuring
proper advice, improving transparency and establishing a level
playing field across sales by insurance intermediaries and sales
by insurance undertakings.
14.4 The proposed Directive has a number of specific aims.
These are to:
- ensure the same level of consumer protection will apply, regardless
of the channel through which consumers purchase an insurance product,
with an extension of the scope of the existing Directive to cover
the direct sale of insurance ¯
whether purchasing a product directly from an insurance undertaking
or from an intermediary, the consumer would receive the same level
of protection;
- ensure consumers are provided with clear information,
in advance, about the professional status of the person selling
the insurance product ¯
rules would be introduced to address more
effectively the risks of conflicts of interest, including disclosure
of the remuneration received by sellers of insurance products;
and
- make it easier for intermediaries to operate
across borders of Member States, thus promoting the emergence
of a real internal market in insurance services.
14.5 The draft Directive is accompanied by the
Commission's impact assessment and an executive summary of the
assessment.
14.6 The draft Directive is presented as part
of the Commission's retail package that also includes the draft
Directive to amend the UCITS Directive[62]
and the draft Regulation on key information for investment products.[63]
It is expected that a further legislative proposal will follow
shortly to address the remaining imbalances in investor protection
as well as bringing wider reforms to UCITS funds.
THE
GOVERNMENT'S
VIEW
14.7 The Economic Secretary to the Treasury (Sajid
Javid) comments that:
- the Government supports the
process of reviewing the existing legislation and the objectives
to enhance consumer protection across all sellers of insurance
products;
- this will improve the balance between the goals
of consumer confidence, efficiency and legal clarity in the insurance
sector; but
- it will be important to consider that different
requirements may be appropriate for different types of firms and
to ensure requirements are proportionate to the firms in question.
14.8 The Minister continues that the proposal
contains measures designed to address conflicts of interest that
can arise during the sales process:
- intermediaries selling life
insurance would be obliged to disclose the amount of any commission
to the customer;
- intermediaries selling non-life insurance would
be required to disclose the amount of any commission on request;
- the "on request" regime would apply
for five years, after which non-life intermediaries would be subject
to a mandatory regime; and
- intermediaries and insurers would also be required
to inform the customer of the "nature and basis of calculation"
of any variable remuneration received by an employee for distributing
the product.
14.9 The Minister says that:
- the Government does not see
a strong case that mandatory commission disclosure works in practice,
as there is little evidence that it would enhance consumer protection;
- currently the UK operates an "on request"
regime for non-investment insurance ¯
the market in these products operates efficiently,
is highly competitive and there is no evidence to suggest that
there is commission bias in this area;
- the Government would prefer that an "on
request" regime continues to be permissible;
- in contrast, there is strong evidence that commission
bias can contribute to poor consumer outcomes in the sales of
packaged retail investment products (PRIPs) that cannot be addressed
through disclosure alone ¯
the Financial Services Authority (FSA) has
addressed this domestically via the Retail Distribution Review;
- the Government therefore supports the proposal
to subject sales of insurance PRIPs to stricter conduct of business
requirements to achieve the highest standards of consumer protection
and reduce the risk for regulatory arbitrage;
- however, it will be important that the additional
requirements are consistent with those in the Markets in Financial
Instruments Directive (MiFID), which determines selling practices
of non-insurance PRIPs;
- the draft Directive would prohibit tying insurance
products with one or more ancillary services (such as a bank offering
a bank account as a package with one or more insurance product)
¯ tying
insurance products to non-insurance products is common practice
in the UK and a ban could have a significant impact on the UK
market;
- as no strong case has been offered to support
a prohibition the Government will look to ensure that consideration
is given to a more proportionate requirement whereby firms are
required to inform customers "whether" the components
of a package can be purchased separately.
14.10 The Minister next discusses the proposals
related to alternative dispute resolution ADR, saying that:
- to the extent that the criteria
for ADR are intended to apply to purely domestic pursuits, there
is a question as to whether this properly relates to the single
market and therefore whether the EU has competence to legislate
for these criteria under Article 53 TFEU
- the Government intends to ask for an explanation
from the Commission as to why it believes that this is a single
market matter to ensure that the Government is satisfied that
there is competence under Article 53 TFEU to legislate in respect
of such criteria;
- the proposals, as currently drafted, seem to
introduce new conditions which Member States must meet when setting
up ADR arrangements;
- some of the conditions would fundamentally change
the nature of the existing UK Financial Ombudsman Service to deal
with out-of-court disputes and would reduce consumer protection;
- the Government welcomes a general requirement
for Member States to have ADR provisions in place, but will be
seeking amendments to ensure that the Financial Ombudsman Service
can continue to offer adequate consumer protection;
- Member States are expected to ensure that there
are administrative sanctions and measures that are effective,
proportionate and dissuasive ¯
the UK has established sanctions regulations
enforced by the FSA;
- the Government's view is that sanctions provisions
in the draft Directive should be minimum harmonising so that Member
States would be free to adopt additional sanctioning powers where
appropriate;
- the draft Directive includes a provision on ADR
which would impose requirements on the operation of the UK's civil
justice system, in terms of the operation of limitation and prescription
periods and the availability of interim remedies;
- this provision appears to be a measure pursuant
to Title V TFEU, more specifically Article 81 TFEU, to the extent
that it concerns cross border disputes; and
- as such it engages the UK's opt in for Justice
and Home Affairs (JHA) matters and should be adopted in a separate
measure with an Article 81 TFEU legal base.
14.11 The Minister reminds us, with respect to
the ADR provisions, that
- the Government's
policy is to insist on a Title V TFEU legal base for any measure
containing JHA obligations but, if if it is unsuccessful, to formally
put the UK's position on the record (normally by means of a minute
statement);
- the Government's policy is to split the instrument
so that the JHA obligations are contained in a separate measure
with an Article 81 TFEU legal base; and
- it it is unsuccessful in securing a Title V TFEU
legal base, the policy is to assert the UK opt-in applies nevertheless.
14.12 The Minister says that in this case, as
it agrees with the wider policy position and wishes to participate
in the rest of the measures the Government would best preserve
its position by formally giving notice of an opt in.
14.13 On the financial implications of the draft
Directive the Minister says that:
- there are likely to be financial
implications for insurance intermediaries and insurance undertakings,
which may need to change or adopt new procedures and systems to
meet the requirements under the proposals;
- the Commission's impact assessment estimates
these costs to be €730 (£581) per organisation, although
those firms selling investment products would incur more;
- the FSA might also need to make changes to regulatory
requirements and processes that would incur costs ¯
it is difficult, at this stage, to estimate
what these costs are likely to be; and
- the Government will seek amendments to ensure
that any costs are proportionate, and kept within the scale suggested
by the Commission, with any cost implications for consumers kept
to a minimum.
14.14 The Minister tells us that the Government
has established a stakeholder group to give consumer and industry
representatives in the UK an opportunity to share views on the
proposals and to gain a more developed understanding of their
impact.
CONCLUSION
14.15 Whilst efforts to improve the protection
of customers of the insurance industry are to be welcomed, we
note the reservations the Government has about some aspects of
the proposal. So before considering the draft Directive again
we should like to hear about progress in addressing these points
in the Council's consideration of the issues. Meanwhile the document
remains under scrutiny.
14.16 As for the matter of a JHA opt-in we remind
this Minister of our view that the Government's insistence of
applying the opt-in protocol in the absence of a Title V legal
basis is without legal basis in the Treaties. Nonetheless, we
presume from the Minister's somewhat ambiguous wording that it
is the Government's firm intention to opt into the draft Directive
and that, therefore, this intention will be formally notified
to Parliament in accordance with the procedure promised by the
Minister for Europe (David Lidington) in his Written Ministerial
Statement of 20 January 2011.
62 (34086) 12397/12 + ADDs 1-2, see chapter 12 in this
Report. Back
63
(34087) 12402/12 + ADDs 1-2, see chapter 13 in this Report. Back
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