The European Commission has proposed reforms to the regulation of (re)insurance mediation in the EEA.  The draft Directive, known as IMD2, has two main aims: (1) to improve consumer protection in the EEA and (2) to ensure that selling practices under IMD2 accord with those in the proposed PRIPS and UCITS V Directives.

If the IMD2 proposals were implemented in their current form then the companies that sell insurance would, broadly speaking, be broken down into the following three groups for regulatory purposes:

• Group 1 would consist of insurance and reinsurance companies, insurance intermediaries and reinsurance intermediaries. This group would be subject to all of IMD2’s regulations
• Group 2 would include companies such as travel agents, car-rental companies, professional claims managers and loss adjustors.  These companies would be regulated in a lighter way but could still be sanctioned for regulatory breaches.  Additionally, these companies would need to make a declaration to the relevant financial regulator if they intended to sell insurance products
• Group 3 would comprise a small group of exempt sellers of insurance.  Where a company sells a good (but not a service) and that company also sells an insurance product that is ancillary to the sale of that good then the company would be exempt under the current draft of IMD2.  This exemption would only apply where the annualised premium paid for each insurance contract sold is less than €600 (i.e. less than €2 per day).  The example given by the European Commission is that an optician that sells complimentary insurance on glasses would remain outside of the new regime

The European Commission noted that it is expected that 98% of insurance sales will be covered by IMD2, compared with 48% under the existing regime. An increase of this scale is not surprising given that IMD2 will bring into scope many companies that are currently exempt under IMD1 (such as insurance and reinsurance companies, claims handlers, loss–adjustors, travel agents and car-rental companies).

Aside from the proposed increase in the scope of the regime, significant changes in the way (re)insurance mediation will be regulated are being suggested under IMD2.  The new proposals include regulation on the following areas:

• Conflicts of interest and transparency: Significant amendments are proposed in how remuneration and other potential conflicts of interest are disclosed to customers.  For example, in some circumstances companies selling insurance would not be allowed to receive any commission from the insurance company that underwrites the product
• Providing information to customers: Companies will be required to provide certain information on the insurance products that they sell to customers.  Particularly prescriptive requirements would apply to sales of life assurance products with an investment element
• Best interests of the customer: Companies will be under a new obligation to act honestly, fairly, professionally and in the best interests of the customer.

The European Commission expects that the new rules will apply from 2015.

Contributed by:  Grant Murtagh