European Brokers Disappointed with the Revised IMD
By Alex | Published July 06, 2012
Insurance brokerages across Europe expressed frustration towards the European Commission’s (EC) latest revision of the Insurance Mediation Directive (IMD II), and specifically the component that makes remuneration disclosure in a transaction mandatory.
While not all of the regulations introduced were negative, broking organizations will not give up pressure on the EC to modify the rules until the IMD II is officially finalized and published sometime next year.
The European Federation of Insurance and Financial Intermediaries (BIPAR), and one of its members, the British Insurance Brokers Association (BIBA), were pleased to see their lobbying efforts recognized through the incorporation of other insurance distribution methods, such as travel agents or price-comparison websites.
However, BIPAR and BIBA along with various other European brokerages are not so happy with the EC’s plans to create a “level playing field”, by requiring all brokers in the general insurance line to disclose their commissions, before the end of a 5 year transition period. They claim that these rules ignore all of the advice and recommendations from the Financial Services Authority, HM Treasury, the European Insurance and Occupationla Pension Authority (EIOPA), and all leading insurance brokers in Europe.
The mass disappointment is supported by the fact that insurance companies selling directly to customers will not be subject to the same mandatory disclosure.
Head of Compliance and Training at BIBA, Steve White, expressed that his organization is happy with a number of areas of concern the EC addressed in the IMD II. Yet, the main concern lies with the rules mandating disclosure for brokers only, and the importance of establishing a “level playing field” when comparing to insurance companies selling direct.
David Strachan, Co-head of the Deloitte Centre for Regulatory Strategy, also shared White’s skepticism about the ability of IMD II to carry out its purpose. Strachan noted that the IMD II is meant to clear up any conflicts of interest among different sales modes. However, the difference between intermediated and direct insurance sales should be stressed to customers, because remuneration varies between the two services. Consumer clarity on the issue is vital to ensuring that the IMD II is a successful in its goal.
In the meantime, the Chief Executive of BIBA, Eric Galbraith, said that his association will cooperate with BIPAR to voice their perspectives as the Council of Ministers, European parliament, and European Union co-legislators, near the final publishing processes of the document.
On the other hand, other means of insurance distribution will also be affected, to many European brokers’ satisfication. After the implementation of the IMD II, sales channels such as price-comparison websites will also be under stricter regulation, in the EC’s attempt to provide greater transparency through all methods of purchasing insurance.
Currently, the IMD focuses on intermediaries, but the IMD II will incorporate a much wider scope.
Norton Rose LLP partner David Whear said that the most promising changes revolve around the kinds of groups and organizations that the new directive will regulate, such as loss adjusters, claims managers, and price-comparison websites. This ensures that much attention will be diverted from intermediaries, which may have been unfairly monitored before.
According to the EC, the revised directive will allow customers to receive complete transparency from the seller when purchasing insurance products. It claims that the purpose of the IMD II is to enhance customer rights and protection within the insurance sector, by implementing set standards and honest advice among insurance sales. In this way, business for intermediaries across borders will not be as much of a hassle, and therefore encourage an internal insurance services market to develop.
Although the revised IMD cannot be called a complete flop, European insurance brokers are about to enter a period of significant struggle, as the looming EC regulations threaten to hurt and complicate future business.