EN Official Journal of the European Union C 44/95

Opinion of the European Economic and Social Committee on the ‘Proposal for a Directive of the European Parliament and of the Council on insurance mediation (recast)’

COM(2012) 360 final — 2012/0175 (COD)

2013/C 44/16

Rapporteur: Ellen NYGREN

On 11 September 2012 the European Parliament decided to consult the European Economic and Social Committee, under Article 304 of the Treaty on the Functioning of the European Union, on the

Proposal for a Directive of the European Parliament and of the Council on insurance mediation (recast)

COM(2012) 360 — 2012/0175 (COD).

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 4 December 2012.

At its 485th plenary session, held on 12 and 13 December 2012 (meeting of 13 December), the European Economic and Social Committee unanimously adopted the following opinion.

1. Conclusions and recommendations

1.1 The EESC welcomes the Commission's initiative to revise the insurance mediation directive, and is broadly positive about the proposals. The reasons for the review are sound and most of the proposals are sensible.

1.2 However, some of the proposals have not been adequately assessed and require further consideration before they can be implemented. In some cases, more precise definitions of concepts are needed for rules to have the intended effect.

1.3 The information obligations set out in the proposal are broadly reasonable and beneficial for consumers.

1.4 The proposal requires that insurance intermediaries and insurance undertakings take measures to identify conflicts of interest that might arise when mediating insurance products, and that they inform customers of such conflicts. The EESC regards this as important and agrees with the intention of the proposal, but it believes that it could be improved in certain respects, as set out below.

1.5 The EESC welcomes the more specific requirements set in relation to protection of consumers when purchasing insurance investment products. The latter often represent retirement savings, which have considerable financial value for the consumer and which are long-term investments. The design of such products is in most cases complex, and it can be difficult to get a clear view beforehand of differences in content and conditions and to evaluate these. Consumer protection is therefore a much more important issue with this category of insurance products than with more straightforward products with less far-reaching financial implications.

2. Gist of the Commission document

2.1 The insurance mediation directive is the only EU legislation that regulates point-of-sale insurance products so as to protect consumers' rights. The directive was adopted in 2002 and Member States were to transpose it by January 2005 at the latest. The directive is an instrument designed to achieve a minimum level of harmonisation through certain overarching principles, but it has been implemented in the Member States in very different ways. It was already apparent from the Commission's implementation check in 2005-2008 that there was a need to review the directive.

2.2 Financial market turbulence has also demonstrated the importance of putting in place effective consumer protection across all financial sectors. In 2010 the G20 asked the OECD, together with other international organisations concerned, to develop common principles to strengthen consumer protection when financial services are purchased. The current proposal to revise the insurance mediation directive should also be seen in this context.

2.3 The proposal for a revised insurance mediation directive (IMD2) is intended to improve regulation of the insurance market by creating a level playing-field for all parties involved in selling insurance products, and also to reinforce protection for insurance policy holders.

2.3.1 The overarching objectives are fair competition, consumer protection and market integration. Conflicts of interest are to be identified, managed and mitigated, sellers' professional qualifications are to match the complexity of products sold, and procedures for cross-border business are to be simplified.

2.3.2 The proposal would widen the scope of application of the directive to include not just distribution by insurance intermediaries but also more or less all distribution of insurance products.

2.3.3 The Commission regards the proposal generally as a minimum harmonisation instrument that leaves the Member States latitude to set more rigorous consumer protection requirements.

3. EESC comments on the proposal for a directive

3.1 The EESC welcomes the Commission's initiative to revise the insurance mediation directive, and is broadly positive about the proposals. The reasons for the review are sound and most of the proposals are sensible. The Committee also welcomes the inclusion of a provision to review the directive again five years after its entry into effect. However, some of the proposals have not been adequately assessed and require further consideration before they can be implemented.

3.2 Scope of application and definitions

3.2.1 Article 1 proposes to considerably extend the scope of application of the directive compared with the current legislation. The concept of insurance mediation is expanded in the proposal to include not just independent intermediaries but also staff of insurance undertakings. This could be a positive change, as it would mean that the entire insurance market is covered by the same rules. Banks will be included, in so far as their range of products also includes insurance.

3.2.2 The EESC believes it is essential to regulate the situation with sale of insurance products, regardless of what professional category in the insurance sector makes the sale. It therefore seems strange that the proposal explicitly mentions professional management of claims and loss adjustment.

3.3 Professional and organisational requirements

3.3.1 The EESC strongly commends the proposal to make Member States responsible for ensuring that insurance intermediaries and staff of insurance undertakings carrying out insurance mediation activities continually update their knowledge and skills. It is important here to emphasise the employer's responsibility for ensuring that their staff have access to the further training needed to enable them to carry out their duties in a way that is satisfactory and effective.

3.3.2 The Committee feels that there should be some kind of provision requiring all insurance intermediaries, both employed and self-employed, to be able to present documentation showing what professional training they have received.

3.3.3 Article 8(2) provides that anybody carrying out direct insurance mediation should have a clean police record in relation to crimes against property or other crimes related to financial activities. The Committee believes that it should be possible for designated national authorities to carry out this check so as to protect individual privacy and avoid complicated and costly procedures. One problem here could be that countries have different criteria for what is entered in a police record, which means that the rule could have different implications in different countries.

3.4 Information obligations

3.4.1 The proposal requires that all information, including marketing, should be clear and not misleading. It should be clear from the material provided whether this is promotional or another type of information. Insurance intermediaries must tell customers to what extent the information represents advice about insurance products they are providing. It must be clear whether the intermediary is working on behalf of an insurance company or acting independently, and who is paying the intermediary's remuneration. In the EESC's view the proposals can be regarded as broadly reasonable and beneficial for consumers.

3.4.2 There may be a risk of intermediaries trying to shirk their responsibility to provide advice by informing the customer that no advice is being given. The proposed clause might therefore give rise to problems of interpretation. If this rule must be retained, it should be supplemented by another rule stipulating that if it later transpires that the intermediary has effectively given advice on the products mediated, this must not affect the customer's right to receive compensation for misadvice.

3.4.3 Some more straightforward products are sold without advice, for example through the internet. Article 18 deals with sales where no advice is given. Article 18(1)(b) stipulates that the intermediary shall tell the customer the reasons for any advice given, even though the article concerns situations in which advice is not given. The wording is contradictory and this part of the proposal should be clarified.

3.4.4 Article 20 establishes a formal requirement that information for customers is to be provided on paper. The number of derogations shows that this is hardly standard practice any more. It would be better instead to provide the fundamental elements of information of the product on paper with references to sources of further information.

3.5 Conflicts of interest and transparency

3.5.1 The proposal requires that insurance intermediaries and insurance undertakings take measures to identify conflicts of interest that might arise when mediating insurance products, and that they inform customers of such conflicts. The EESC regards this as important and agrees with the intention of the proposal, but it believes that it could be improved in the following ways.

3.5.2 Article 17(1)(d)-(g) puts forward rules on information to be provided on the remuneration received by the intermediary in relation to the contract. The EESC agrees that information should be provided on how remuneration is determined, but is concerned that too detailed information about amounts received, as required under point (f), could be misleading for customers trying to take a decision. It is important that the customer should have a clear understanding of the total price of the product, and that they be aware how much they are paying the intermediary, and what remuneration, if any, the intermediary is receiving from the insurance company.

3.5.3 Under Article 17(4) information is required about the intermediary's remuneration each time the customer makes payments under the insurance contract after its conclusion. This could be a case of over-regulation, given that automated payment forms such as direct debit are now routinely used for long-term insurance contracts. An annual statement for the customer of the intermediary's remuneration would be quite adequate.

3.5.4 The EESC endorses the proposal in Article 21 on cross-selling, under which the insurance intermediary must inform the customer that they can buy the components of the package separately.

3.5.5 The introduction of the general principle of a level playing field between distribution channels is very important for well balanced information and transparency with no risk of distorting competition.

3.6 Additional customer protection requirements in relation to investment products

3.6.1 The EESC welcomes the more specific requirements set in relation to protection of consumers when purchasing insurance investment products. There are crucial differences between simpler types of insurance and insurance investment products. The latter often represent retirement savings, which have considerable financial value for the consumer and which are long-term investments, with both the accumulation and the payout phase spanning several decades. The design of such products is often complex, and it can be difficult to get a clear view beforehand of differences in content and conditions and to evaluate these. Consumer protection is therefore a much more important issue with this category of insurance products than with more straightforward products with less far-reaching financial implications.

3.6.2 However, the Committee would like there to be more clarity about which products are meant. Article 2(4) of the proposal refers to the regulation on key information documents for investment products. The Committee finds this definition too vague given that the proposal contains more precise consumer protection requirements for these types of mediation; it is therefore important that the scope of application of these rules should be clear and appropriate so that the intended consumer protection is ensured in practice (1).

3.6.3 Article 24(5)(b) proposes that when an intermediary informs the customer that advice on insurance is being given on an independent basis, the intermediary should not receive fees, commissions or other remuneration from third parties. The EESC endorses this proposal in view of the particular need for consumer protection that arises in this particular situation.

3.7 Out-of-court dispute resolution

3.7.1 Article 13 stipulates that the Member States shall ensure that there are appropriate, effective, impartial and independent procedures for customers to resolve disputes. The EESC would like to stress the importance here of dispute settlement bodies being given real authority, and of there being the opportunity to establish matters of fact in an oral procedure so as to meet the requirements of the directive. The EESC also notes the importance of guaranteeing the possibility of resolving disputes in court, so that the consumer is not simply referred to out-of-court dispute resolution.

3.8 Penalties

3.8.1 Article 26 of the proposal stipulates that the Member States must ensure that administrative sanctions and measures for breaches of provisions are effective, proportionate and dissuasive. The EESC agrees with these objectives.

3.8.2 However, Article 28(2)(f) proposes that natural persons should be subject to administrative pecuniary sanctions of up to EUR 5 million. The Committee regards this amount as unreasonably high, even if it is an upper limit for administrative sanctions. The rule is questionable in particular on the grounds that it concerns administrative sanctions rather than damages to an injured party further to a judicial decision.

3.9 Reporting of breaches

3.9.1 Article 30 stipulates that effective mechanisms for reporting breaches must be established. The EESC stresses that staff must be able to report any breaches of the rules to the relevant supervisory authority without this having any repercussions under labour law or otherwise. This is important for legal certainty, fair competition and of course consumer protection. It should also be possible to report suspected breaches of the legislation in effect. It is not enough for staff of insurance undertakings and intermediaries to be referred to internal company reporting procedures in the case of breaches.

4. Specific comments

4.1 The definition of what constitutes an insurance investment product is crucially important because such products are covered by stricter rules than other insurance products. It is therefore regrettable that the definition given in the relevant article is worded ‘a contract of insurance which could be classified as’. This leaves room for interpretation as to what could be an insurance investment product.

4.2 The Committee also finds the definition of advice unclear. There are several attempts to define advice in the proposal. Article 2(9) indicates that advice is the provision of a recommendation to a customer, but this is a very broad definition of advice and raises the question of whether it is even possible to mediate insurance products without giving advice.

4.2.1 Other attempts to define advice can be found elsewhere in the proposal. In Chapter VI, Article 17(1)(c) stipulates that the customer should be informed whether advice is being given ‘on the basis of a fair analysis’. Article 18(3) sets out what exactly advice based on a fair analysis entails, namely that it should be based on ‘an analysis of a sufficiently large number of insurance contracts available on the market, to enable it [the insurance intermediary or the insurance undertaking] to make a recommendation, in accordance with professional criteria, regarding which insurance contract would be adequate to meet the customer's needs’.

4.2.2 This is expressed differently in Article 24(3) and (5), where the proposal mentions giving advice ‘on an independent basis’. Such advice on an independent basis may also draw on a ‘broad’ or ‘more restricted’ analysis of the market.

4.2.3 To sum up, a number of different mediation scenarios can be identified in the proposal: — mediation without advice, e.g. when a product is sold through the internet; — mediation with advice that consists in making a recommendation; — mediation with advice that must be based on a fair analysis, with consequent requirements for what that should entail; — mediation with advice on an independent basis, in turn based on: — a broad analysis of the market — a more restricted analysis of the market.

4.2.4 As indicated, where advice is given on an independent basis, its form must also be established. However, it is unclear whether these requirements are met through a broad analysis or a more restricted analysis of the market.

4.3 Article 17

4.3.1 The Committee agrees that it is important for the consumer that conflicts of interest be revealed and that there should be a certain transparency with regard to types of remuneration. The focus should not just be on transparency in remuneration but also on the ‘performance management’ systems on which both variable remuneration and fixed salaries are based. Conflicts of interest can arise without any form of variable remuneration being paid in cases where the intermediary has to meet business objectives. These may often be sales targets for a given product, but they can also be of a more indirect nature. Such objectives may entail a manifest risk of conflicts of interest between the goals set by the insurance undertaking and the customer's need for an appropriate insurance product.

Brussels, 13 December 2012. The President of the European Economic and Social Committee Staffan NILSSON

(1) EESC opinion CESE 1841/2012 of 14 November 2012 on the Proposal for a Regulation of the European Parliament and of the Council on key information documents for investment products (not yet published in the OJ).