COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Proposal for a Directive of the European Parliament and of the Council on Insurance Mediation
Date: 2012-07-03
Institutions: European Commission
Subjects: access to a profession, consumer information, freedom to provide services, insurance claim, insurance company, insurance occupation, market access, reinsurance, right of establishment, single market

EUROPEAN COMMISSION 

Strasbourg, 3.7.2012  
SWD(2012) 191 final 

COMMISSION STAFF WORKING DOCUMENT 

IMPACT ASSESSMENT 

Accompanying the document 

Proposal for a Directive of the European Parliament and of the Council 

on Insurance Mediation 

{COM(2012) 360 final} 
{SWD(2012) 192 final} 

 
 
 
 
  
 
TABLE OF CONTENTS 

COMMISSION STAFF WORKING DOCUMENT ................................................................. 4 

1. 

1.1. 

1.2. 

1.3. 

2. 

General ......................................................................................................................... 5 

Overview of preparatory work ..................................................................................... 5 

Procedural issues.......................................................................................................... 6 

External expertise and consultation of interested parties............................................. 6 

Policy context............................................................................................................... 9 

2.1. 

Legislative framework ................................................................................................. 9 

2.1.1.  Legal situation before IMD1........................................................................................ 9 

2.1.2. 

IMD1 – its scope, purpose, main provisions and implementation............................... 9 

2.1.3.  Other relevant EU legislation and ongoing policy initiatives .................................... 11 

2.2. 

Structure of the insurance distribution markets in the EU ......................................... 12 

2.2.1.  Market size ................................................................................................................. 12 

2.2.2. 

Insurance products ..................................................................................................... 12 

2.2.3.  Market operators and distribution channels (Annex 8).............................................. 13 

2.2.4.  Role of SMEs in the insurance markets ..................................................................... 14 

3. 

Identification of problems .......................................................................................... 15 

3.1. 

General problems related to IMD 1 on both insurance and insurance PRIPs products15 

3.1.1.  Narrow scope ............................................................................................................. 16 

3.1.1.1.  Which sellers of insurance fall outside the scope of IMD1? ..................................... 16 

3.1.1.2.  Which buyers of insurance fall outside the scope of IMD1? ..................................... 17 

3.1.2.  Conflicts of interest .................................................................................................... 18 

3.1.3.  Advice and professional qualifications ...................................................................... 19 

3.1.4.  Cross-border business ................................................................................................ 20 

3.1.5.  Sanctions in insurance distribution ............................................................................ 21 

3.2. 

Problems relating to Packaged Retail Investment Products (PRIPs) ......................... 22 

4. 

4.1. 

4.2. 

Subsidiarity ................................................................................................................ 23 

How would the problem evolve without EU action? The base line scenario ............ 23 

The EU's right to act................................................................................................... 23 

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5. 

5.1. 

5.2. 

6. 

6.1. 

6.2. 

7. 

7.1. 

7.2. 

7.3. 

7.4. 

7.5. 

8. 

8.1. 

8.2. 

8.3. 

Objectives................................................................................................................... 23 

Consistency of the objectives with other EU policies................................................ 23 

Consistency of the objectives with fundamental rights.............................................. 23 

Policy Options............................................................................................................ 23 

Proposed legislative structure of IMD2 and involvement of EIOPA ........................ 23 

Identification of options ............................................................................................. 23 

Analysis of Impacts and Comparing the Options ...................................................... 23 

Extension of the scope ............................................................................................... 23 

Conflicts of interests .................................................................................................. 23 

Advice ........................................................................................................................ 23 

Cross-border business ................................................................................................ 23 

Sanctions .................................................................................................................... 23 

Analysis of the impacts .............................................................................................. 23 

Overall impacts of the package .................................................................................. 23 

General expected impact of revised IMD on market structure .................................. 23 

IMD2 proposed rules and their proportionate application to SMEs .......................... 23 

8.3.1.  Are the preferred policy options proportionate for smaller market players selling 

insurance products?.................................................................................................... 23 

8.3.2. 

Impact on SME intermediaries selling insurance as their main activity (approx. 700 
000 entities) - A and B categories .............................................................................. 23 

8.3.3. 

Impact on SME intermediaries selling insurance as an ancillary activity (approx. 80 
000 entities) - C and D categories .............................................................................. 23 

8.4. 

8.5. 

8.6. 

8.7. 

Employment and social impact .................................................................................. 23 

Administrative cost and administrative burden.......................................................... 23 

Overview of costs on the basis of the preferred options in million EUR .................. 23 

Estimation of benefits ................................................................................................ 23 

8.7.1.  Quantitative approach to the calculation of the benefits............................................ 23 

8.7.2.  Qualitative approach to the calculation of the benefits.............................................. 23 

8.7.3. 

Improved choice of insurance products for consumers.............................................. 23 

8.7.3.1.  Greater business opportunities for sellers of insurance products............................... 23 

8.7.3.2.  Reduced costs for sellers of insurance products ........................................................ 23 

9. 

Monitoring and evaluation ......................................................................................... 23 

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COMMISSION STAFF WORKING DOCUMENT 

IMPACT ASSESSMENT 

Accompanying the document 

Proposal for a Directive of the European Parliament and of the Council 

on Insurance Mediation 

COMMISSION STAFF WORKING DOCUMENT 
Accompanying the document 

Directive of the European Parliament and of the Council 

on Insurance Mediation 

Introduction 

The  Directive  2002/92/EC  of  the  European  Parliament  and  the  Council  on  insurance 
mediation  (IMD1)  is  the  EU  legislation  which  regulates  the  point  of  sale  of  insurance 
products1 for the protection of policyholders. It was adopted on 9 December 2002 and had to 
be  transposed  by  Member  States  by  15  January  2005.  The  Directive  is  a  minimum 
harmonisation instrument containing high level principles and has been implemented in the 27 
Member  States  in  substantially  different  ways.  The  need  to  review  IMD1  already  became 
apparent during the implementation check carried out by the Commission in 2005-2008.  

Current and recent financial turbulence2 has underlined the importance of ensuring effective 
consumer  protection  across  all  financial  sectors.  In  November  2010,  the  G20  asked  the 
Organisation  for  Economic  Co-operation  and  Development  (OECD),  the  Financial  Stability 
Board (FSB) and other relevant international organisations to develop common principles in 
the field of financial services in order to strengthen consumer protection. The draft G20 high 
level  principles  on  financial  consumer  protection  underline  the  need  for  proper  regulation 
and/or  supervision  of  all  financial  services  providers  and  agents  that  deal  directly  with 
consumers. They stipulate that consumers should always benefit from comparable standards 
of consumer protection. 

Supervisors  (through  CEIOPS  now  EIOPA)  have  also  contributed  to  the  common  and 
uniform day-to-day implementation of IMD1 and in particular to its consistent application by 
national supervisory authorities. The adoption of the Luxembourg Protocol in 20063 provides 

1 
2 
3 

A detailed description of insurance distribution markets can be found in Chapter 2 and Annex 2. 
Information about the impact of the financial crisis on the insurance sector can be found in Annex 7. 
Protocol  Relating  to  the  Cooperation  of  the  Competent  Authorities  of  the  Member  States  of  the 
European  Union  in  Particular  Concerning  the  Application  of  Directive  2002/92/EC  of  the  European 
Parliament and of the Council of 9 December 2002 on Insurance Mediation. 

https://eiopa.europa.eu/fileadmin/tx_dam/files/publications/protocols/Luxembourg_Protocol%20_without%20an

nexes_Rev1_Oct2008.pdf 

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a framework for cooperation between competent authorities with regard to the implementation 
of IMD1.4 Despite this Protocol, in 2007 CEIOPS advised the Commission to amend IMD1 in 
order to provide legal certainty. 

During  the  discussions  in  the  European  Parliament  on  the  Solvency  II  Directive  which 
introduces  a  risk-based  approach  in  the  supervision  of  insurance  undertakings  and  makes 
supervision more efficient, a specific request was made to review IMD1. Some Members of 
the  Parliament  and  some  consumer  organisations  considered  that  there  was  a  need  for 
improved  policyholder  protection  in  the  aftermath  of  the  financial  crisis  and  that  selling 
practices for different insurance products, particularly life insurance products with investment 
elements (e.g. unit-linked contracts), could be improved.  

In  revising  IMD1  to  ensure  cross-sectoral  consistency,  a  request  was  made  by  consumer 
groups  to  take  into  account  the  ongoing  revision  of  the  Markets  in  Financial  Instruments 
Directive (MiFID). Whenever the selling practices of life insurance products with investment 
element  were  to  be  specifically  regulated,  the  proposed  IMD2  should  meet  at  least  similar 
consumer protection standards to those in MiFID.  

There  were  indications  of  potential  market  failure  in  respect  of  insurance  brokerage  in  the 
Commission Communication on the Sector Inquiry on business insurance.5 It concluded that 
the  Commission  intended  to  look  at  these  issues  in  the  framework  of  the  review  of  the 
Insurance Mediation Directive. 

This impact assessment evaluates the major policy choices relating to a revision of the rule on 
selling practices in IMD1 as well as their possible impact. The aim of the current revision of 
the IMD is to achieve a recast single market and consumer protection directive. There are two 
high  level  objectives  in  the  new  provisions:  better  consumer  protection;  and  easier  trading 
across borders. 

1. 

GENERAL 

1.1. 

Overview of preparatory work 

Table 1 

Major steps / inputs 
CEIOPS Report on the Implementation of IMD  
DG Competition sector inquiry in business insurance 
EP request (Solvency II Framework Directive) 
Launch of Call for Advice 
EIOPA advice 
Public Consultation  
Public Hearing 
Publication of the results of the public consultation 

Timing 
May 2007  
September 2007 
December 2009 
January 2010 
November 2010 
November 2010 
December 2010 
April 2011 

4 

5 

The Protocol sets out the general aims and principles for the cooperation between competent authorities 
regarding  mainly  the  registration  procedure,  the  supervision  of  professional  requirements  and 
professional secrecy. It also covers the registration and notification procedures, including the minimum 
information  to  be  contained  in  the  public  registers  and  to  be  given  in  a  notification  for  cross-border 
mediation  services.  It  provides  details  on  the  procedures  of  exchange  of  information  and  on  going 
supervision  of  intermediaries  and  covers  some  general  matters  regarding  out-of-court  settlements  of 
complaints. 
Under Article 17 of Regulation (EC) No 1/2003, published in September 2007. 

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Expert Group meeting  

April 2011 

1.2. 

Procedural issues  

The impact assessment work started in 2010.  

The  IA  Board  met  on  23  November  2011.  The  Board  recommended  the 
following changes to the first text of the IA: 

(1)  The report should better clarify the scope of the initiative and provide further 

evidence on the effects of the problems identified. 

(2)  The  report  should  better  explain  the  policy  options  and  demonstrate  their 

proportionality. 

(3)  The  report  should  provide  a  fuller  assessment  of  the  impact  on  business  and 

SMEs. 

(4)  The  report  should  provide  more  operational  arrangements  for  monitoring 

compliance and for the evaluation. 

On reviewing a further draft, on 2 February 2012 the Board recommended: 

(1)  The report should provide further evidence in problems identified. 

(2)  The report should better explain policy options justifying the choice of options. 

(3)  The report should provide a fuller  assessment of the impacts  on business and 
SMEs  and  explain  how  proportionality  has  been  taken  into  account  in  the 
proposal. 

On reviewing the final draft, on 30 March 2012 the Board recommended: 

(1)  The report should provide further evidence in problems identified. 

(2) 

It should clarify which measures will be subject to level 2 measures. 

(3) 

It should be clearer in terms of impacts on business and SMEs. 

These recommendations were taken on board. 

1.3. 

External expertise and consultation of interested parties 

The  Commission  Services  has  consulted  and  obtained  information  from  the 
following sources: 

A.  European  Insurance  and  Occupational  Pensions  Authority  (EIOPA)  and  its 
predecessor (CEIOPS) which have provided advice and own-initiative reports.6 

6 

CEIOPS’ Survey on proposals for amending IMD1, March 2008. 
CEIOPS Advice to the European Commission on the revision of the Insurance Mediation Directive 
(2002/92/EC). CEIOPS' final report was delivered in November 2010. 
EIOPA Report collecting, analysing and reporting on Consumer Trends, EIOPA-CCPFI-11/023 29 
November 2011 (Annex 12). 

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B. Member States and stakeholders 

• 

• 

• 

• 

• 

• 

• 

Representatives of the insurance sector (including CEA,7 BIPAR, FFSA, VVO, 
and GDV); 

Consumer organisations (including BEUC and FSUG); 

National supervisors; 

DG  MARKT  public  hearing,  which  focused  on  scope, 
information 
requirements,  conflicts  of  interest,  cross-border  trade,  and  professional 
qualification requirements;8  

DG MARKT meeting with experts from Member States and EIOPA to discuss 
the results of the public consultation and the possible structure and contents of 
IMD2;9  

A  meeting  on  anticipated  costs  related  to  possible  revisions  of  the  IMD  was 
held with relevant stakeholders; and 

Other discussions with consumer representatives (FIN-USE, Financial Services 
Consumer  Group,  and  Financial  Services  User  Group),  regulators  (Financial 
Services Committee, European Securities Committee, European Insurance and 
Occupational Pensions Committee) and industry representatives.  

The  large  majority  of  the  stakeholders  present  at  these  meetings  supported  the 
direction of the revision of IMD1 as outlined by the Commission Services. 

The  consultation  process  revealed  a  variety  of  stakeholder  views  on  the  issues 
discussed in this impact assessment.  

C. Public consultation 

A public consultation relating to IMD1 revision was carried out by the Commission 
Services  from  26  November  2010  until  28  February  2011.  125  contributions  were 
received.10 The answers to the consultation were broadly supportive of the direction 
of the revision as outlined by the Commission Services.11 

D. Studies ordered by the Commission Services 

EIOPA report on Good Practices for Disclosure and Selling of Variable Annuities, EIOPA-CCPFI-
11/019, 31 August 2011 
https://eiopa.europa.eu/fileadmin/tx_dam/files/consultations/consultationpapers/CP%20No.%2083%20-
%20Draft%20Report%20on%20Variable%20Annuities.pdf 
A list of abbreviations can be found in Annex 1.  
following  website: 
can 
The  minutes 
http://ec.europa.eu/internal_market/insurance/docs/mediation/20101210hearing/panel-summary_en.pdf 
and the detailed results of the public consultation can be found in Annex 6.  
The minutes of the meeting can be found in Annex 5. 
A summary of the results of the public consultation can be found in Annex 6. 
The 
mediation_en.htm 

results  are  published  at:  http://ec.europa.eu/internal_market/consultations/2010/insurance-

hearing 

found 

the 

the 

on 

be 

of 

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Several  specific  studies  ordered  by  different  Commission  Services  were  used  to 
prepare this impact assessment.  

• 

• 

• 

• 

• 

PricewaterhouseCoopers,  Luxembourg  (PwC),  contracted  by  DG  MARKT  to 
conduct  a  study  to  provide  a  comprehensive  overview  of  the  functioning  of 
insurance distribution in the EU12.  

A  study  commissioned  by  DG  MARKT  in  2010  on  the  costs  and  benefits  of 
potential changes to distribution rules for insurance products and for insurance 
PRIPs.13  

A  study  commissioned  by  DG  SANCO  to  assess  the  quality  of  advice  being 
offered across the EU.14

A  study  ordered  by  DG  SANCO  on  behavioural  economic  factors  relating  to 
investor decision making.15  

A study of the potential costs and benefits of different options for change in the 
area of sales rules for the distribution of non-MiFID PRIPs (early 2010) which 
provided evidence on market mapping and cost drivers.  

E. Other studies  

• 

• 

• 

• 

• 

• 

• 

Caceis Investor Services, Cross-border distribution of UCITS, May 201116 ; 

Retail  Distribution  Review  proposals:  Impact  on  market  structure  and 
competition, Oxera (2009)17 ; 

Financial  Services  Authority,  Conduct  of  Business  sourcebook  (COBS)  post-
implementation  review:  2008  statement  on  interim  findings  (December 
2008)18; 

AVIVA study on consumer attitudes19 ; 

City of London comparative report on the implementation of IMD120; 

Auswirkungen 
Vermittlerlandschaft (March 2011)21; 

der  EU 

–  Vermittlerrichtlinie 

auf 

die 

deutsche 

CEIOPS' report on the implementation of the IMD key provisions22. 

12 
13 
14 
15 
16 
17 
18 
19 
20 

21 

http://ec.europa.eu/internal_market/insurance/mediation_en.htm 
http://ec.europa.eu/internal_market/consultations/docs/2010/PRIPs/costs_benefits_study_en.pdf 
http://ec.europa.eu/consumers/rights/docs/investment_advice_study_en.pdf 
http://ec.europa.eu/consumers/strategy/consumer_behaviour_en.htm 
http://www.caceis.fr/fileadmin/pdf/reference_papers_en/cross-border-distribution-ucits-v2.pdf 
http://www.fsa.gov.uk/pubs/other/oxera_rdr.pdf 
http://www.fsa.gov.uk/pubs/other/COBS_review.pdf 
http://www.aviva.com/customers/consumer-attitudes-survey 
http://www.cityoflondon.gov.uk/NR/rdonlyres/00DF9852-33A5-4781-9338-
BBFC7101133D/0/BC_RS_IMDfulllengthforwebFINAL.pdf 
Christoph  Schwarzbach,  Christoph  Klosterkemper,  Ute  Lohse,  Johann  –  Matthias  Graf  v.d. 
Schulenburg, ZVersWiss (2011) 100:369-387 

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2. 

POLICY CONTEXT  

2.1. 

Legislative framework 

2.1.1.  Legal situation before IMD1 

A first step to facilitate the exercise of freedom of establishment (FOE) and freedom 
to  provide  services  (FOS)  for  insurance  agents  and  brokers  was  made  by  Council 
Directive 77/92/EEC of 13 December 1976. Barriers to the taking-up and pursuit of 
the  activities  of  insurance  and  reinsurance  intermediaries  in  the  internal  market 
remained. Therefore, the objectives of that Directive have not been achieved. 

2.1.2. 

IMD1 – its scope, purpose, main provisions and implementation 

IMD1 aims to provide a high level of consumer protection through the establishment 
of a clear legal framework as well as a high level of professionalism and competence 
among  insurance  intermediaries.  A  registration  system  for  insurance  intermediaries 
ensures the oversight of professional requirements as well as facilitating cross-border 
activities by way of freedom of establishment and freedom to provide services.  

Scope:  The  Directive  only  applies  to  persons  who  provide  insurance  mediation 
services to third parties in exchange for remuneration.23  

Sales  of  insurance  products  conducted  directly  by  insurance  companies  (direct 
writers) are not within the scope of the Directive.  

There are also some intermediaries that are explicitly exempted from the scope,24 and 
further  exemptions  from  or  inclusions  in  scope  have  been  made  by  Member  States 
when implementing the Directive (described in the problem definition).  

Substantive requirements: IMD1 regulates the sales practices25 of insurance agents 
introduces  some  minimum  basic  registration,  professional 
and  brokers  and 
qualification and disclosure requirements. IMD1 is modelled from the perspective of 
a typical SME insurance intermediary (agent, broker) as most of intermediaries are 
SMEs (see section 2.2.4.)  

22 

23 

24 

25 

https://eiopa.europa.eu/fileadmin/tx_dam/files/publications/submissionstotheec/CEIOPS-DOC-09-
07IMDReport.pdf 
According  to Article  2.3  of the  Directive, insurance  mediation  includes  “the  activities  of  introducing, 
proposing  or  carrying  out  other  work  preparatory  to  the  conclusion  of  contracts  of  insurance,  or  of 
concluding such  contracts, or  of  assisting  in  the  administration  and performance  of such  contracts,  in 
particular  in  the  event  of  a  claim.”  It  does  not  include  direct  selling,  i.e.  when  these  activities  are 
carried out by an insurance company or its employees. 
Art.1  of  IMD1.  Those  sellers  who  are  currently  exempted  from  the  scope  work  on  an  ancillary  basis 
(they are not professional intermediaries). They do not sell life assurance contracts and their contracts 
do not cover any liability risks. The sale of these insurance products is complementary to the supply of 
goods or travel services by the seller and the amount of the annual premium does not exceed EUR 500; 
that is (pro rata) less than 2 euros per day. A typical example is an optician who sells complementary 
insurances on glasses, or a travel agent who sells a travel insurance policy. 
i.e IMD1 regulates the relationship between the seller and the product manufacturer. See Annex 8 on the 
sale process 

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Although all Member States have implemented the Directive, no uniform application 
of  the  Directive  could  be  achieved  across  the  Union  because  its  provisions  led  to 
differing interpretations in the Member States.2627  

Implementation  process:  The  Commission  Services'  check  on  the  implementation 
of  IMD1  from  2005-2008  showed  that  the  transposition  of  the  Directive  varied 
considerably between Member States. The Commission opened 18 cases against 18 
Member  States,  among  which  13  have  reached  the  first  step  of  the  infringement 
process (letter of formal notice) and 5 cases were referred to the Court. All cases are 
closed now as Member States complied with the Commission requests. 

Among those 18 cases were: 

14 cases of non-communication of national measures transposing the IMD1; 

14 cases opened at own initiative by the Commission; 

4 cases based on citizens' and business' complaints. 

The  Commission  services  regularly  receive  enquiries  and  complaints  related  to  the 
application  of  IMD1.  The  Commission  Services,  the  Member  States  and  the 
supervisors  were  not  in  a  position  to  achieve  uniformity  in  the  application  of  the 
Directive  because  its  provisions  are  very  high  level  and  lead  to  different 
interpretation.28  

The  objectives  of  IMD1  were  adequately  met  and  the  Directive  has  allowed  an 
efficient protection of consumers as stated in CEIOPS' report on the implementation 
of  the  IMD  key  provisions  (CEIOPS  Doc  09/07,  see  supra).  However,  it  could  be 
considered that IMD1 was the first attempt to regulate the insurance sales market and 
as  such  it  could  not  cater  for  the  increased  need  for  transparency  and  consumer 
protection in the sector without being up-dated29. 

A  comparative  report  on  the  implementation  of  the  IMD1  illustrated  problems  that 
can  arise  due  to  national  differences  in  the  implementation  of  IMD1.30  The 
implementation  check  brought  to  light  that  in  some  Member  States  there  are 
regulatory  and/or  supervisory  gaps,  e.g.  insurance  PRIPs  are  only  regulated  by  the 
IMD to a minimum level while comparable and substitutable financial products are 
more  substantially  regulated  by  the  MiFID.  This  concerns  mainly  investments 

26 

27 

28 

29 
30 

ABI Research Paper, Impact of commission disclosure in general insurance personal lines, Analysis of 
the motor and travel insurance markets, Report from Charles River Associates, 2010, General Insurance 
Disclosure Research, Research Report prepared for Financial Services Authority by IFF Research Ltd 
17  July  2008,  Information  versus  Persuasion:  Experimental  Evidence  on  Salesmanship,  Mandatory 
Disclosure and the Purchase of Income and Loan Payment Protection Insurance David de Meza, Bernd 
Irlenbusch,  Diane  Reyniers,  London  School  of  Economics,  November  2007,  SME  Insurance, 
Commission Report, Research carried out by NMG Financial Services Consulting, November 2008. 
CEIOPS’ 2007 Report on the Implementation of the Insurance Mediation Directive’s Key Provisions, 
http://www.ceiops.eu/media/files/publications/submissionstotheec/CEIOPS-DOC-09-
07IMDReport.pdf. 
CEIOPS’ 2007 Report on the Implementation of the Insurance Mediation Directive’s Key Provisions, 
http://www.ceiops.eu/media/files/publications/submissionstotheec/CEIOPS-DOC-09-
07IMDReport.pdf. 
This trend is reflected in the EIOPA study on Consumer Trends, attached in Annex 12 of this Report 
See footnote 22. 

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packaged  as  life  insurance  policies  (notably,  unit-linked,  index-linked  and  certain 
with-profits products see hereafter as "insurance PRIPs31").  

2.1.3.  Other relevant EU legislation and ongoing policy initiatives 

Solvency II32 includes rules on product disclosure 33related to all insurance products 
(including  general  insurance  and  life  insurance).  Its  main  purpose  is  to  introduce 
prudential  rules  on  insurance  and  reinsurance  undertakings.  It  does  not  deal  with 
selling practices or include consumer protection rules. 

MiFID34  regulates  the  selling  practices  of  investment  products  and  serves  as  a 
benchmark  for  the  revision  of  the  IMD  with  regard  to  the  selling  practices  of  life 
insurance policies with investment elements.  

The  PRIPs  initiative  aims  at  ensuring  a  coherent  horizontal  approach  to  product 
disclosure  with  regard  to  investment  products  and  insurance  products  with 
investment  elements  (so-called  insurance  PRIPs35),  and  provisions  on  selling 
practices will be included in the revisions of the IMD and MiFID.  

The  following  table  is  designed  to  show  the  synergies  and  interrelations  between 
different upcoming initiatives. 

Table 2 

Relevant products 

Insurance 

Investment 

life insurance, motor insurance, liability 
insurance, property insurance, cargo 
insurance etc. as well as insurance 
products with investment elements, 
such as unit-linked life insurance. 

shares, bonds (including structured bonds), 
investment funds, derivatives, etc 

Capital 
requirements 

SOLVENCY II 

CRD (Capital Requirements Directive) IV 

taking up and pursuit of business, 
supervision, reorganisation and 
winding-up procedures for insurance 
and reinsurance companies 

taking up and pursuit of business, 
supervision, reorganisation and winding-up 
procedures for credit institutions and 
investment firms 

Distribution 

IMD 

MiFID II 

Registration  and  authorisation  rules, 
(including qualification of staff), selling 
practices  of  all  insurance  products, 
cross-border,  conduct  of  business, 

and 

authorisation 

Registration 
rules, 
(including 
organisational 
qualification of staff), selling practices of all 
investment  products,  cross-border,  conduct 

requirements 

31 

32 

33 

34 

35 

An insurance PRIP is an insurance product which offers a surrender value or where that surrender value 
is wholly or partially exposed, directly or indirectly to market fluctuations. 
Directive 2009/138/EC of 25 November 2009 on the taking-up and pursuit of the business of insurance 
and reinsurance (Solvency II), JO L 335, p.1 
Product disclosure is done by a document (or group of documents) which describe a financial product 
or service, including the features, benefits, cost and risks associated with that product. 
Directive 2004/39/EC of 21 April 2004 on markets in financial instruments (level 1), JO L 145.p.1.; and 
Directive 2006/73/EC of 10 August 2006 implementing Directive 2004/39/EC (level 2), JO L 241.p.26. 
See  the  scope  in  the  Impact  Assessment  on  PRIPs:  http://ec.europa.eu/internal_market/finservices-
retail/docs/investment_products/29042009_impact_assessment_en.pdf 

See definitions in the section on problems. 

EN 

11 

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supervision,  etc.  Sales  of  insurance 
investment  elements, 
products  with 
such  as  unit-linked  life  insurance  are 
regulated under IMD. 

of  business,  supervision,  etc.  MiFID  has  an 
exemption  for  investment  products  with  an 
insurance  wrapper,  such  as  unit-linked  life 
insurance. 

Product disclosure  SOLVENCY II PRIPS UCITS

36

Insurance products Insurance products with investment elements Investment products 

Currently sellers of insurance products with investment elements (insurance PRIPs) 
do  not  have  to  comply  with  consumer  protection  rules  comparable  to  those  selling 
investment  products.  This  impact  assessment  will  analyse  how  MiFID  consumer 
protection provisions could be applied proportionately to sellers of insurance PRIPs, 
because  of  the  complexity,  the  similarity  and  proven  substitutability  of  these 
products37. It should be noted that when MiFID II passes through the Parliament and 
the Council, the IMD needs to follow its changes, in order to achieve consistency in 
legislation which regulates similar products. 

2.2. 

Structure of the insurance distribution markets in the EU 

2.2.1.  Market size 

The  European  insurance  sector  is  the  largest  insurance  sector  in  the  world,  with  a 
37% share of the global market38. At year-end 2009, the sector comprised a total of 
4,753  undertakings,  with  annual  gross  written  premiums  for  the  sector  being 
approximately  €1,028bn 39.  The  sector  is  diverse  in  its  size  (large  insurance 
undertakings, mutuals, small insurance intermediaries, and some large multinational 
companies  which  represent  only  about  5%  of  the  market),  its  nature  (mutual  and 
publicly listed) and its complexity (both complex and less complex). At the end of 
2010, European insurers' investments in the global economy represented 54% of the 
GDP  of  the  European  Union.  The  European  insurance  industry  employs  almost 
950,000  people  directly  and  a  further  million  are  outsourced  employees  and 
independent  intermediaries40.  Many  insurance  products  have  a  high  social  value 
because of the role they play in retirement and healthcare provision. They also have a 
high  economic  value  by  allowing  individuals  to  be  less  risk-averse,  thereby 
contributing to economic activity and stability. 

2.2.2. 

Insurance products 

Box 1 Categories of insurance policy 

Life insurance is a contract between the policyholder and the insurer, whereby the insurer agrees to 
pay  a  designated  beneficiary  a  sum  of  money  upon  the  occurrence  of  the  insured  individual's  or 
another  individuals'  death  or  some  other  event  affecting  such  individual,  such  as  terminal  illness  or 

36 

37 
38 

39 

40 

The UCITS  (Undertakings for  Collective  Investment  in  Transferable Securities) Directives  have been 
the  basis  for  an  integrated  market  facilitating  the  cross-border  offer  of  collective  investment  funds. 
UCITs  are  investment  funds  that  have  been  established  in  accordance  with  UCITS  Directive.  Once 
registered in one EU country, a UCITS fund can be freely marketed across the EU. 
See impact assessment on PRIPs. (to be published together with the proposal later) 
CEA  paper  European 
http://www.cea.eu/uploads/Modules/Publications/key-facts-2011.pdf 
EIOPA  Report  on 
https://eiopa.europa.eu/fileadmin/tx_dam/files/publications/reports/QIS5_Report_Final.pdf 
CEA paper European Insurance – Key Facts, published September 2011 

Insurance  –  Key  Facts,  published  September  2011,  available  at 

fifth  Quantitative 

Impact  Study 

for  Solvency 

(QIS5) 

the 

II 

EN 

12 

   EN 

 
 
                                                 
critical illness. In return, the policyholder agrees to pay a stipulated amount (at regular intervals or in 
lump sums). The classes of life insurance are listed in Annex 2 of the Solvency II Directive. For the 
purpose  of  the  revision  of  the  IMD  there  are  two  categories  of  life  insurance  policies:  the  first 
category  covers  the  riskier  and  more  complex  products  which  are,  in  substance,  investments.  Those 
products  fall  under  the  PRIPs  initiative:  they  are  so-called  investments  packaged  as  life  insurance 
policies (notably unit-linked, index-linked and certain with-profits products, hereafter life insurances 
with  investment  elements).  The  second  category  covers  life  insurance  products  which  are  easily 
understandable  for  consumers  and  have  a  long  tradition  such  as  a  term  life  insurance  policy,  which 
pays  a  specified  amount  of  money  if  the  policyholder  dies  during  the  term  of  the  policy  (pure  life 
insurances).41 

General  insurance  or  non-life  insurance  policies,  such  as  automobile  and  homeowners'  policies, 
provide payments depending on the loss suffered from a particular event. General insurance comprises 
any insurance that is not determined to be life insurance. The classes of non-life insurance are listed in 
Annex  1  of  the  Solvency  II  Directive.  The  scope  of  this  impact  assessment  covers  all  insurance 
products. 

In  some  countries,  a  very  high  proportion  of  people  have  home,  health  or  car 
insurance; for example, in the Netherlands 88% of people do so; in Sweden 88% and 
in  Denmark  86%.  In  Bulgaria,  however,  only  20%  of  respondents  say  they  have 
these insurance products, and 25% in Poland.  

The geographical pattern is very similar in the case of life insurance. At least a third 
of citizens in 16 Member States have life insurance, whilst a majority holds this type 
of product in Sweden (60%) and Denmark (53%). Yet in three Member States, fewer 
than one in 10 have life insurance: Bulgaria (5%), Greece (6%) and Romania (8%). 
42 

2.2.3.  Market operators and distribution channels (Annex 8) 

Insurance  distribution  structures  across  EU  insurance  markets  are  diverse  and 
complex.  Insurance  products  are  sold  directly  by  insurers  and  through  insurance 
intermediaries.  Both  use  different  means  of  distance  marketing  (e.g.  by  telephone 
and,  increasingly,  through  internet  web-sites).  The  main  market  players  include 
intermediaries  (agents,  independent  brokers  and  bank-assurers),  a  significant 
proportion of which are SMEs, and direct writers (insurance companies). There are 
several types of intermediaries. Brokers sell and compare several insurance products. 
Tied agents are those who exclusively sell the products of one insurance undertaking. 
Multi-tied and non-tied agents work with several insurance undertakings but they do 
not sell competing products.  

In  Europe,  non-life  insurance  products  are  mainly  provided  by  intermediaries  (i.e. 
agents,  brokers  and  bank-assurers),  but  there  are  important  national  differences  in 
market structure (examples):  

41 

42 

International  Financial  Reporting  Standard  4  (IFRS  4)  "Insurance  Contracts"  was  issued  by  the 
International  Accounting  Standards  Board  (IASB)  in  March  2004.,  Annex  B  19.  According  to  the 
International Financial Reporting Standards (IFRS), an insurance contract is contract under which one 
party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing 
to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects 
the  policyholder.  The  definition  of  an  insurance  contract  refers  to  insurance  risk,  which  this  IFRS 
defines  as  risk,  other  than  financial  risk,  transferred  from  the  holder  of  a  contract  to  the  issuer.  A 
contract that exposes the issuer to financial risk without significant insurance risk is not an insurance 
contract. 
Eurobarometer.,http://ec.europa.eu/public_opinion/archives/eb/eb75/eb75_en.htm 

EN 

13 

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• 

Agent-  and  broker-driven  markets:  the  UK,  Germany,  the  Netherlands, 
Belgium,  Ireland,  Italy,  Poland,  Austria,  Portugal,  Luxembourg,  Bulgaria, 
Romania.  

• 

Direct writer-driven markets: France, Spain, Finland. 

The  table  below  provides  an  example  of  how  markets  are  organized  in  different  Member  States  in 
view of the various distribution channels in the non-life insurance sector. 

Table 3 

Overall,  in  this  group  of  20  Member  States,  intermediaries  accounted  for  slightly 
more  than  80%  of  all  insurance  premiums  collected  in  2008.  In  none  of  these 
Member States the intermediaries’ share of total premiums (life and non-life) is less 
than 50%. 43 

2.2.4.  Role of SMEs in the insurance markets 

About  95%  of  registered  insurance  intermediaries  in  the  EU  are  micro  enterprises 
and SMEs (as defined by other EU Directives44). 80% of travel agents and car rental 

43 
44

http://psead.com/userfiles/attach_Extracts_from_Draft_LE_Report[1].pdf 
The  category  of  micro,  small  and  medium-sized  enterprises  (SMEs)  is  made  up  of  enterprises  which 
employ  fewer  than  250  persons  and  which  have  an  annual  turnover  not  exceeding  EUR  50  million, 
and/or an annual balance sheet total not exceeding EUR 43 million. Within the SME category, a small 
enterprise is defined as an enterprise which employs fewer than 50 persons and whose annual turnover 
and/or  annual  balance  sheet  total  does  not  exceed  EUR  10  million.  Within  the  SME  category,  a 
microenterprise  is  defined  as  an  enterprise  which  employs  fewer  than  10  persons  and  whose  annual 

EN 

14 

   EN 

 
 
 
                                                 
 
companies  which  sell  insurance  products are  SMEs.  Some  loss  adjusters  and  claim 
handling companies involved in after-sales services are also SMEs. No direct sellers 
or banks are SMEs. 

Banks,  internet  operators  and  direct  writers  compete  with  insurance  intermediaries. 
SMEs  intermediaries  make  insurance  more  accessible  to  consumers  and  smaller 
businesses.  Thanks  to  intermediaries,  more  people  and  businesses  have  access  to  a 
broad range of insurance products.  

Insurance intermediaries: around 750 000 entities operating in the EU, of which SMEs: 95% 

Direct writers: 4618 undertakings in the EU. Insurance companies cannot be SMEs due to prudential 
and consumer protection rules. 

Travel agents: 68 000 undertakings in the EU, of which SMEs: 80% 

Car rentals: 30 976 undertakings in the EU, of which SMEs: 80%. 

3. 

IDENTIFICATION OF PROBLEMS 

3.1. 

General  problems  related  to  IMD  1  on  both  insurance  and  insurance  PRIPs 
products 

The following main problem areas relating to IMD1 have been identified: 

In this chapter we discuss the existing problems in these five areas. Most problems 
are  similar  for  "classic"  insurance  (life  and  non-life  insurance)  and  for  PRIPs,  but, 
due  to  the  complex  nature  of  the  latter,  certain  aspects  of  these  are  dealt  with  in  a 
separate section. 

turnover  and/or  annual  balance 
http://ec.europa.eu/enterprise/policies/sme/files/sme_definition/sme_user_guide_en.pdf  

total  does  not  exceed  EUR  2  million.  See: 

sheet 

EN 

15 

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3.1.1.  Narrow scope  

3.1.1.1.  Which sellers of insurance fall outside the scope of IMD1? 

Under IMD1 the information requirements aiming to protect consumers apply only to 
those intermediaries that are in scope of the Directive. As explained above, insurance 
companies  (direct  writers)  and  sellers  of  certain  insurance  products  on  an  ancillary 
basis who fulfil certain conditions and where the premium does not exceed EUR 500 
per year (such as mobile phone sellers and travel agents) are excluded from scope.  

Figures  from  all  Member  States  –  with  the  exception  of  Belgium,  the  Netherlands, 
Romania  and  Denmark  -  show  that  49%  of  the  sellers  of  insurance  products  and 
other market players involved in the after-sales process (e.g. direct writers, car rental 
firms, bank-assurers, travel agents, claims handlers, loss adjusters, etc.45) fall outside 
the scope of IMD1. This unevenness in terms of information provisions undermines 
consumer protection. 

There  is  some  evidence  to  suggest  that  a  number  of  consumer  complaints  relate  to 
sales  by  some  of  these  sellers  which  are  outside  the  scope,  particularly,  travel 
insurance sold by travel agents46. Studies shows that in the UK, 67% of consumers 
buying from a travel agent believe that most travel insurance policies are much the 
same.  It  has  been  found  that  97%  of  consumers  want  all  companies  selling  travel 
insurance to be required by law to explain to customers the details of the policy they 
are buying.47 Association of travel agents and car rental/leasing companies agreed to 
be subject to a lighter version of the IMD.48 

As  for  loss  adjusters,  the  European  Court  of  Justice  recognises  in  one  ofi  ts 
judgements that a loss adjuster is not necessarily a technical expert. He protects the 
interests of his principal (the insurer). The activity of loss-adjustment is done during 
the  investigation  of  claims.  Nevertheless  the  final  decision  as  to  the  amount  to  be 
paid  rests  with  the  insurer.  The  injured  party  cannot  apparently  bring  an  action 
against  the  loss-adjuster  which  leads  to  conflicts  of  interests.49  During  the 
preparatory  work  of  the  Directive,  loss  adjusters  themselves  advocated  for  sectoral 
passports/mutual recognition environment in order to boost their cross border trade.50 

Several  consumer  organisations  suggested 
insurance 
intermediation  should  be  built  on  a  pure  activity-based  principle,  meaning  that  any 
market  player  pursuing  the  activity  of  selling  insurance  products  on  a  professional 
basis should be regulated by the Directive.51  

the  definition  of 

that 

Member  States  have  interpreted  the  scope  provisions  of  Article  1(2)  differently. 
Whereas some Member States have extended the scope of the Directive only to cover 

45 
46 

47 
48 
49 

50 
51 

figure 

is  more 

than  9%.  Hungarian  Supervisory  Authority 

See PwC study, p.17. and further 
While in France only 2.3% of all complaints related to sales of travel insurance, in Hungary for example 
this 
- 
http://www.pszaf.hu/data/cms2322251/fogyved_beadv_2011Q3.pdf. 
http://www.biba.org.uk/UploadedFiles/5traveltreasury.pdf 
http://www.ectaa.org/Home/Publications/RecentPosition/tabid/101/language/en-US/Default.aspx and  
The European Court of Justice expressed its views on the nature and activities of the independent loss 
adjuster in a ruling of 1977 (Ameyde v UCI, C-90/76) under numbers 3 - 5 of "facts and procedure". 
Letters from FUEDI to the European Commission,,www. fuedi.eu. 
See Annex 6, results of the public consultations 

statistics  2011 

EN 

16 

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direct writers, others, such as the UK included in its scope also travel insurance, as a 
relatively  complex  product  yielding  consumer  protection  benefits  52.  There  are, 
however, some 68 000 travel agents and tour operators in the Union selling 90% of 
travel policies which are not subject to the IMD's requirements. 

Similarly, people who give consumers information about insurance intermediaries or 
undertakings are regarded as within scope in the UK, but not in some other Member 
States. And finally in some Member States car rental companies are exempted when 
selling insurance products. 

It  is  therefore  clear  that  the  scope  of  both  the  IMD  and  domestic  regulation  varies 
between Member States.  

The  responses  to  the  public  consultation  and  the  discussions  at  the  public  hearing 
clearly identified the unclear scope as problematic. EIOPA and the vast majority of 
stakeholders  were  in  favour  of  clarifying  and  amending  the  exemptions  in  Article 
1(2) IMD in order to reduce the risk of confusion for consumers and the variation of 
levels  of  consumer  protection  between  Member  States.  The  lack  of  clarity 
concerning  the  scope  of  those  persons  covered  by  IMD  requirements  also  raises  a 
single  market  issue  insofar  as  those  persons  that  are  outside  the  scope  of  the  IMD 
will not be able to derive a passporting right from it, thus creating an unlevel playing 
field at a European level. 

3.1.1.2.  Which buyers of insurance fall outside the scope of IMD1? 

Buyers  of  insurance  products  can  be  differentiated  according  to  their  profile 
(business  clients  or  consumers)  and  according  to  the  size  of  the  risk  to  be  insured. 
Most policies are issued to consumers. For example, in 2009, more than two thirds of 
all  newly  concluded  life  insurance  contracts  were  with  individuals  (not  group  life 
insurance policies) 53.  

Business clients have been excluded from the specific protection rules designed for 
consumers  in  all  financial  services  legislation  (including  MiFID),  except  in 
insurance.  In  insurance,  size  criteria  are  used,  and  in  the  case  of  "large  risks",  i.e. 
risks above a certain threshold54 (normally business risks), insurance intermediaries 
do not need to apply the information requirements. 

Some  respondents  to  the  public  consultation,  notably  the  consumer  organisations, 
state that the disclosure requirements for IMD2 should be aligned with the approach 
in other areas of financial services. Most stakeholders therefore argued that the scope 
of IMD1 should be any natural person plus SMEs, but professional clients should be 
excluded. The vast majority of stakeholders also believe that the current exemption 
for insurance intermediaries from requirements to provide information in the "large 
risks" area (e.g. a person who buys insurance cover for his private airplane) is useful 
and should be maintained. 

52 
53 
54 

Regulating connected travel insurance http://www.fsa.gov.uk/pubs/cp/cp07_22.pdf. 
CEA statistics 2009. 
Art 12(4) IMD1 

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3.1.2.  Conflicts of interest 

to  understand  for 
Insurance  contracts  are  often  complicated  and  difficult 
consumers.55  Intermediaries 
in  processing 
information for the consumer and guiding consumers in choosing suitable insurance 
policies.  Some  studies  actually  suggest  that  intermediation  is  a  necessity  in  some 
areas of insurance.56  

therefore  play  an 

important  role 

But an intermediary may be confronted with a conflict of interest stemming from the 
way in which he is remunerated. Sometimes the intermediary is remunerated by the 
client (by way of a “fee”), but often the intermediary will be paid by the insurance 
undertakings  whose  policies  he  sells  (by  way  of  a  “commission”).  Often  the 
customer is not aware of the way in which the intermediary is remunerated or what 
relationship he has with the insurance undertaking. 

Conflicts  of  interest  stemming  from  remuneration  structures  can  lead  to  consumer 
harm  in  two  slightly  different  ways:  either  through  a  lock-in  of  intermediaries  into 
quasi-exclusive  dealing  arrangements  with  a  single  upstream  insurance  company 
(whereby  consumers  turning  to  the  intermediary  will  not  have  sufficient  choice  to 
best satisfy their needs); or through biased advice (see next section) to the consumer.  

In  the  2007  Commission  Business  Insurance  Sector  Enquiry,  the  Commission 
Services  found  that  the  dual  role  of  brokers  may  impact  the  objectivity  of  their 
advice57.  This  could  lead  to  a  situation  where  customers  do  not  trust  advice  from 
intermediaries and other financial advisers. In a study led by AVIVA58 in 2008, 49% 
of those interviewed trusted recommendations by friends, family and other informal 
sources  more  than  those  of  professionals.  Only  35%  of  those  interviewed  relied  on 
professional advice. In Hungary this figure was only 17%. The lack of trust and of 
information  about  the  links  between  the  intermediary  and  the  company  could 
therefore  have  a  negative  impact  on  the  market,  by  restricting  choice  and 
competition.  

Since IMD1 does not contain information requirements relating to the remuneration 
of intermediaries or the disclosure of their relationship with the direct writer (other 
than in relation to certain shareholding thresholds), Member States are free to impose 
their own rules. The vast majority of Member States (21 out of 27) have left this area 
totally  unregulated,  whilst  other  Member  States  have  introduced  stricter  rules;  for 
example,  the  United  Kingdom,  the  Netherlands,  France,  Sweden,  Denmark  and 
Finland  have  introduced  additional  information  requirements.  These  variations  in 
national rules mean that consumers in different Member States are not protected to 
the  same  extent.  They  also  result  in  an  unlevel  playing  field  between  sellers  of 
insurance  products  which  operate  on  a  cross-border  basis  and,  in  some  Member 
States, between sellers of insurance and investment products of a similar nature. 

55 

56 

57 
58 

Aviva survey on consumer attitudes: http://www.aviva.com/customers/consumer-attitudes-survey/; DG 
SANCO research on behavioural economics: 
http://ec.europa.eu/consumers/dyna/conference/economics_en.htm. 
DG  SANCO  study  of  non-profit  entities  providing  General  Financial  Advice  (GFA)  across  the 
European Union; http://ec.europa.eu/consumers/rights/docs/mapping_nonprofit_entities_en.pdf 
http://ec.europa.eu/consumers/rights/docs/investment_advice_study_en.pdf 
Aviva survey on consumer attitudes: http://www.aviva.com/customers/consumer-attitudes-survey 

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3.1.3.  Advice and professional qualifications 

The quality of the service provided by insurance intermediaries and sellers of insurance 
products depends on professional competence. As indicated above, the scope of IMD1 
is  limited  and  many  market  players  are  exempted  and  thus  not  subject  to  any 
professional qualification rules. In addition, the rules in IMD1 are too general and do 
not differentiate between complex and simpler products.  

The  majority  of  Member  States  divide  intermediaries  into  different  categories.  The 
most  common  division  is  that  between  insurance  agents,  insurance  brokers,  sub-
agents and insurance consultants, and some have chosen to use the definition of tied 
insurance  intermediary  in  Article  2(7).  In  some  Member  States,  a  qualifying 
examination is necessary to become an agent or a broker, and in others it is necessary 
to  attend  a  training  course,  which  can  range  from  50  hours  to  a  maximum  of  500 
hours. Some Member States require experience which can vary from 6 months to 4 
years.  In  particular,  complicated  products,  such  as  life  insurance  products  with 
investment  elements  (insurance  PRIPs),  might  require  higher  levels  of  knowledge 
and ability from the insurance intermediary. 

Unsuitable  or  low  quality  advice  leads  to  consumers  buying  products  they  do  not 
need, or products not adapted to their needs. This creates higher costs and increases 
the risk of  default under,  or  cancellation of, the insurance  policy,  resulting in extra 
costs.59 

According  to  consumer  groups  responding  to  the  public  consultation  (FSUG,  the 
German  association  of  consumers  and  BEUC)  a  definition  of  "advice"  should  be 
introduced, meaning an independent service to consumers. Consumer groups advocate 
that  a  definition  is  very  important  so  that  it  gets  possible  to  distinguish  between 
information, advertising and personalised advice which can only be given and products 
proposed  after  the  needs  and  demands  of  the  consumers  have  been  actively  detected 
and analysed by the intermediary. In Germany,  insurance  intermediaries  try  to  avoid 
giving  “advice”  to  consumers.  In  a  telephone  survey,  only  52  %  of  the  consumers 
received  “advice”  from  insurance  intermediaries.  According  to  consumer  groups,  if 
advice  is  inaccurate  or  of  poor  quality,  consumers  make  wrong  choices  and buy  (or, 
rather, are sold) the wrong products (including, for example, policies under which they 
are over- or under-insured). 

Consumer dissatisfaction: the number of complaints in relation to insurance products 
is  on  the  increase,  according  to  information  from  dispute  resolution  bodies  across 
Europe. There is about a 30% increase in the total number of complaints addressed to 
the insurance mediator in France in 2011, compared to 2010,60 while in Poland the 
number  of  complaints  about  the  sales  of  insurance  policies  in  general  has  tripled 
between  2007  and 2010.61 In 2010  the Belgian insurance  ombudsman  had received 
some  10%  more  complaints  than  during  the  previous  year,62  and  in  Hungary  the 

59 
60 
61 

62 

See more in section 8.5 on benefits. 
Le Médiateur de la Fédération Française des Sociétés d'Assurances, Rapport Annuel 2010 
Sprawozdanie Rzecznika Ubezpieczonych Za 2010 Rok 
http://www.rzu.gov.pl/files/3089__5164__Sprawozdanie_Rzecznika_Ubezpieczonych_za_rok_2010.pd
f  
Annual report of the Belgian Insurance Ombudsman 2010 
http://www.ombudsman.as/fr/documents/Rapport_Ombudsman_2010.pdf  

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number of complaints registered with the financial supervisory authority has doubled 
between 2007 and 2009.63  

Without adequate level of professional qualifications, there is a risk of the quality of 
insurance  advice  being  undermined,  which  could  potentially  lead  to  consumer 
detriment. 

3.1.4.  Cross-border business 

The market for cross-border insurance services in general, irrespective of the means 
of  marketing,  is  still  very  limited  in  the  retail  insurance  sector.  Evidence  suggests 
that  only  global  and  multinational  business insurance  intermediaries,  serving  major 
multinational and domestic firms, and providing a wide range of services in addition 
to traditional brokerage, establish themselves in several Member States. 

When  an  intermediary  wants  to  sell  insurance  products  cross-border  under  the 
freedom  to  provide  services  (FOS),  he  must  notify  his  intention  to  the  competent 
authority of his home Member State (which must notify the host Member State) and 
go  through  a  notification  procedure.  Several  respondents  to  the  public  consultation 
from  the  insurance  industry  and  insurance  intermediaries,  as  well  as  EIOPA, 
acknowledged  that  there  is  room  for  improvement  as  cross  border  business  is 
hampered by current legislation. There are different approaches to the FOS problem 
in  current  EU  legislation,  all  of  which  appear  more  favourable  than  that  under 
IMD1.64 

The total cross-border life insurance business was roughly 5% in 2007. In 2008, the 
business  declined  due  to  the  financial  crisis.  In  non-life  segment,  the  cross  border 
business  accounts  for  8%  of  total  non-life  business.  The  majority  is  industrial  and 
P&C insurance. 65 

There  is  no  single  EU  register  for  insurance  intermediaries  where  a  consumer  can 
easily find information about registered sellers of different insurance products. As a 
consequence, sellers of insurance products lack easy access to information about how 
to go cross-border and this has a negative impact on competition in the EU insurance 
market.66  

63 

64 

65 

66 

Hungarian Supervisory Authority statistics - 
http://www.pszaf.hu/data/cms2136356/2009_IV_negyedeves_panaszkezelesi_taj.pdf  
Under Solvency II and MiFID, the intermediary can go cross-border immediately upon notification by 
home  to  host  Member  States.  In  the  banking  area,  the  intermediary  can  go  cross-border  immediately 
upon receipt by the Home State of the firm’s intention to passport under FOS. 
Source:  Data  based  on  Swiss  RE  data  from  World  Insurance  report  2008  own  calculation, 
http://www.towersperrin.com/tp/getwebcachedoc?webc=USA/2009/200911/Emp_09-3_Art-3_Europ-
Web.pdf , plus Communication of the Commission on the review of the DMFS Directive (2002/65/EC) 
http://ec.europa.eu/consumers/rights/docs/com_review_distance_mark_cfsd_en.pdf.The  data  collected 
in the Report comes from Eurobarometer 2008 and are based on material obtained prior to the economic 
and financial crisis. This means that during and after the crisis, the percentage of cross-border trade in 
financial  services  is  even  lower.  There  is  no  more  recent  data  available  dealing  with  cross  border 
business. 
Annex 6, results of the public consultation. 

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3.1.5. 

Sanctions in insurance distribution 

At present, sanctions are not harmonised in any financial services legislation at EU 
level  and  the  analysis  of  national  sanctioning  regimes  has  shown  that  they  are 
divergent and not always sufficiently deterrent67.  

In  the  insurance  sector,  a  preliminary  mapping  exercise  of  national  sanctioning 
regimes  was  carried  out  in  2009  by  EIOPA  (then  CEIOPS).  EIOPA  gathered 
additional information68 from 13 Member States (these are enumerated in the Annex 
15)  by  means  of  a  questionnaire  on  the  administrative  sanctions  in  national 
legislation for violations of the obligations foreseen in the laws transposing IMD1. 

The  most  common  violations  of  IMD1  are:  a  failure  of  insurance  intermediaries  to 
register, or the use of unregistered intermediaries by insurance undertakings (Art. 8 
(1)-(2)); a failure to comply with professional requirements (appropriate knowledge 
and ability, good repute "fit and proper" conditions, (Art. 4); a failure to comply with 
information requirements (Art. 12); and a failure to provide a fair analysis where an 
intermediary gives advice under Article 12 (2). 

The most common problems in national sanction regimes related to breaches of the 
rules laid down by the IMD are (see Annex 15 for details): 

(a)  Lack of powers for competent authorities 

(b)  Low number of sanctions issued  

(c)  General lack of deterrence, lack of publication of sanctions issued 

(d)  A level of fines which is too low 

(governments,  some 

The  majority  of  respondents  in  the  public  consultation  on  the  Communication  on 
representatives,  consumers/investors 
sanctions 
associations)  share  the  view  that  lack  of  important  sanctioning  powers  and 
appropriate  criteria  for  the  application  of  sanctions  may  send  the  message  that  the 
consequences  of  illegal  behaviours  are  not  serious,  which  will  not  discourage  such 
behaviours. 69 

industry 

The problems mentioned above give a very strong signal that the enforcement system 
is  not  working.  Authorities  often  lack  powers;  other  authorities  do  not  enforce  the 
rules. The fines vary for instance between a minimum of 25 EUR (Belgium) and a 
maximum  of  100  million  EUR  (France).  The  low  level  of  sanctions  confirms  the 
general feeling among many consumers that complaints to insurance companies or to 
the  authorities  do  not  lead  anywhere.  Input  from  EIOPA  and  national  insurance 

67 

68 

69 

Problems  arising  from  this  have  already  been  discussed  in  the  Impact  Assessment  concerning  the 
Commission's Communication on sanctions in financial services in 2010. 
CEIOPS'  Report  to  the  European  Commission  on  EU  Supervisory  Powers,  Objectives,  Sanctioning 
Powers  and  Regimes:  https://eiopa.europa.eu/fileadmin/tx_dam/files/publications/reports/Supervisory-
powers-rep-09/CEIOPS-report-on-supervisory-powers.pdf 
Replies to the consultation can be found at 
http://ec.europa.eu/internal_market/consultations/2010/sanctions_en.htm 

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ombudsmen gives similar indications70. Market actors can use the freedom to provide 
services or to establish themselves in countries with a lenient regime.71 

Divergences  and  weaknesses  in  national  sanctioning  regimes  may  prevent  the 
development of a level playing field within the Internal Market: unequal treatment of 
violations in different Member States, along with other regulatory divergences, risks 
creating  competitive  disadvantages  for  insurance  intermediaries  from  certain 
Member  States.  Despite  the  current  low  level  of  cross-border  activities  in  the 
insurance mediation sector, it cannot be excluded that market players subject to IMD 
rules  (which  will  include  cross-border  insurance  undertakings)  may  exploit 
differences between sanctioning regimes in different Member States. 

The main conclusion from a recent Eurobarometer report is that consumers in Europe 
continue  to  feel  powerless  in  relation  to  insurance  providers:  65%  of  consumers 
believe they will never win in a dispute with an insurance company and 60% believe 
that  "you  never  can  be  sure  of  your  insurance  cover".  This  impacts  the  number  of 
complaints and the number of sanctioning cases. 

3.2. 

Problems relating to Packaged Retail Investment Products (PRIPs)  

The problems explained above are similar, but even more pronounced, in the case of 
investment based insurance products, because of their high complexity. This section 
presents  evidence  for  the  above-stated  problems  in  the  context  of  PRIPs  insurance 
products.72  

Consumer protection standards for the sales of insurance PRIPs73 are not sufficient at 
EU  level,  as  IMD  1  does  not  contain  special  rules  for  the  sales  of  life  insurance 
products with investment elements, which are generally more complicated than other 
insurance products. Currently, those products are sold under the general rules for the 
sales of insurance products, even though these products are very different in nature 
and generally represent higher risks for retail consumers.74 

There is market evidence of a very high number of complaints regarding the sale of 
unit-linked insurance products in many Member States. For example, in France these 
complaints were about one third of all complaints in 201075. In Hungary, about 15% 

70 

71 
72 

73 

74 
75 

https://eiopa.europa.eu/fileadmin/tx_dam/files/publications/reports/IMD-advice-20101111/20101111-
CEIOPS-Advice-on-IMD-Revision.pdf 
More evidence can be found in Annex 15. 
There is a key difference between the sanctioning regime established by PRIPs Regulation and those of 
the IMD2. Key violations of PRIPs regulations are linked to product disclosure whilst the IMD2 will 
deal  with  key  violations  of  selling  practices.  One  breach  cannot  be  sanctioned  twice  as  the  types  of 
breaches are different. Further explanations can be found in Annex 3. 
The PRIPs market has three key characteristics (as described in the IA on PRIPs from May 2011): 1. 
Powerful asymmetries of information exist between retail customers and the industry, requiring robust 
regulatory  interventions;  2.  There  is  a  proliferation  in  products  taking  different  legal  forms  and 
structures yet offering comparable risk/reward profiles; and 3. The regulation of different product types 
greatly  varies depending  on the  product's  legal  form  rather  than  its  economic  nature  (e.g. risk/reward 
profile). 
Annex 12 - EIOPA Report on Consumer Trends November 2011 
Le Médiateur de la Fédération Française des Sociétés d'Assurances, Rapport Annuel 2010 

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of  the  registered  complaints  in  2011  related  to  sales  of  unit-linked  insurance,  and 
they had doubled in relation to the previous year76.  

Many  responses  from  consumer  organisations  to  the  Call  for  Evidence  on  unit-
linked life insurance policies highlighted deficiencies with regard to the sale of these 
products  and  of  the  costs  associated  with  this  type  of  investment.  Regulators  have 
reported  that  differences  in  regulation  between  life  insurance  products  and  mutual 
funds have caused significant problems.  

A recent example of such a potential distortion in sales is the alleged mis-selling of 
equity-linked insurance products in the Netherlands, which resulted in a class action 
lawsuit.  The  complaint  was  that  there  was  insufficient  disclosure  of  the  costs 
associated  with  those  policies,  leading  to  investment  returns  that  were  significantly 
lower than investors had been led to expect and to penalties on early withdrawal that 
were  not  expected.  There  are  other  examples;  for  instance,  a  Belgian  consumer 
association has warned that rules on advertising unit-linked life insurance in Belgium 
do  not  specify  how  information  on  past  returns  should  be  presented  so  as  to  avoid 
misleading prospective investors. 77 

investment  products  and 

insurance-based 
The  substitutability  of  MiFID 
investments was  highlighted  by a recent study of retail investment services for DG 
SANCO.  The  study,  reporting  on  the  results  of  mystery  shopping78  for  investment 
products  across  the  EU,  indicated  that  in  fact  almost  20%  of  mystery  shoppers 
received  a  recommendation  to  buy  unit-linked  life-insurance  policies79.  This  shows 
that, when consumers are looking for investment products, they might be sold either 
pure  investment  products  or  insurance  products  with  investment  elements.  This 
proves the substitutability of those products. 

This is also apparent from the availability of ‘open-architecture’ insurance products 
that  provide  investment  exposure  to  the  performance  of  UCITS  or  other  MiFID 
products. 80 

The  aforementioned  SANCO  Study  on  Advice  observed  that  countries  with  an 
especially high incidence of "unsuitable product recommendations" tend to be the 
ones with more developed financial industries, for example, Denmark (68%), Finland 
(56%), Netherlands (52%), Sweden (58%), the UK (55%). It was concluded that, out 

76 
77 
78 

79 

80 

Hungarian Supervisory Authority statistics - http://www.pszaf.hu  
See the above mentioned Consumer report. (EIOPA Report on Consumer Trends November 2011) 
Mystery shopping (or a mystery consumer) is a tool, used externally by market research companies or 
watchdog  organizations  or  internally  by  companies  themselves,  to  measure  quality  of  service  or 
compliance to regulation. Mystery shoppers perform specific tasks such as purchasing a product, asking 
questions,  registering  complaints  or  behaving  in  a  certain  way,  and  then  provide  detailed  reports  or 
feedback about their experiences. 
Consumer  Market  Study  on  Advice  within  the  Area  of  Retail  Investment  Services  –  Final  Report, 
prepared  for  European  Commission,  DG  Heath  and  Consumer  Protection  by  Synovate,  2011,  see 
reference above) 
For  example,  a  recent  analysis  of  the  distribution  of  UCITS  by  Caceis  Investor  Services  placed 
insurance wrappers (together with retail and private banks and Independent Financial Advisers), as the 
main  distribution  channels  of  UCITS,  ahead  of  fund  platforms  and  direct  selling.  Evidence  of  the 
substitutability of insurance-based investments and MiFID investments in the UK comes from both the 
popularity of unit-linked bonds over more traditional life assurance-based investments – they accounted 
for  48%  of  the  single  premium  life  market  in  the  UK  –  and  the  growth  of  wrap  platforms  and  fund 
supermarkets. The above mentioned trend can also be witnessed in other Member States.  

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of all sales of investment products (regulated under MiFID 1), 57% were  based on 
unsuitable advice.  

Unsuitable financial advice has a significant impact on investor losses and investor 
confidence. It has been observed through anecdotal evidence that for one type of life 
insurance  products,  variable  annuities,  in  about  25%  of  cases  consumers  withdraw 
from  the  contracts  before  they  mature  (see  the  impact  section  for  the  estimated 
benefits ). But a study in Germany indicates that consumers terminate 50% to 80% of 
all  long-term  investments  prematurely  because  of  unsuitable  advice  when  buying 
financial products. This leads to estimated losses to consumers of 20-30 billion Euros 
every year81. The issue of unsuitable advice may be symptomatic of a wider problem 
within  the  EU.  For  example,  recent  data  provided  to  the  Commission  by  the  FIN-
NET network showed an increase in the number of complaints relating to financial 
advice on investment products, specifically in Italy, Ireland, France, and Belgium.  

In  the  absence  of  EU  rules  regulators  have  responded  differently  by  asking  for 
increased transparency (for instance remuneration disclosure) or, where their action 
captures  complex  products  in  general,  providing  guidance  on  pre-contractual 
disclosure or calling for a moratorium:82 (see the text in the following box for more 
information). 

In Belgium: the supervisory authority has examined the trend towards increased complexity and has 
recently  taken  the  initiative  to  launch  a  moratorium  on  the  distribution  of  unnecessarily  complex 
structured products to retail investors (life insurance contracts included).  

In Finland, the supervisory authority is preparing regulations and guidelines on disclosure of costs and 
profits of life insurance policies. The new requirements are based on the inspections by the Finnish 
supervisory authorities and their finding that there is no adequate transparency in disclosure of costs 
of  underlying  investments.  The  insurer  will  have  to  disclose  the  costs  related  to  the  underlying 
investment products in a more detailed way than before83. 

In  France,  the  supervisory  authority  (Autorité  de  Contrôle  Prudentiel  –  ACP)  has  issued  a 
recommendation concerning the use of structured financial instruments as units of account that carry a 
risk  of  mis-selling  due  to  their  complex  nature.  The  recommendation  sets  out  how  insurers  and 
insurance  intermediaries  can  comply  with  their  legal  and  regulatory  obligations  in  terms  of 
information  and  advice  to  consumers  who  wish  to  buy  such  products,  including  unit-linked  life 
insurance products. 

4. 

SUBSIDIARITY 

4.1. 

How would the problem evolve without EU action? The base line scenario  

If IMD1 is not revised, it is very likely that the problems that have been identified 
will  persist  and  could  be  aggravated  by  future  market  developments,  as  very  few 
counterbalancing  factors  are  likely  to  appear.  On  the  major  issue  of  consumer 

81 

82 

83 

Study  of  Evers  and  Jung,  Anforderungen  an  Finanzvermittler,  September  2008,  launched  by  the 
German Consumer Affairs Ministry. 
EIOPA  Report  on  collecting,  analysing  and  reporting  on  Consumer  Trends,  EIOPA-CCPFI-11/023., 
Annex 12. 
High Court rulings related to insurance issues are very rare in Finland. In 2010, the Finnish High Court 
gave  a  ruling  in  a  case  where  a  foreign  EEA-life  insurer  gave  misleading  information  on  the  costs 
structure of the product.  

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protection, a lack of action at EU level will likely result in an increase in the number 
of cases of mis-selling of insurance products and cases where consumers are led to 
take undue risks.84 

An unlevel playing field develops between product issuers 

A  regulatory  patchwork  can  lead  to  increased  administrative  costs  and  regulatory 
arbitrage.  Different  levels  of  regulatory  requirements  can  create  an  incentive  for 
products  to  be  structured  and  marketed  to  take  advantage  of  less  onerous 
requirements.  Product  proliferation  has  been  indicated  by  some  stakeholders  as 
providing  prima  facie  evidence  of  regulatory  arbitrage.  In  practice,  however,  it  is 
difficult  to  assess  the  extent  to  which  differences  in  transparency  requirements,  as 
such,  are  a  sufficient  motivation  for  driving  market  entry  or  exit.  In  relation  to 
administrative  costs,  a  number  of  consultation  respondents  commented  that 
duplication,  overlaps  in  requirements  or  differences  in  requirements  both  sectorally 
and between Member States (where they operate cross-border) could potentially raise 
their  administrative  costs.  They  noted  that  a  lack  of  clarity  as  to  the  content  of 
regulatory  requirements  and  associated  liabilities  could  also  lead  to  greater 
compliance costs for firms (for instance, through the need to purchase legal advice).  

Increased barriers to the further development of the single market 

Most  insurance  products  are  currently  not  sold  cross-border  in  great  volumes;  only 
about 5%, unlike UCITS products. The regulatory  patchwork of sales  requirements 
constitutes  a  barrier  to  further  cross-border  business  across  different  product  types. 
The impact of national differences in sales rules was strongly highlighted by UCITS 
stakeholders  (prior  to  the  development  of  the  KIID85),  who  identified  such 
differences as a key barrier to further development of cross-border efficiencies. 

The  failure  to  effectively  mitigate  asymmetries  of  information  about  different  sales 
practices at EU level has encouraged action at the national level to address emerging 
problems,  and  the  financial  crisis  has  led  to  such  action  being  more  likely  in  the 
absence  of  further  steps  at  EU  level.  Such  action  at  national  level  is  necessarily 
uncoordinated, leading to increased differences in approach across Member States.  

In addition, given the ongoing PRIPs initiative, Member States will have to address 
disclosure  requirements  in  the  light  of  the  new  PRIPs  standard,  but  without 
harmonized sales rules for these products the effect on consumers will be different in 
different Member States.  

4.2. 

The EU's right to act  

The  legal  basis  for  EU  action  in  insurance  is  the  Treaty  provisions  related  to  free 
provision of services. According to Article 3 of the EU Treaty, the EU pursues the 
objective  of  an  Internal  Market  characterised  by  the  free  movement  of  goods, 
persons,  services,  and  capital.  Article  26  of  the  Treaty  of  the  Functioning  of  the 
European  Union  (TFEU)  further  states  that  the  Internal  Market  shall  constitute  an 
area  without  internal  frontiers  in  which  the  free  movement  of  goods,  persons, 
services and capital is ensured in accordance with the provisions of the TFEU Treaty. 

84 
85 

http://ec.europa.eu/consumers/rights/docs/investment_advice_study_en.pdf 
Key investor information document, http://www.pwc.lu/en/ucits4/docs/pwc-flyer-kiid.pdf 

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Any follow-up action needs to be based on Article 53 (2) TFEU which is the legal 
basis  to  adopt  EU  measures  aimed  at  promoting  an  internal  market  in  financial 
services. Article 169 TFEU states that the EU measures taken in order to complete 
the Internal Market should have as part of the objective of protecting the interests of 
consumers.  The  Charter  of  Fundamental  Rights  of  the  EU  also  states  in  Article  38 
that the Union shall ensure a high level of consumer protection.86 

Although  action  at  Member  State  level  could  in  principle  contribute  to  addressing 
some aspects of the problems that have been identified in the IMD, it would not be 
enough to complete the objectives.  

General insurance 

In  their  analysis  of  the  2007  CEIOPS  survey,  supervisors  indicated  that  there  was  a  need  for 
clarification of some terminology used in IMD1 and in addition, that some of IMD1’s requirements 
are impractical from the point of view of day-to-day supervision; therefore an amendment of IMD1 is 
necessary. 

Insurance PRIPs (unit-linked life insurance products) 

Several  supervisors  (DE,  FR,  HU)  reported  in  their  annual  report  that  the  problems  related  to  unit-
linked  insurance  products  deserved  special  attention.  In  particular,  the  German,  the  French  and 
Hungarian  supervisors  identified  as  a  practice  adversely  impacting  consumers  that  certain  insurers 
delay  the  fulfilment  of  customer  orders  regarding  asset  funds  if  the  issuer  suspends  the  sale  of 
underlying  assets.  In  the  course  of  2009,  2010  and  2011,  those  supervisors  addressed  an  appeal  to 
insurers distributing unit-linked life insurance products providing guidance on acceptable practices.87 
For instance, to address this issue, the Hungarian FSA (HFSA) established concept-level guidelines on 
further  developing  the  total  cost  indicator  (TCI)  of  unit-linked  life  insurance  products.  As  a 
conclusion, it has been suggested that different regulatory approaches at EU level will lead to unlevel 
market regulation. 

In  particular,  Member  States  acting  on  their  own  would  not  be  able  to  address  at 
national  level  the  problems  of  ineffectiveness  due  to  different  regimes  for  direct 
writers  and  intermediaries  across  the  EU,  non-harmonised  standards  of  advice  and 
consumer  protection  and  differences  in  qualification  requirements.  Moreover,  the 
revision  of  the  existing  Directive  aims  to  improve  consumer  mobility,  to  facilitate 
cross-border  trade  and  to  ensure  a  level  playing  field  for  all  market  players  by 
aligning the regulatory standards in different financial services sectors (aligning IMD 
with MiFID rules on sales of insurance policies with investment elements). Only EU 
action can ensure that all policyholders and beneficiaries under insurance policies in 

86 

(1) 

(2) 

(3) 

(4) 

87 

In its decision, dated 4 December 1986 (Case 205/84) , the European Court of Justice gave four reasons 
why insurance policyholders need special protection: 
Insurance is a highly particular service because it is linked to future events, the occurrence of which is 
uncertain at the time a contract is concluded; 
An insured person may find himself in a very precarious position if he does not obtain payment after 
filing a claim for compensation; 
It is very difficult for a person seeking insurance to assess the terms of a contract and the outlook for the 
insurer’s future financial position; 
Insofar  as  insurance  has  become  a  mass  phenomenon,  it  is  just  as  essential  to  protect  the  interests  of 
third parties. 
ACP Annual report 2010: http://www.banque-france.fr/acp/publications/rapports-annuels/2010-annual-
report-acp.pdf;The HFSA’s Financial Consumer Risk Report  

http://www.pszaf.hu/data/cms2325056/CP_riskreport_2011H1.pdf and BaFin report:  
http://www.bafin.de/cln_117/nn_720620/SharedDocs/Downloads/EN/Service/Jahresberichte/2009/annualreport_
_09__complete,templateId=raw,property=publicationFile.pdf/annualreport_09_complete.pdf 

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the EU benefit from equal and comprehensive protection. This EU action also aims 
to ensure a level playing field and to promote further integration within the Internal 
Market.  

It follows that, in accordance with the principles of subsidiarity and proportionality 
as  set  out  in  Article  5  TEU,  the  objectives  of  the  proposed  action  cannot  be 
sufficiently achieved by Member States and can therefore be better achieved at EU 
level.  

Alternative  legislative  solutions  and  soft  law  approaches  have  been  examined  and 
dismissed  

In its advice EIOPA examined other legislative solutions, such as the possibility of 
making  the  provisions  in  the  Luxembourg  Protocol  legally  binding  instead  of 
modifying  IMD1.  However,  without  prejudice  to  the  possibility  of  incorporating 
some of the guidance in the Luxembourg Protocol into IMD2, some Members have 
expressed  concern  about  the  feasibility  of  the  Luxembourg  Protocol  becoming  a 
legally binding EU instrument. Moreover, consideration should be given to how its 
implementation would be enforced. A different approach to a classical directive is a 
“multi-level  structure”;  that  is,  the  adoption  of  high-level  rules,  plus  more  detailed 
rules.  The  majority  of  Member  States  favoured  this  approach  which  retains  the 
conventional structure of the IMD, but adopts more detailed requirements (possibly 
in the form of regulatory technical standards or implementing technical standards) in 
limited  areas.  Such  an  alternative  could  be  complemented  by  amending  or 
incorporating provisions of the Luxembourg Protocol. 

5. 

OBJECTIVES 

The revision of IMD1 has three sets of objectives: general, specific and operational. 
The  general  objectives  are  the  overall  goals  of  the  project:  consumer  protection; 
undistorted  competition;  market  integration.  The  specific  objectives  are  the 
immediate  goals  of  IMD2,  the  targets  that  first  need  to  be  reached  in  order  for  the 
general objectives to be met: create a level playing field; reduce conflicts of interest; 
improve advice for complex products; reduce the burden for cross-border entry. The 
operational  objectives  are  the  deliverables  that  the  IMD2  project  should  produce: 
expand  the  scope  of  application  of  IMD  to  all  distribution  channels  (e.g.  direct 
writers,  car  rental  firms,  etc.);  identify,  manage  and  mitigate  conflicts  of  interest; 
raise the level of harmonisation of administrative sanctions for infringements of sales 
rules;  enhance  the  suitability  and  the  objectiveness  of  advice;  ensure  sellers' 
professional  qualifications  match  the  complexity  of  products  sold;  simplify  and 
approximate the procedure for cross-border entry to markets across the EU (See the 
objective tree below). 

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5.1. 

Consistency of the objectives with other EU policies 

The identified objectives are coherent with the EU's fundamental goals of promoting 
the harmonious and sustainable development of economic activities, a high degree of 
competitiveness, and a high level of consumer protection, which includes the safety 
and  economic  interests  of  citizens  (Article  169  TFEU).  These  objectives  are  also 
consistent with the reform programme proposed by the European Commission in its 
Communication Driving European Recovery,88 the 'Europe 2020 strategy' for smart, 
sustainable  and  inclusive  growth,89  the  ongoing  MiFID  review  and  the  PRIPs 
initiative. 

5.2. 

Consistency of the objectives with fundamental rights 

The  legislative  measures  setting  out  conduct  of  business  rules  for  all  sellers  of 
insurance  products,  including  sanctions,  will  be  in  compliance  with  relevant 
fundamental  rights  and  particular  attention  will  be  given  to  the  necessity  and 
proportionality of the legislative measures. The following fundamental rights of the 
Charter  of  Fundamental  Rights  of  the  European  Union  are  of  particular  relevance: 
freedom  to  conduct  a  business  (Art.  16)  and  consumer  protection  (Art.  38). 
Limitations  on  these  rights  and  freedoms  are  allowed  under  the  Charter.  The 
objectives  as  defined  above  are  consistent  with  the  EU's  obligations  to  respect 
fundamental  rights.  However,  any  limitation  on  the  exercise  of  these  rights  and 
freedoms must be provided for by the law and respect the essence of these rights and 

88 
89 

Communication for the spring European Council, Driving European recovery, COM (2009)114 
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:2020:FIN:EN:PDF 
http://ec.europa.eu/commission_2010-2014/barnier/headlines/news/2012/02/20120227_en.htm 

and 

EN 

28 

   EN 

 
 
 
                                                 
freedoms90. Subject to the principle of proportionality, limitations may be made only 
if they are necessary and genuinely meet the objectives of general interest recognised 
by the Union or the need to protect the rights and freedoms of others. 

6. 

POLICY OPTIONS  

6.1. 

Proposed legislative structure of IMD2 and involvement of EIOPA 

Any  new  measures  to  be  proposed  within  the  current  revision  would  follow  the 
'classical  directive'  approach,  as  is  already  the  case  with  IMD1.  Therefore, 
policyholders  and  beneficiaries  would  benefit  from  a  higher  level  of  protection  for 
general  insurance  and  for  insurance  PRIPs  products.  The  so-called  'multilevel' 
approach (see annex 6 and annex 11) would  be applied  to the chapter dealing  with 
distribution  of  insurance  PRIPs,  in  order  to  be  in  line  with  the  structure  of  the 
relevant  provisions  in  MiFID91.  Alternative  legislative  solutions  and  soft  law 
approaches have been examined and dismissed (see section 4.2.). 

6.2. 

Identification of options  

The  problems  described  above  require  different  levels  of  regulatory  solutions,  as 
indicated in the table below. 

The options highlighted in bold are the Commission Services' preferred options. 

The  options  chosen  for  general  insurance  products  apply  also  to  insurance  PRIPs. 
The options chosen only for PRIPs are additional because of the specific investment 
features of the products (see the further explanation in 2.4). 

Problems 

1 Scope of IMD2 

Policy options 

0 – Take no action (apply IMD1 to agents, brokers) 

1  –  Combine  current  IMD  scope  with  a  'Soft  law'  approach  (issuing 
guidelines,  self-regulation,  ethical  codes,  etc.)  -  recommend  to  apply 
some provisions of IMD1 to all sellers of insurance products  

Objectives 
addressed 

Consumer 
protection 

Undistorted 
competition 

Market 

90 

91 

The new rules on sanctions could have an impact on fundamental rights. Options interfere with Articles 
7  and  8  and  potentially  also  with  Articles  47  and  48  of  the  EU  Charter  on  Fundamental  Rights.  The 
indicated  policy  options  (1  and  2)  on  sanctions  provide  for  limitation  of  these  rights  in  law  while 
respecting  the  essence  of  these  rights.  Limiting  these  rights  is  necessary  to  meet  the  general  interest 
objective of ensuring compliance with IMD rules. In order to be lawful the administrative measures and 
sanctions which are imposed must be proportionate to the breach of the offence, respect the right not to 
be tried or punished twice for the same offence, the presumption of innocence, the right of defence, and 
the  right  to  an  effective  remedy  and  fair  trial  in  all  circumstances  (i.e.  proportionality  is  taken  into 
account when the preferred option was chosen). 
The  majority  of  EIOPA  Members  and  majority  of  stakeholders  (consumer  organisations,  regulators, 
supervisors,  insurance  intermediaries,  and  insurance  industry)  were  not  in  favour  of  adopting  a 
Lamfalussy  Structure  and  prefer  retaining  the  Classical  Directive  structure  of  the  IMD  (single  tier). 
Whilst  most  EIOPA  Members  supported  the  possible  adoption  of  a  multi-level  structure  as  an 
alternative solution to keeping the directive as a classical directive, some examples of eligible areas for 
a  “multi-level”  approach  either  as  regulatory  technical  standards  or  implementing  technical  standards 
by  EIOPA  were  the  following:  Professional  requirements,  Information  requirements;  Remuneration 
disclosure; Conflicts of interest. 

EN 

29 

   EN 

 
                                                 
integration 

2 – Extend the scope only to direct writers  

(so that it would cover agents, brokers, direct writers) 

3 – Extend the scope to all sellers of insurance products  

(so that it would cover direct writers, agents, brokers, travel agents, car 
rental firms, suppliers of goods (B2B + B2C)). 

4 – Extend the scope to all sellers of insurance products except for: 

• 

• 

sales  of  insurance  complementary  to  the  supply  of  goods 
(seller's side); and  

large risks/professionals (buyer's side)  

(so that it would cover direct writers, agents, brokers, travel agents, car 
rental  companies,  suppliers  of  goods  not  meeting  conditions  for 
exemption from the scope (B2C only).) 

5 – Extend the scope to: 

- all sellers of insurance products except for: 

• 

• 

sales  of  insurance  complementary  to  the  supply  of  goods 
(seller's side); and  

large risks/professionals (buyer's side) 

- and to after-sales activities 

(so that it would cover direct writers, agents, brokers, travel agents, 
car  rentals,  suppliers  of  goods  not  meeting  conditions  for  the 
exemption, loss adjusters, claim handlers ( B2C only)) 

but  with  a  lighter  "ancillary"/after-sales  regime  in  the  interests  of 
proportionality, as described in the table below. 

2  Conflicts  of  interests  at  the 
point  of  sale:  remuneration 
structure  and 
links  between 
direct writer and intermediary 

Consumer 
protection 

Undistorted 
competition 

Market 
integration 

[Options are mutually exclusive]  

General insurance 

0 – Take no action 

1 – Introduction of  

(a) a European Standard for status 
information 
card 
solution") and  

("business 

(b)  disclosure  of  nature,  structure 
and  amount  of 
remuneration 
(mandatory  or  on  request)  for  all 
products (and transitional period) 

2 – Ban on commissions (complete , 
not only for "independent advice") 

3 – Soft law (issuing guidelines, self-
regulation, ethical codes, etc.) 

[Options  1  and  3  are  not  mutually 
exclusive] 

Insurance  PRIPs  –  (life 
insurances 
with 
investment elements ) 

0  –  Take  no  action  (apply  the 
for  general 
same 
insurance) 

rules  as 

-  Apply 

1 
revised  MiFID 
entirely,  conduct  of  business 
organisational 
and 
rules 
requirements 
(risk 
management, 
internal  audit, 
etc.) (MiFID Level 1 and 2) 

2  –  Introduction  of  a  revised 
regime  based 
MiFID-like 
the  conduct  of 
only  on 
business 
(identify, 
rules 
manage  and  mitigate  all 
conflicts  of  interest  through 
commissions 
ban 
(complete 
for 
advice"), 
"independent 
II) 
(Article  23-of  MiFID 
Level 
by 
guidelines 
ESMA/EIOPA 

only 

on 

or 

2 

EN 

30 

   EN 

3. Soft law (issuing guidelines, 

 
 
 
self-regulation,  ethical  codes, 
etc.) 

4.  Prohibition  of  products 
difficult to understand even for 
professional 
market 
participants 

[Options  are  not  mutually 
exclusive]  

A 

0  –  Take  no  action  (,apply  the 
same 
for  general 
insurance 

rules  as 

life 

1 – Introduce a suitability test 
as  part  of  the  advice  process 
for 
insurances  with 
(incl. 
investment  elements 
PRIPs)  detailed  suitability 
test 
(based  on 
(Level  2) 
article 25 MiFID II ) 

2–  Ban  on  commission  fro 
independent  advice  (Art  24. 
MiFID) 

[Options  are  not  mutually 
exclusive] 

3 Advice by sellers of insurance 
policies is biased due to conflicts 
of  interest,  or  of  an  insufficient 
quality 

A/inappropriate/biased advice 

Consumer 
protection 

A  

0 – Take no action 

Undistorted 
competition 

B/low 
advice 
quality 
professional requirements 

Market 
integration 

-

1 – Introduce a suitability test as part 
of 
for  all 
insurance products 

the  advice  process 

of 

an 

the 

2  –  Clarify 
scope  of 
“insurance  advice”  by  use  of  a 
definition  -  the  intermediary  or 
employee 
insurance 
undertaking,  on  the  basis  of  the 
information  provided  by  the 
a 
customer, 
recommendation  on  whether  an 
insurance  product(s)  fits  the 
demands  and  the  needs  of  that 
customer. 

provides 

3  –  Ban  on  commission 
independent advice (Art 24. MiFID) 

fro 

[Options are not mutually exclusive] 

B 

B 

0 – Take no action (apply the 
same  rules  as  for  general 
insurance)  which  means  that 
qualifications 
professional 
are  proportionate 
the 
to 
complexity  of  the  products 
sold  (guidelines  to  be  drafted 
at Level 2). 

1  –  Full  harmonisation  of 
requirements  for  professional 
qualifications 

[Options 
exclusive] 

are 

mutually 

0 – Take no action 

that  professional 
1  –  Ensure 
qualifications  are  proportionate  to 
the complexity of the products sold 
(guidelines  to  be  drafted  at  Level 
2) 

2 
Full 
– 
requirements 
qualifications 

harmonisation 
for 

of 
professional 

3  -  Soft  law  (issuing  guidelines, 
self-regulation, ethical codes, etc.) 

[Options  1  and  3  are  not  mutually 
exclusive] 

0 – Take no action 

1 – Revise "general good" rules 

2  –  Introduce  provisions  relating  to  freedom  to  provide  services 
(FOS) and freedom of establishment (FOE) definitions and a mutual 
recognition  system  as  well  as  a  simpler  notification  process  (to 
provide greater detail and clarity). 

3 – Introduce a centralised registration system by EIOPA 

insurance 
4  Burdensome  for 
intermediaries 
direct 
writers  to  enter  markets  on 
cross-border basis  

and 

Undistorted 
competition 

Market 
integration 

Consumer 
protection 

EN 

31 

   EN 

 
 
 
5 Lack of effective sanctions 

Consumer 
protection 

Undistorted 
competition 

4 – Soft law (issuing guidelines, self-regulation, ethical codes, etc.) 

[Options are not mutually exclusive] 

0 – Take no action 

1  –  Introduce  a  general  framework  for  sanctions  and  enhanced 
harmonisation  of  sanctioning  powers  (guidelines  to  be  drafted  at 
Level 2) 

Market 
integration 

2 – Introduce fully harmonised sanctions regime by unifying sanctioning 
powers and enforcement rules 

3– Soft law (issuing guidelines, self-regulation, ethical codes, etc.) 

[Options are mutually exclusive] 

Description of policy options 

1.Scope of initiative  

Option  (0)  means  that  only  agents  and  brokers  remain  to  be  covered  by  IMD2. 
Option  (1)  would  combine  the  scope  of  IMD1  with  a  'soft  law'  approach  (issuing 
guidelines,  self-regulation,  ethical  codes,  etc.).  This  means  that  the  Commission 
would recommend applying non-binding high level, minimalist conduct of business 
rules  (such  as  professional  requirements  and  information  requirements)  to  other 
market  players  (such  as  direct  writers,  travel  agents  and  car  rental  companies). 
Option (2) would extend the scope only to direct writers, but this would leave other 
sellers  of  insurance  products  out  of  the  scope.  This  option  would  ensure  that 
insurance companies selling directly to consumers would be brought within the scope 
of the new Directive on similar grounds as insurance agents and brokers. Option (3) 
would extend the scope to all sellers of insurance products. This would include direct 
writers but also other market participants who sell insurance products on an ancillary 
basis  (travel  agents  and  car  rental  companies,  suppliers  of  goods  not  meeting 
conditions  for  the  exemption  –  declaration  requirements  should  apply  to  them). 
Option  (4)  would  extend  the  scope  as  in  solution  (3)  but,  at  the  same  time,  allow 
exemptions as follows: a) full exemption: the activity is a sale complementary to the 
supply of goods (such as glasses or mobile phones):92 as in IMD1 but €500 would be 
indexed  to  €600  (reflecting  an  increase  wh ich  has  already  been  implemented  by 
Member States in compliance with provisions contained in IMD1) or b) exemption 
from  the  disclosure  rules  only:  the  buyer  concludes  contracts  of  large  risks 
insurances (such  as  insurance  for a private jet) or the buyer is a professional  client 
(rather than a retail client). Large risks are defined by Article 13 (27) of the Solvency 
II Directive. This means that the IMD would be applicable only in B2C relationships. 
Option  (5)  would  extend  the  scope  as  in  solution  (4)  and  would  also  require  after-
sales  players  to  notify  the  competent  authorities  (through  a  simplified  declaration 
procedure) and to disclose their business status (European business card solution) to 
the consumers.  

A declaration procedure means  

92 

See more explanation in Annex 17. (flowchart) 

EN 

32 

   EN 

 
                                                 
a lighter regime which would be introduced for market players which sell insurance products on an 
ancillary basis (e.g. car rental companies, travel agents, suppliers of goods not meeting conditions for 
the exemption)  

They  should  apply  similar  conduct  of  business  rules  and  comply  with  some  basic  professional 
qualifications. 

The same lighter regime would apply for loss adjusters and claims handlers. 

The lighter regime would consist of a simplified procedure based on a declaration submitted by the 
relevant market participant to the competent authorities instead of a standard registration. If Member 
States  deem  it  necessary  for  consumer  protection  purposes  they  may  decide  to  use  the  standard 
registration regime instead of the light regime (declaration procedure). 

2. Conflicts of interest 

General insurance and insurance PRIPs 

Option  (0)  means  that  only  low  level  conflicts  of  interest  rules  would  be  applied 
(Article 12 of IMD1). Article 12 of IMD1 already addresses the issue of “conflict of 
interest”,  though  not  using  the  term.  It  requires  intermediaries,  on  a  contract-by-
contract basis, to inform the customer whether they are giving advice based upon a 
fair analysis, or whether they have contractual obligations with one or more insurers. 
In addition, the intermediary has to state in writing the reasons for any advice on a 
given  insurance  product  and  all  this  is  supervised  and  controlled  by  the  national 
supervisory authorities. 

Option  (1)  introduces  a  mandatory  standardised  business  card  (European  Business 
Card).  

European Business Card solution means  

Providing information on an A4 page, so-called "business card" to the consumer at the pre-contractual 
stage. It would show: 

the relationship between the insurance company and the seller,  

the nature of the remuneration (a fee, commission or salary), 

its structure (whether financed directly by the client or an undertaking),  

the amount of the remuneration,  

and what it includes in terms of services: claims handling, advice, administration, etc.  

This  option  introduces  a  remuneration  disclosure.  The  insurance  intermediaries 
would  disclose  in  advance  their  remuneration to the customer (fee or commission). 
The  insurance  undertakings  engaged  in  a  direct  sale  should  disclose  the  variable 
remunerations  of  their  employees  linked  to  the  sale.  Mandatory  disclosure  of 
remuneration means that the intermediary should disclose his remuneration towards 
the customer. On request regime means that the intermediary need only disclose his 
remuneration  if  a  customer  specifically  requests  the  disclosure.  The  transitional 

EN 

33 

   EN 

 
period means that a mandatory 'full disclosure' regime is envisaged for the sale of life 
insurance  products  and  an  'on–request'  regime  (i.e.  on  customer's  demand)  for  the 
sale  of  non-life  products  with  transitional  period  of  3  years.  After  the  expiry  of  3 
years transitional period, the full disclosure regime will automatically apply for the 
sale of non-life products as well. Option (2) would completely ban commissions and 
introduce a fee-based system (i.e. clients pay for advice). Option (3) would combine 
the current IMD scope with a 'soft law' approach. This means that the Commission 
would  only  recommend  applying  non-binding  conflict  of  interests  rules.  Actions 
should  be  taken  by  insurance  companies  and  sellers  voluntarily  to  refrain  from 
business conduct that is misleading (such as setting up ethical codes, etc.).  

Additional rules for insurance PRIPs  

Option  (0)  would  mean  that  the  same  rules  set  for  the  sales  of  general  insurance 
would apply to insurance PRIPs (European business card system and disclosure for 
remuneration). Option (1) would apply MiFID entirely – organisational requirements 
(risk  management,  internal  audit,  etc.)  as  well  as  conduct  of  business  rules 
(obligation to identify, manage and mitigate all conflicts of interest ). The customer 
would  be  given  information  both  about  the  product's  insurance  cover  and  the 
investment  risks  related  to  it.  Detailed  requirements  on  conduct  of  business  rules 
would  be  set  by  EIOPA  at  Level  2.  Option  (2)  would  only  apply  MiFID-based 
conduct  of  business  rules  (see  above)  and  not  apply  its  rules  for  organisational 
requirements. In view of that, EIOPA in collaboration with ESMA93 could be asked 
to  develop  guidelines  for  the  application  of  IMD2  rules  on  the  sale  of  insurance 
PRIPs in order to ensure consistency with MiFID Level 2 work.  

Level 2 guidelines mean that EIOPA will have to draft five regulatory technical standards regarding  

1) the content of adequate professional knowledge and ability of the intermediary;  

2) mutual recognition of the intermediary's professional qualifications;  

3) conflicts of interests linked to the sale of insurance investment products,  

In relation to the conflicts of interests linked to the sale of insurance investment products, EIOPA will 
have to draft regulatory standards on defining steps that may be required to identify, prevent, manage 
and  disclose  such  conflicts;  and  establishing  criteria  for  specifying  types  of  conflicts  which  may 
damage the interests of customers. 

4)  general  principles  and  information  to  customers  in  relation  to  the  sale  of  insurance  investment 
products; 

As  regards  general  principles  and  information  to  customers  in  relation  to  the  sale  of  insurance 
investment products, the regulatory standards are to ensure that insurance intermediaries comply with 
the  following  principles:1)  they  act  honestly  fairly  and  professionally  in  accordance  with  the  best 
interests  of  customers;  2)  they  ensure  that  information  given  to  customers  is  fair,  clear  and  not 
misleading; 

This means that EIOPA will have to draft regulatory standards how insurance intermediaries should 
provide  information  about  their  identity,  the  insurance  undertaking  and  their  services,  in  particular 
whether  advice  is  provided  on  an  independent  basis,  about  the  scope  of  any  market  analysis,  about 
proposed products and investment strategies, and about costs 

93 

ESMA - European Securities and Markets Authority, www.esma.europa.eu. 

EN 

34 

   EN 

 
                                                 
5) detailed suitability and appropriateness test for the sale of insurance investment products. 

EIOPA  also  will  have  to  draft  regulatory  standards  how  suitability  and  appropriateness  is  to  be 
assessed and required information to be obtained from the customer.  

More detail on Level 2 measures and specific task given to EIOPA can be found in Annex 19. 

Under Option (3), market players would be encouraged to set up ethical codes when 
selling  such  products.  Option  (4)  would  prohibit  products  that  are  difficult  to 
understand  even  for  professional  market  participants.  Option  (4)  would  completely 
ban all PRIPs insurances and require them to be withdrawn from the market. 

3. Biased and low-quality insurance advice 

Section A: Inappropriate or biased advice stemming from conflicts of interest or 
improper assessment of buyer's needs 

General insurance and PRIPs insurance 

Option  (0)  covers  all  advice  given  for  the  purpose  of  assisting  the  customer  in 
concluding  an  insurance  contract  or  with  a  view  to  the  management  or 
implementation  of  an  insurance  contract.  There  is  no  definition  of  advice  under 
IMD1. The “advice” is part of the sales discussion for an insurance product, where the 
seller analyses the consumer´s needs and tests the appropriateness of the recommended 
insurance  product  to  the  customer's  needs.  Option  (1)  would  introduce  a  detailed 
suitability  test  for  sales  of  all  insurance  products  when  there  is  a  sale  with  advice. 
Selling  without  advice  would  require  an  appropriateness  test  for  those  products 
where  the  underlying  investment  funds  are  composed  of  complex  products  (as  in 
MiFID).  This  suggested  regime  would  apply  MiFID  rules,  and  detailed  suitability 
rules would be drafted at Level 2.  

An appropriateness test means that the seller must request information from the client regarding his 
knowledge  and  experience  to  enable  the  firm  to  assess  whether  the  insurance  investment  product  is 
appropriate for the client. When advice is provided, the seller has to apply a suitability test, which is 
broader  than  the  appropriateness  test,  in  that  the  seller  must  also  obtain  information  regarding  the 
financial situation and investment objectives of the client. 

Option  (2)  would  introduce  a  definition  of  insurance  advice  along  the  lines  of  the 
provision of personal recommendations to a customer, either upon his request or at 
the initiative of the insurance undertaking or the insurance intermediary. Option (3) 
would  mean  that  the  seller  of  insurance  products  would  not  be  able  to  accept  any 
payment  provided  by  any  third  party  if  he  wanted  to  provide  the  client  with 
independent  advice.  Independent  advice  in  this  case  would  mean  that  the  seller 
covers a sufficiently large number of products and cannot receive any benefit from an 
insurance  company  (therefore  the  consumer  should  pay  a  fee  for  the  advice).  This 
option  would  thus  introduce  a  form  of  advice  aiming  at  a  higher  guarantee  of 
independence  and  market  participants  could  choose  whether  they  want  to  buy  a 
product with "independent advice" or with "advice" which is not claimed to be fully 
independent. The obligations under this option would apply only to those sellers who 
claim to provide "independent advice".  

Additional rules for insurance PRIPs only 

EN 

35 

   EN 

 
Option (0) would mean that the rules for the sales of general insurance would apply 
to  insurance  PRIPs  as  well  (i.e.  insurance  advice  is  defined).  Option  (1)  would 
introduce suitability and appropriateness tests for the sales of insurance PRIPs only 
(see  Option  (2)  above  for  general  insurance).  This  suggested  regime  proposes 
introducing  a  requirement  to  provide  the  consumer  with  an  advice  based  on  a 
suitability test assessing his needs, demands and his financial situation and is based 
on  the  example  of  MiFID.  Providing  such  advice  would  depend  on  the  consumer 
duly  informing  the  seller  about  his  profile.  Option  (2)  introduces  a  ban  on 
commission for independent advice (as under Option (3) for general insurance). 

Section  B:  Low  quality  advice  stemming  from  the  seller's  insufficient  level  of 
knowledge and professional qualifications 

General insurance and insurance PRIPs  

Option  (0)  would  mean  that  high  level  professional  requirements  would  remain 
(Article 4 of IMD1).  

Option (1) would mean the introduction of high-level principles which give Member 
States the possibility to  graduate the knowledge and ability requirements according 
to the activity pursued or type of intermediary. At the same time, this would ensure 
that  professional  qualifications  are  proportionate  to  the  complexity  of  the  products 
sold.  This  means  a  three-level  system  would  be  introduced:  a)  lower  level 
requirements  for  ancillary  sellers  of  simpler  products  (e.g.  travel  insurances);  b) 
regular level requirements for sellers of general insurance products (non-life and pure 
life products); c) higher level requirements for sellers of complex products (insurance 
PRIPs  such  as  unit  linked  life  insurance  policies).  There  would  also  be  a  mutual 
recognition  of  intermediaries'  knowledge  and  abilities  and  recognition  of  foreign 
proof  of  professional  qualifications.  Option  (2)  would  mean  that  a  common 
knowledge and skills requirement system would need to be set up at EU level and all 
sellers  would  have  to  follow  the  same  training  irrespective  of  the  method  of 
distribution  or  the  complexity  of  product  they  offer.  Option  (3)  would  encourage 
insurance  companies  and  intermediaries  to  cooperate  in  the  application  of 
professional requirements (organising training, exams, etc.) and set up ethical codes.  

Additional rules for insurance PRIPs  

Option  (0)  would  mean  that  the  same  rules  set  for  the  sales  of  general  insurance 
would  apply  to  insurance  PRIPs  (see  above).  Option  (1)  would  mean  a  common 
system of knowledge and skills requirements at EU level (see Option (2) above for 
general insurance). 

4. Cross-border business 

Option (0) would mean that the current, high level principles regulating cross-border 
business (Article 6) and non-binding EIOPA Luxembourg Protocol would continue. 
Option  (1)  would  mean  that  the  Commission  would  revise  its  Interpretative 
Communication  (2000/C  43/03)  on  ‘Freedom  to  provide  services  and  the  general 
good in the insurance sector’ to list exhaustively the exceptions under 'general good' 
that can be invoked by Member States. The concept of "general good" means that if a 
registered  insurance  intermediary  intends  to  carry  on  business  in  another  Member 

EN 

36 

   EN 

 
State,  he  must  comply  with  the  conditions  under  which,  for  reasons  of  the  general 
good, such business must be conducted in the host Member State. Option (2) would 
incorporate definitions already existing in the Luxembourg Protocol in the IMD and 
introduce  a  simpler  notification  process  for  intermediaries  going  cross-border.  This 
option would clarify the application of the Treaty principles regarding the FOE and 
the  FOS  and  introduce  some  enforcement  rules  linked  to  those  freedoms,  based  on 
the MiFID II. Option (3) would introduce a centralised registration system that would 
work  as  follows:  each  Home  State  website  would  be  required  to  publish  a  list  of 
intermediaries  passporting  into  other  Member  States  containing  the  following  data: 
(i) name, address and registration number of intermediary; (ii) type of intermediary 
(e.g. tied, independent); (iii) classes of business (life/non-life) to be undertaken; (iv) 
Member  States  in  which  the  intermediary  intends  to  operate;  and  (v)  whether 
activities  would  be  on  a  FOS  or  FOE  basis.  These  lists  would  be  required  to  be 
accessible  in  the  language  of  the  home  Member  State  and  in  a  common  language 
(e.g.  English).  A  hyperlink  to  the  relevant  web  address  for  each  list  would  be 
required  to  be  forwarded  to  EIOPA  and  similarly  published  on  its  website  (in  the 
public area). Option (4) means that the Luxembourg Protocol would be incorporated 
in the text as a non-binding legislative tool. 

5. Sanctions 

Option (0) means that only high level principles on sanctions would remain (Article 
8  of  IMD1).  Option  (1)  would  introduce  minimum  common  rules  on  sanctions, 
leaving  Member  States  with  the  possibility  of  establishing  stricter  rules.  Those 
common  rules  would  include  the  requirement  that  the  maximum  level  of 
administrative  fines  in  national  legislation  is  not  lower  than  a  common  EU  level. 
Option (2) envisages common rules on the sanctions to be established, including the 
setting of minimum and maximum levels of fines. Under this option, Member States 
would  be  prevented  from  setting  minimum  or  maximum  levels  lower  that  those 
established at EU level and the sanctioning powers of supervisory authorities would 
be harmonised fully (see more details in Annex 4). 

7. 

ANALYSIS OF IMPACTS AND COMPARING THE OPTIONS  

The  options  are  assessed  against  the  general  objectives  of  the  project  (in  the 
following order): 

Objective 1: Consumer protection and clear conduct of business rules (Obj. 1) 

Objective 2: Undistorted competition (Obj. 2) 

Objective 3: Market integration (Obj. 3)  

7.1. 

Extension of the scope 

Issue 1: Scope 

Effectiveness (benefits) 

Consumer 
protection  and  clear 
conduct  of  business 
rules (Obj.1.) 

Undistorted 
competition 

Market 
integration 

(Obj.2.)  

(Obj.3.) 

Cost 
effective
ness 

EN 

37 

   EN 

 
0 – Take no action (Baseline scenario) 

approach 

1  –  Combine  current  IMD  scope  with  a  'Soft 
law' 
self-
regulation,  ethical  codes,  etc.)  -  recommend  to 
apply some provisions of IMD1 to all sellers of 
insurance products  

(issuing  guidelines, 

0 

0 

2 – Extend the scope only to direct writers  

+ 

so  that  it  would  cover  agents,  brokers  direct 
writers  

3  –  Extend  the  scope  to  all  sellers  of  insurance 
products  

++ 

(so  that  it  would  cover  direct  writers,  agents, 
brokers, travel agents, car rental firms, suppliers 
of goods (B2B + B2C)). 

0 

0 

+ 

++ 

0 

0 

+ 

+ 

N/A 

0 

~/- 

-- 

4  –  Extend  the  scope  to  all  sellers  of  insurance 
products except for: 

++ 

++ 

+ 

~/- 

• 

• 

sales  of  insurance  complementary 
to  the  supply  of  goods  (seller's 
side); and 

large  risks/professionals  (buyer's 
side) 

(so  that  it  would  cover  direct  writers,  agents, 
brokers,  travel  agents,  car  rental  companies, 
suppliers of goods not meeting conditions for the 
exemption (B2C only)). 

5 – Extend the scope to: 

+++ 

+++ 

+++ 

~/- 

- all sellers of insurance products except for: 

• 

• 

sales  of  insurance  complementary 
to  the  supply  of  goods  (seller's 
side); and  

large  risks/professionals  (buyer's 
side) 

- and to after-sales providers 

(so that it would cover direct writers, agents, 
brokers,  travel  agents,  car  rentals,  suppliers 
of  goods  not  meeting  conditions  for  the 
exemption,  loss  adjusters,  claim  handlers  ( 
B2C only)) 

but  with  a 
regime in the interests of proportionality.  

lighter  "ancillary"/after-sales 

Stakeholders'  view:  The  vast  majority  of  stakeholders  (intermediaries,  industry, 
consumers)  supported  Option  (5)  in  order  to  level  the  playing  field.  Travel  agents 
and  car  rental  companies  agreed  provided  a  lighter  regime  (declaration  procedure) 
was applied to them. Moreover, a majority of stakeholders (consumer organisations, 
regulators,  supervisors,  investment  firms  and  the  insurance  industry)  supported  the 
approach  of  raising  standards  for  the  sale  of  investment  based  insurance  products 
(insurance PRIPs). It was suggested that two sets of rules could be applied: one for 
the  sales  of  general  insurance  products  and  the  other  for  the  sale  of  life  insurance 

EN 

38 

   EN 

 
products  with  investment  elements  (because  those  products  are  substitutable  with 
investment products). 

Under the baseline scenario, the current scope would remain. As regards consumer 
protection and clear conduct of business rules (obj. 1), Option (1) would not provide 
an  effective  solution.  In  the  area  of  financial  services,  soft  law  has  been  proven 
ineffective as studies show that recommendations addressed to Member States who 
would like to coordinate their national regulations would not work in practice due to 
the non-binding character of the measures94. Regarding the objective of undistorted 
competition and market integration (obj. 2&3), this option has proven ineffective as 
the unlevel playing field remains because non-binding rules cannot be enforced.  

As  regards  consumer  protection  (obj.1), Option  (2)  would  provide  consumers  with 
more consistent information regardless of the channel used. As for market players, a 
slight  increase  in  costs  can  be  expected  as  insurance  undertakings  already  fulfil 
similar  requirements  in  terms  of  professionalism,  good  repute  and  disclosure.  This 
option  is  more  beneficial  in  reaching  the  objective  of  undistorted  competition  than 
Option  (1)  (obj.  2),  as  consumers  can  expect  benefits  related  to  increased  market 
competition.  A  level  playing  field  would  be  achieved  between  intermediaries  and 
direct  writers.  As  for  market  integration  (obj.3.),  this  option  would  mitigate 
regulatory  arbitrage  between  different  markets  in  the  EU  (see  the  opinion  of 
insurance  intermediaries  at  the  public  consultation),  but  no  significant  structural 
changes to any markets would be expected to result from the extension of articles 12 
and 13 of IMD1 to direct writers.  

As  regards  consumer  protection  (obj.1.),  Option  (3)  could  be  effective  as  it  would 
ensure  that  consumers  would  receive  the  same  information  regardless  of  the 
distribution  channel  used  and  the  wider  scope  could  allow  for  better  regulatory 
coherence for market players. As for undistorted competition (obj. 2.), this would be 
more  effective  than  Option  (2)  and  would  achieve  a  complete  level  playing  field 
between  all  sellers  of  insurance  products.  This  option  is  also  beneficial  to  achieve 
market  integration  (obj.3.),  as  uniform  requirements  in  all  Member  States  would 
provide legal certainty for all market participants and also facilitate the procedures of 
competent  authorities.  This  would  mitigate  regulatory  arbitrage  between  different 
markets in the EU.  

Option  (4)  would  be  less  effective  in  achieving  better  consumer  protection  and 
clearer conduct of business rules (obj. 1.), than Option (3) as the only products that 
are  not  covered  by  this  option  are  simple,  very  cheap  products  that  cannot  create 
consumer  detriment.  It  has  been  proven  (see  the  results  of  the  public  consultation) 
that  some  market  players  do  not  need  protection:  purchasers  of  large  risks  and 
professional purchasers are in general large firms with their own insurance and legal 
staff who manage their insurance needs and interact with insurance intermediaries at 
a professional level. The key benefits for the achievement of undistorted competition 
(obj. 2.), relate to the fact that most of the sales channels and products are covered, 
so it is only marginally less effective than option (3) for consumers. As for market 
integration, this option would mitigate regulatory arbitrage and enhance cross-border 
business (see the opinion of intermediaries in the public consultation).  

94 

EN 

Impact 
http://ec.europa.eu/internal_market/finservices-retail/docs/inclusion/sec_2011_906_en.pdf 

the  Regulation 

assessment 

access 

basic 

banking 

on 

of 

to 

39 

services, 

   EN 

 
                                                 
In line with the principle of proportionality, Option (5) would bring, in general, key 
benefits. These benefits relate to the fact that the impact of most provisions would be 
targeted  on  those  sales  of  products  and  services  that  are  most  relevant  so  it  would 
only be marginally less effective than option (3) and more proportionate than Option 
(4)  in  achieving  enhanced  consumer  protection  (obj.1.).  To  achieve  undistorted 
competition  (obj.2.),  this  would  mean  that  most  of  the  sales  channels,  after-sales 
services and products are covered, so it would only be marginally less effective than 
Option  (3),  and  more  proportionate  than  Option  (4).  This  would  create  a  level 
playing  field  for  all  players  in  the  insurance  value  chain.  Proportionality  would  be 
ensured for after-sales players and ancillary providers: only a simple declaration of 
their existence, status information disclosure, basic professional standards and good 
repute  would  be  required.  To  achieve  market  integration  (obj.3.),  this  would  be  at 
least  as  effective  as  Option  (4)  but  more  consumer  confidence  in  registered  after-
sales  players  can  be  expected.  This  would  also  enhance  cross-border  business  for 
after-sales players (claim handlers, loss adjusters). 

Proportionate  approach  to  preferred  policy  options  in  problem  1  (explanatory 
table) 

Organisational rules 

Registration requirements  

FULL 

Intermediaries (agents, brokers) 

Direct writers (under Solvency II) 

PARTIAL (declaration) 

Ancillary  service  provider  (car  rental  firms,  travel  agents, 
suppliers of goods not meeting conditions for the exemption ) 

After sales (loss adjusters, claim handlers) 

NONE 

Sales  of  insurance  complementary  to  the  supply  of  goods 
(ancillary+ below €600) 

Compliance cost implications 

Option  (1)  would  involve  slight  costs.  As  for  Option  (2),  total  compliance  costs 
should be low, as insurance undertakings already fulfil similar requirements in terms 
of professionalism, good repute and disclosure. Direct writers would have to bear the 
cost  of  additional  regulation.  Option  (2)  would  entail  an  average  cost  of  €40,000 
(one off costs)/ €10,000 (recurring costs) pe r direct writer (4618  companies,  out of 
which SMEs: none; total costs around €185,000,000 one-off, €46,180,000 ongoing). 
This total compliance cost estimate covers training costs, costs related to information 
requirements,  IT,  administration  costs,  etc.  (all  figures  are  based  on  Eurobarometer 
data, revised PwC study figures and Commission Services' analysis).  

As far as the total compliance costs of Option (3) are concerned, the following costs 
estimates have been established (all figures are based on Eurobarometer data, revised 
PwC study figures and Commission Services' own analysis): 

Direct writers (per company): €40,000 (one off costs)/ €10,000 (recurring costs) (4618 undertakings in 
the EU, out of which SMEs: none) (same cost estimates as for Option (2)). 

EN 

40 

   EN 

 
Travel agents (per company): average costs estimates: €500 (one off costs)/ €50 (recurring costs). (68 
000  undertakings  in  the  EU,  out  of  which  SMEs:  80%),  (total  costs  around  €34,000,000  one-off, 
€3,400,000 ongoing).  

Car  rental  companies  (per  company):  average  costs  estimates:  €600  (one  off  costs)/  €50  (recurring 
costs)  (30  976  undertakings  in  the  EU,  out  of  which  SMEs:  80%),(  total  costs  around  €18,585,600 
one-off, €1,548,800 ongoing). 

These total compliance cost estimates cover training costs, costs related to information requirements, 
IT,  administration  costs,  etc.  Direct  writers  bear  relatively  higher  cost  compared  to  other  market 
players  because  they  are  the  product  manufacturers  and  their  IT  system  needs  to  be  substantially 
adjusted to comply with new requirements.  

Option  (4)  would  lessen  the  costs  of  Option  (3)  to  €25,000,000  (Commission 
services'  estimates)  as  it  excludes  sellers  of  insurances  which  are  complementary 
(ancillary)  to  the  supply  of  some  goods.  A  good  example  is  an  optician  who  sells 
complementary  insurance  on  glasses.  It  is  estimated  that  200,000  market  players 
(such as opticians) sell insurance complementary to the supply of goods (in this case 
insurance  on  glasses).  It  is  also  estimated  that  the  total  compliance  costs  will  be  a 
maximum  of  €125  per  entity  (one-off  cost).   This  will  cover  training  costs,  costs 
related  to  information  requirements,  IT,  administration  costs,  etc.  Those  ancillary 
sellers  (whose  main  business  is  not  selling  insurance  products)  bear  low  cost 
compared to other market players because they sell inexpensive, simple product and 
their  IT  system  do  not  need  to  be  substantially  adjusted  to  comply  with  new 
requirements. Option (5): Total compliance costs for direct writers, agents, brokers, 
travel  agents,  car  rentals  would  be  the  same  as  in  Options  (3)  or  (4).  For  loss 
adjusters, this would mean €400  (one off costs)/ €50 (recurring costs)/company and 
for claims handlers €400 (one off costs)/ 
€50 (recurring costs)/company (all figures 
are based on Commission Services' best estimates). Total number of loss adjusters is 
6000 in the EU. Total costs are around €2,400,000 one-off, €300,000 ongoing costs.  

Overall  assessment:  The  preferred  option  is  Option  (5)  because  it  addresses 
consumer protection concerns with a proportional approach in respect of after-sales 
services and ancillary insurance providers. 

7.2. 

Conflicts of interests 

Issue 2. Conflicts of interests 

Effectiveness (benefits) 

General insurance and insurance PRIPs 

Consumer 
protection 
and  clear  conduct  of 
business rules (Obj.1.) 

Undistorted 
competition 

Market 
integration 

(Obj.2.)  

(Obj.3.)  

Cost 
effectiven
ess 

0 – Take no action (Baseline scenario) 

1.A  –  Introduction  of  a  European  Standard 
for 
("business  card 
solution") for all products and full disclosure 

information 

status 

of remuneration 

95

Mandatory full disclosure 

1.B  –  Introduction  of  a  European  Standard 
("business  card 
for 

information 

status 

0 

++ 

0 

-- 

0 

+ 

N/A 

+ 

+ 

- 

+ 

++ 

95 

This option is a compromised suggestion by key stakeholders and EIOPA. 

EN 

41 

   EN 

 
  
                                                 
solution") for all products and full disclosure 

of remuneration 

 On request disclosure  

96

2 – Ban on commissions 

3 – Soft law (issuing guidelines, self-regulation, 
ethical codes, etc.) 

-- 

-- 

-- 

-- 

-- 

0 

-- 

0 

intermediaries, 

industry,  consumer  groups 

Stakeholders'  view: The vast majority of stakeholders supported the business card 
solution: 
is 
uncontroversial.  However,  remuneration  disclosure  is  a  highly  controversial  issue 
which  is  vividly  opposed  by  insurance  intermediaries.  They  advocated  a  disclosure 
regime  on  request  by  the  customer  because  they  claimed  that,  in  particular  for  the 
sale  of  general  insurance  products,  a  full  disclosure  regime  could  lead  to  vertical 
integration  (intermediaries  withdrawing  from  the  market).  Mandatory  disclosure  is 
supported  by  consumer  groups  (FSUG,  BEUC,  German  association  of  consumers, 
etc.).  The  adoption  of  ethical  codes  (the  soft  law  option)  is  favoured  by 
intermediaries.  

(Option 

(1)): 

it 

Under the baseline scenario, different consumer protection and conduct of business 
rules in different Member States and sales channels would remain. This could lead to 
regulatory  arbitrage  and  an  unlevel  playing  field.  As  Member  States  would  further 
regulate in this area, this could result in even less cross-border trade (as against the 
current  situation:  5%)  (obj.  1,  2  &  3).  The  previous  preferred  option  changes  the 
market landscape and would introduce new, more negative trends. 

In  terms  of  achieving  higher  consumer  protection  (obj.  1),  Option  (1)  would  offer 
higher  transparency  compared  to  the  baseline  scenario  regarding  the  nature,  the 
structure  and  the  amount  of  the  intermediary's  remuneration  and  it  would  provide 
clarity with regard to the principal-agent relationship, including how this may impact 
on  advice.  There  are  studies  from  the  UK  indicating  that  there  is  a  risk  of  "over-
informing"  the  consumer.  97  One  study  indicates  that  products  with  low  premiums 
and high remuneration may be rejected despite the value of cover.98 The Commission 
Services,  however,  take  the  view  that  consumer  protection  has  moved  forward 
significantly  over  the  last  years,  and  that  consumers  are  today  increasingly 
information-seeking  and  cost-conscious.  Disclosure  of  the  different  elements  of  the 
total price - including the broker's remuneration - will enable the client to choose on 
the  basis  of  insurance  cover,  linked  services  (for  example  if  the  intermediary  does 

96 
97 

This option is a compromised suggestion by key stakeholders and EIOPA. 
An  Empirical  Investigation  into  the  Effects  of  the  Menu,  CRA  International,  3rd  May  2007, 
http://www.fsa.gov.uk/pubs/other/CRAreport_menu.pdf 
Consumer Decision-Making in Retail Investment Services, Nick Chater, Steffen Huck, Roman Inderst, 
Final 
2010, 
http://ec.europa.eu/consumers/strategy/docs/final_report_en.pdf 

Commission, 

November 

European 

Report 

the 

for 

Information  versus  Persuasion:  Experimental  Evidence  on  Salesmanship,  Mandatory  Disclosure  and  the 
Purchase of Income and Loan Payment Protection Insurance, David De Meza, Bernd Irlenbusch, Diane 
Reyniers,  London  School  of  Economics,  Commissioned  by 
the  FSA,  November  2007, 
http://www.fsa.gov.uk/pubs/other/DeMeza_Report.pdf 
Impact  of  commission  disclosure  in  general  insurance  personal  lines,  report  from  Charles  River 
2010, 
Associates, 
http://www.abi.org.uk/Publications/ABI_Publications_Impact_of_Commission_Disclosure_in_General 
_Insurance_Personal_Lines_ABI_Research_Paper_No_26_cf8.aspx 

research 

paper 

ABI 

26, 

no 

98 

EN 

42 

   EN 

 
                                                                                                                                                         
 
claims-handling)  and  price.  This  will  further  suitable,  cost-efficient  products  and 
intermediary  services  for  consumers  (opinion  of  the  German  consumer  association 
and BEUC). 

Option  (1)  (both  mandatory  disclosure  and  on  request  disclosure)  would  have 
positive  effects  on  competition  (obj.  2)  in insurance  distribution  as  it  would  ensure 
that consumers receive wider information on products and costs, as well as possible 
conflicts  of  interest.  It  would  be  easier  for  consumers  to  compare  insurance  covers 
and  prices  between  products  sold  through  different  distribution  channels.  Certain 
stakeholders  argue  that  competition  could  be  distorted  and  vertical  integration 
encouraged  if  intermediaries  have  to  disclose  their  remuneration.  Several  EU 
Member States do already require remuneration disclosure for all insurance products, 
and  MiFID  will  require  this  for  all  PRIPs  products.  The  new  information  will  give 
consumers  more  complete  information  about  what  services  the  intermediary 
performs and what are the related costs. The remuneration disclosure must however 
be  implemented  in  a  way  that  the  comparison  between  intermediaries  and  direct 
writers are ensured. It has been argued that calculations of "commission-equivalent" 
figures for direct writers are complex to perform (quote from industry commentator). 
The Commission Services believe that information about the price of cover as well as 
the  distribution  costs  would  provide  comparability.  In  particular  -  for  avoiding 
situations of conflict of interest - the employee's variable remuneration resulting from 
the  sale  of  a  product  should  be  disclosed.  (The  market  impact  is  analysed  more  in 
detail in chapter 8.)  

Comparison table for Options (1) Sub-options a) and b). 

Topic 

Option 1 a) 

Option 1 b) 

Mandatory disclosure 

On request disclosure 

Data required: 

Intermediaries need not 
obtain further data. 

As mandatory. 

Transparency:  Clients should know what 
is paid on their behalf for 
the intermediary’s 
services.  

Does  not  lead  to  same  level  of 
information  to  consumer  (Industry 
states  most  customers  have  no 
interest.) 

Transparent between fee-
based services (some 
other intermediated 
financial products), and 
commission-based. 

Will be apparent if 
intermediary gets higher 
commission on one 
product over another. 

Conflict of 
interest 

It will not be apparent if 
intermediary is acting in his own 
interest rather than customer’s unless 
customer requests disclosure of 
commission 

EN 

43 

   EN 

 
 
Topic 

Option 1 a) 

Option 1 b) 

Mandatory disclosure 

On request disclosure 

Can  be  done  on  ad  hoc  basis  (may 
not save on costs) 

Vertical  integration  risk  removed  / 
reduced 

Costs 

Vertical 
integration 

Some systems changes 
needed to enable these 
amounts to be disclosed 
to their clients. 

Clients go directly to 
insurance companies to 
avoid paying a 
commission 
(Remuneration disclosure 
may have an initial 
impact on consumer 
behaviour, but if as 
industry also says, 
customers buy on price 
alone, showing how 
much of premium is paid 
as commission will make 
no difference in the 
longer term).  

Due to internet sales and 
development of complex 
products consolidation 
will be seen in this sector 
regardless. 

Option (1) would furthermore address certain key problems related to cross-border 
provision  of  insurance  intermediary  services:  lack  of  legal  certainty  and  lack  of 
comparability. If the harmonised legal framework is improved, intermediaries as well 
as  their  customers  may  more  readily  take  the  step  of  selling  or  buying  insurance 
products  cross-border.  Improved  disclosures  would  facilitate  comparison  between 
products  and  distribution  channels,  which  is  today  particularly  difficult  in  cross-
border trade situations. (obj.3.)  

When  assessing  effectiveness  in  achieving higher  level  of  consumer  protection  and 
clear conduct of business rules (obj. 1), Option (2) may not be that beneficial as it 
leads  to  a  decrease  in  the  insurance  coverage  of  those  clients  who  are  not  willing 
to/could  not  afford  to  pay  for  financial  advice.  To  assess  this  option  against  the 
objective  of  undistorted  competition  (obj.  2),  the  PwC  study  and  stakeholders 
(intermediaries) noted that as the direct sales sector would not be affected by a ban, it 
would also gain from lack of competition, and from the absorption (internalisation) 
of  brokerage  and  agency  portfolios.  (Market  shares  of  brokers  diminished  when 
Finland  introduced  a  ban  on  commission).  Many  brokers  and  intermediaries  would 
leave  the  market  or  would  attempt  to  convert  to  paid  salespeople,  leading  to 
internalization of sales that were previously made through intermediaries. As regards 

EN 

44 

   EN 

 
impact  on  consumers,  premiums  might  go  up  because  of  market  concentration  (as 
many  intermediaries  would  exit  the  market).  With  regard  to  market  integration, 
(obj.3.)  the  effect  is  likely  to  be  negative,  as  indigenous  firms  would  enjoy  a  clear 
advantage  over  foreign  firms  as  the  latter  often  use  intermediaries  to  market  their 
products.  Foreign  companies  would  have  difficulty  entering  national  markets,  and 
consumer choice would suffer regarding product range. On the other hand, uniform 
requirements  in  all  Member  States  would  provide  legal  certainty  for  all  market 
participants.  

Existing  legislation  and  self-regulatory  standards  (developed  by  the  profession)  do 
not provide enough clarity to stakeholders and are considered to be ineffective due to 
unenforceability  (Option  (3)).  Self-regulation  can  be  in  the  form  of  protocols 
between  trade  associations  or  in  the  form  of  non-binding  ethical  codes99.  This  is  a 
workable solution in B2B relationships but not for B2C. Therefore one can presume 
that  further  self-regulation  would  never  be  able  to  achieve  the  same  level  of 
effectiveness as any of the above considered options ((1) to (2)).  

Compliance costs implications 

As  for  costs,  under  Option  (1  and  both  for  suboptions  a)  or  b))  intermediaries  can 
respond  to  requests  for  commission  information  (they  already  possess  the  relevant 
data anyway) without putting in place complex systems. No specific costs estimates 
were  volunteered,  either  by  the  interviewees  of  the  PwC  study  nor  by  the 
stakeholders  who  responded  to  the  public  consultation.  The  Commission  Services' 
best  estimates  for  all  sellers  are:  average  €200  (one-off  costs)  /company  and 
average  €100  (recurring  costs) 
(printing,  training,  IT,  paper,  and  administration 
costs, etc.). It is difficult to quantify the level of costs for the two alternatives (sub-
options a) or b)) but it will depend on consumer behaviour and markets (also up to 
product markets and different Member States). If normally the market is such that a 
regular consumer want more transparency (for example, in case of more complicated, 
costly products and in some Member States such as the Nordic countries), the costs 
for a mandatory and for an on request regime will be similar. If consumers are only 
interested  in  the  final  price  of  the  product,  fewer  would  ask  for  a  disclosure  of 
remuneration.  Under  the  on  request  regime,  intermediaries  can  respond  to  ad  hoc 
requests  for  commission  information  without  putting  in  place  complex  systems  to 
deal with requests. However, the intermediaries will have to put in place some kind 
of measures so that they are able to fulfil the request for information. But because the 
information will only have to be presented to the customer on request, the costs will 
probably  be  lower  in  connection  to  this  regulatory  regime  than  the  cost  associated 
with  a  mandatory  disclosure  regime.100As  regards  Option  (2),  administration  costs 
would go up for sellers of insurance products as they would have to bill separately 
for  advice.  The  Commission  Services'  best  estimates  for  all  sellers  are:  very  high 
costs  according  to  estimation  by  respondents  to  PWC  questionnaire  and  public 
consultation  (no  quantifiable  costs  estimates  were  volunteered,  either  by  the 
interviewees of the PwC study, nor by the stakeholders who responded to the public 

99 

100 

There is already a protocol in place in business to business relation (B2B) BIPAR-FERMA, Protocol on 
Transparency, http://srhy.fi/uploads/uutiset/Bipar_Ferma_Protocol_final-2.pdf 
EIOPA advice 

EN 

45 

   EN 

 
                                                 
consultation).101  Option  (3)  entails  only  limited  costs.  These  ethical  codes  exist 
already in several Member States. 

Overall assessment: The preferred option is Option (1) (a or b) because it achieves 
the  objectives  at  a  low  cost.  The  benefits  outweigh  the  costs  because  this  option 
ensures  more  transparency  as  regards  the  relationship  between  the  seller  and  the 
product manufacturer (insurance company). The level of benefit cannot be quantified 
but  see  more  qualitative  explanation  in  section  8.  Therefore,  this  will  mitigate  the 
conflicts  of  interests  and  the  information  asymmetry  between  the  seller  and  the 
buyer.  

Preferred  option  In  order  to  ensure  proportionality,  it  is  suggested  introducing  an 
on-request regime for the sales of non-life products with a 3 years transition period. 
This will allow SMEs to prepare and adjust themselves to the legislative change and 
measure the impact of the suggested change in real life. This is in line with the views 
of  most  stakeholders  (intermediaries,  insurance  industry)  as  well  as  EIOPA  and,  at 
the same time, ensures proportionality and flexibility towards SMEs. It will provide a 
useful  midway  balancing  consumer  groups'  and  intermediaries'  as  well  as  SME's 
interests. 

Issue 2. Conflicts of interests

102

Effectiveness (benefits) 

Insurance PRIPs only 

Consumer  protection  and 
clear  conduct  of  business 
rules (Obj.1.) 

Undistorted 
competition 

Market 
integration 

(Obj.2.)  

(Obj.3.)  

Cost 
effective
ness 

0 – Take no action (Baseline scenario) 

1 – Apply revised MiFID entirely, conduct of 
business rules and organisational requirements 
(risk management, internal audit, etc.) (MiFID 
Level 1 and 2) 

2  –  Introduction  of  a  revised  MiFID-like 
regime  based  only  on  the  conduct  of 
business  rules 
(identify,  manage  and 
mitigate  all  conflicts  of  interest  (Article  23 
of  MiFID  II)  Level  2  guidelines  by 
ESMA/EIOPA 

0 

+ 

++ 

3–  Soft 
law 
regulation, ethical codes, etc.) 

(issuing  guidelines, 

self-

-- 

4  –  Prohibition  of  products  difficult 
understand  even 
participants  

to 
for  professional  market 

-- 

0 

++ 

0 

+ 

N/A 

-- 

++ 

++ 

++ 

-- 

-- 

0 

++ 

0 

-- 

Stakeholders'  view:  The  majority  of  stakeholders  (consumers,  investment  firms, 
insurance  industry)  supported  the  idea  that  high  level  MiFID-based  conduct  of 
business rules should be introduced for the sale of insurance PRIPs. 

101 
102 

Idem footnote 84. 
NB.  The  option  chosen  for  general  insurance  products  already  applies  also  to  insurance  PRIPs, 
however,  the  previous  options  cannot  address  all  problems  related  to  this  market  because  insurance 
PRIPs are similar to investments therefore higher consumer protection standards should apply (see more 
explanations supra). 

EN 

46 

   EN 

 
 
                                                 
Under  the  baseline  scenario,  no  consistency  with  MiFID  would  be  ensured.  This 
means less protection for consumers buying insurance investments compared to other 
PRIPs.  Market  players  would  be  subject  to  different  regulation,  which  leads  to  an 
unlevel  playing  field.  Member  States  can  develop  different  rules,  which  leads  to 
regulatory arbitrage. This can result in a fragmented internal market as sellers have to 
comply with different rules (see section on problems) (obj. 1, 2 &3). 

In  terms  of  achieving  a  higher  level  of  consumer  protection  and  clear  conduct  of 
business rules and undistorted competition, (obj. 1&2), Option (1) would ensure that 
the  same  rules  would  apply  to  all  investment-based  products.  More  specific 
disclosure of an intermediary’s commercial relationship to financial services groups, 
and  their  roles  or  functions,  may  be  beneficial  to  clients.  It  would  ensure  coherent 
and  similar  conflicts  of  interests'  rules  for  sellers  of  investment-based  products 
However,  for  market  players,  this  would  mean  double  supervision  and  registration 
(under  IMD2  and  MiFID)  and  three  sets  of  organisational  rules  to  be  respected 
(under  Solvency  II,  IMD2  and  MiFID).  Also,  increasing  the  number  of  documents 
and/or 
to  clients  may  be 
counterproductive  as  clients  may  neither  read  nor  understand  the  content  or  its 
significance.  As  for  market  integration  (obj.  3),  this  option  would  enhance  cross-
border  trade,  as  uniform  requirements  in  all  Member  States  would  provide  legal 
certainty  for  all  market  participants  and  facilitate  monitoring  procedures  by  the 
competent authorities. 

the  documents  provided 

the  complexity  of 

In  terms  of  achieving  a  higher  level  of  consumer  protection  and  clear  conduct  of 
business  rules  and  undistorted  competition  (obj.  1&2),  Option  (2)  would  provide 
consumers  similar  benefits  as  Option  (1)  and  it  would  offer  the  same  protection  as 
full  MiFID  does.  This  solution,  however,  allows  full  consideration  of  the  sectoral 
specificities  of  life  insurance  policies  with  investment  elements  which  can  include 
specific  benefits  (e.g.  partial  biometric  risk  cover)  or  withdrawal  rights,  which  are 
unique  to  these  products.  For  market  players,  it  would  ensure  coherent  and  similar 
conduct  of  business  rules  for  investment-type  products.  As  for  market  integration 
(obj. 3), this option would also enhance cross-border trade, as uniform requirements 
in  all  Member  States  would  provide  legal  certainty  for  all  market  participants  and 
facilitate monitoring procedures of the competent authorities and enforcement (same 
benefits as in Option (1). This may also prevent possible supervisory difficulties as 
most  Member  States  do  not  have  unitary  supervisory  authorities  responsible  for 
insurance mediation and they are separate from those responsible for investments.  

Option  (3):  Existing  legislation  and  self-regulatory  standards  (developed  by  the 
profession) do not provide enough clarity. Mis-selling cases can be further expected. 
It has been proven ineffective due to the non-binding character of the measures in the 
field of financial services.  

In  terms  of  achieving  a  higher  level  of  consumer  protection  and  clear  conduct  of 
business  rules  and  undistorted  competition  (obj.  1&2),  Option  (4)  would  provide 
consumers with similar protection and market players with legal certainty. However, 
this would narrow the choice of products available for consumers. As a consequence, 
other  competitors  selling  similar  investment-based  products  (whether  or  not  falling 
under MiFID) such as pensions would drive insurance-investment sellers out of the 
market  and  competitors  would  gain  bigger  market  shares  (and  this  may  lead  to 

EN 

47 

   EN 

 
market  concentration).  From  the  point  of  view  of  market  integration  (obj.3.),  this 
would be beneficial as similar rules will apply in the EU.  

Cost implications 

requirements,  double 

(double  organisational 

As  for  costs,  Option  (1)  would  entail  very  high  costs103.  These  costs  are 
disproportionate  for  SMEs.  The  regime  could  lead  to  additional  costs  compared  to 
Option  2 
registration,  double 
supervision,  high  administrative  burden  linked  to  internal  audit,  risk  management 
systems ) which would particularly concern smaller organisations and intermediaries. 
The Commission Services' best estimates are: average cost: €100,000 (one-off costs) 
and 35,000€ (recurring costs estimates)/per company.  Option (2) is the most cost-
effective as it would entail a fraction of costs compared to Option (1). Total costs are 
only  calculated  in  relation  to  Level  2  measures  as  Level  1  rules  only  contain  high 
level  principles  therefore  these  will  not  entail  any  costs.  Total  costs  of  level  2 
measures  would  entail  IT  costs,  training  cost,  administrative  costs,  costs  related  to 
adjusting  data,  etc.  according  to  the  PwC  study  and  the  public  consultation.  No 
quantifiable costs estimates were volunteered neither by the interviewees of the PwC 
study  nor  by  the  stakeholders  who  responded  to  the  public  consultation.  However, 
based  on  the  above  mentioned  Europe  Economics  study104,  estimates  of  the  likely 
one-off impact can be made as follows:105(these categories of sellers are only those 
who sell PRIPs insurances): 

– 

– 

– 

for intermediaries (agents, brokers) of €50–€125 million;  

for banks of €125–€175 million. 

for insurers of €175–250 million  

This would mean total one-off costs of €350–€550 million .  

The estimate for the ongoing costs are: 

– 

– 

– 

for  intermediaries  (agents,  brokers)  an  ongoing  annual  impact  of  €25–€80 
million;  

for banks, an impact of €35–€60 million. 

for insurers, €50–€80 million  

This gives a total of €110–€220 million 

in ongoing costs. 106 

103 
104 
105 

(a) 

See PwC study. 
http://ec.europa.eu/internal_market/consultations/docs/2010/prips/costs_benefits_study_en.pdf 
For the purposes of this report we are assessing the potential impact of introducing new MiFID-style 
regulations in the following areas (MiFID I+ Level 2): 
Suitability and appropriateness tests — Articles 19 (4) and (5) of MiFID and Articles 35-39 of Directive 
2006/73/EC (MiFID Implementing Directive).  
Conflicts of interest — Article 18 of MiFID and Articles 21-23 of the MiFID Implementing Directive. 

(b) 
(c) Inducements — Article 26 of the MiFID Implementing Directive. 
106 

See further analysis in Annex 10. (Section 3.6.) Overview of Turnover, Operating Costs and One-Off 
Cost Estimates for all companies broken down by Size of Company. 

EN 

48 

   EN 

 
                                                 
Explanatory table 

Registration costs, training, organisational requirements:  No additional cost compared to 

Introduction business card solution and disclosure:   

Training costs: 
Cost for implementing MIFID conduct  
of business rules per intermediary:  

IMD 1 
EUR 200 per company one-off,  
EUR 100 recurring 
N/A 

EUR €7,500 one-off  

The  main  drivers  of  one-off  costs  include  IT  costs,  staff  training,  project 
management, 
legal  advice,  consultancy  communication  (including  document 
preparation  &  translation),  development  &  reorganisation  of  internal  policies/ 
processes, staff recruitment. The main drivers of ongoing costs include cots linked to 
additional  staff,  staff  training,  IT,  ongoing  legal  advice,  internal  and  external 
reporting, internal audit, communication. 

Option  (3)  entails  only  slight  cost  as  those  ethical  codes  exist  already  in  several 
Member  States.  Option  (4)  would  involve  high  costs  as  existing  PRIPs  products 
would have to be withdrawn from the market or transformed into other investment-
type products. 

Overall  assessment:  The  Commission  Services  propose  to  introduce  high  level 
rules,  based  on  the  MiFID  Level  1  text,  requiring  firms  to  identify  and  manage 
conflicts  of  interest.  For  instance,  the  UK  introduced  MiFID-based  conflicts  of 
interest  requirements  for  insurance  intermediaries  in  2008.  The  cost-benefit 
analysis107  in  the  UK  as  well  as  the  above  mentioned  Europe  economics  study 
concluded that the overall cost to firms would be unlikely to be significant; therefore 
the  preferred  option  is  Option  (2).  Companies  already  subject  to  MiFID  in  other 
areas  of  their  business,  for  example,  may  apply  such  policies  to  the  relevant  non-
MiFID products to earn reputational benefits or in order to streamline their business 
in  some  way.  Since  banks  are  more  likely  to  already  be  subject  to  MiFID  in  other 
areas of their business, and insurance PRIPs represent a smaller  proportion of their 
business  than  for  life  insurance  companies,  this  result  supports  the  idea  that  the 
higher the proportion of the business that insurance PRIPs represent, the higher the 
one-off costs are likely to be. 

7.3. 

Advice 

Issue 3. Advice 

Effectiveness (benefits) 

A. Inappropriate/biased quality advice 

General insurance and insurance PRIPs 

Consumer  protection 
and  clear  conduct  of 
business rules (Obj.1.)  

Undistorted 
competition 

Market 
integration 

(Obj.2.)  

(Obj.3.)  

Cost 
effective
ness 

0 – Take no action (Baseline scenario) 

0 

0 

0 

NA 

107 

CP 07/23 Organisational systems and controls – extending the common platform 
http://www.fsa.gov.uk/pubs/cp/cp07_23.pdf 

EN 

49 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
1 – Introduce a suitability test as part of the advice 
process for the sales of all insurance products 

2- Introduce definition for "insurance advice". 

3- Ban on commission for independent advice (Art 
24 MiFID II) 

-- 

+ 

+ 

-- 

+ 

++ 

+ 

+ 

+ 

-- 

0 

+ 

Stakeholders' view: The vast majority of stakeholders supported the introduction of 
insurance  advice.  Some  stakeholders  (mainly  consumer  groups)  recommended  that 
advice  should  be  defined  as  a  personalised  recommendation  to  subscribe  to  an 
insurance policy. They claim that a distinction is to be made from general information 
which is not personalised for a consumer and does not amount to a non-advised sale, 
and  which  should  remain  outside  the  scope  of  the  IMD.  Some  stakeholders 
(consumers)  support  a  ban  on  commission  for  independent  advice  as  it  ensures 
higher  standards  (thus  promoting  consumer  protection).  This  approach  is  not 
supported by intermediaries. 

Under  the  baseline  scenario,  the  preferred  options  on  conflicts  of  interests  would 
allow  customers  to  evaluate  the  advice  received,  taking  into  account  the  economic 
advantage  for  the  intermediary  connected  with  the  policy’s  subscription.  But  the 
consumer would have the impression that he does not have any commission cost for 
advice  if  he  buys  his  policy  through  direct  channels.108  Also,  there  are  no  similar 
foreseeable rules applicable for all sellers at EU level which can lead to regulatory 
arbitrage (obj.1, 2 &3). 

Option  (1)  would  not  be  beneficial  for  the  consumer  in  general  insurance  product 
sales,  as  it  would  increase  the  number  of  documents  and/or  the  complexity  of  the 
documents provided to clients. As for market players, a MiFID based suitability test 
is not relevant for general insurance products (such as motor insurance) (obj. 1). This 
would  mean  less  choice  of  products  as  SMEs  could  be  driven  out  of  the  market. 
Smaller  intermediaries  would  be  disadvantaged  by  a  regime  whereby  they  were 
required  to  test  consumers'  needs  excessively.  Larger  organisations  would  benefit 
from  economies  of  scale  in  administration  and  governance  regimes  and  therefore 
would  be  less  impacted  (obj.  2).  However,  similar,  foreseeable  rules  applicable  for 
all sellers could enhance cross border sales (obj.3).  

Option (2) would create clearer rules, whether the sale takes place on an advised or a 
non-advised basis, for consumer and market players (obj. 1.). Wider choice, in terms 
of  selling/purchasing  on  an  advised  or  non-advised  basis,  would  be  achieved  (obj. 
2.).  As  under  Option  (1),  it  would  ensure  that  similar,  foreseeable  definitions 
applicable for all sellers could enhance cross border sales (obj. 3).  

Option  (3)  would  create  more  transparency  but  this  could  have  a  slightly  negative 
effect  on  more  vulnerable  consumer  groups  which  have  less  understanding  of 
insurance products and are not willing to pay for independent advice. As for market 
players,  more  transparency  would  mean  clear  rules.  This  is  not  a  preferred  option 
because  it  would  lead  to  potentially  negative  consequences  for  more  vulnerable 
consumers and their ability to gain insurance coverage. The business card solution, 
giving the knowledge of whether an intermediary is under a contractual obligation to 

108 

Idem footnote 84. 

EN 

50 

   EN 

 
                                                 
conduct  insurance  intermediation  business  exclusively  with  one  or  more  insurance 
undertakings, makes a difference to the expectations of the customer with regard to 
independence and value of the advice (obj. 1). This option, however, may level the 
playing  field  between  sellers  selling  substitutable  products.  This  option  would 
provide  wider  choice  in  terms  of  product/service  as  consumers/sellers  can  decide 
whether  or  not  to  proceed  on  the  basis  of  independent  advice  (obj.  2).  Harmonised 
rules applicable for all sellers could enhance cross border sales (obj. 3).  

Cost implications 

As  for  costs,  according  to  the  PwC  study  and  vast  majority  of  stakeholders 
(intermediaries, insurers) Option (1) would entail high additional costs which would 
fall disproportionately on smaller organisations and intermediaries, especially those 
selling  simpler  products  and  not  selling  investment  products.  For  example,  banks 
already comply with MiFID suitability test, therefore this is not a new obligation for 
them.109Option  (2)  would  not  involve  significant  costs  for  market  players  because 
this only means to provide customers with clarification what advice means. Cost is 
not  quantifiable  for  Option  (3)  but  according  to  the  PwC  study  significant  costs 
would arise for firms choosing to provide independent advice paid for by consumers 
who have a demand for such service. Entire IT system would need to be reorganised 
which would entail high costs. Premiums might go up as customers should pay for 
advice separately. 

Overall  assessment:  The  preferred  option  is  Option  (2)  because  this  would  entail 
only slight costs and ensures that the objectives are fulfilled. 

Issue 3. Advice 

Effectiveness (benefits) 

A. Inappropriate /biased advice 

Insurance PRIPs only

110

0 – Take no action (Baseline scenario) 

1  –  Introduce  a  suitability  test  as  part  of  the 
advice  process 
insurance  products 
life 
(PRIPs),  detailed  suitability  test  (Level  2)  based 
on Art 25 MiFID II 

for 

0 

++ 

2-  Ban  on  commission  for  independent  advice 
(Art 24 MiFID II) 

+ 

Consumer 
protection  and  clear 
conduct  of  business 
rules (Obj.1.) 

Undistorted 
competition  

Market 
integration 

(Obj.2.)  

(Obj.3.)  

0 

+ 

++ 

0 

+ 

+ 

Cost 
effective
ness 

NA 

+ 

+ 

Stakeholders' view: The vast majority of stakeholders supported the suitability and 
appropriateness  test  applied  in  the  context  of  PRIPs  sales  (insurers,  consumers, 
intermediaries).  A  majority  of  stakeholders  (insurers,  consumers)  supported  the 
introduction  of  a  ban  on  commission  for  independent  advice  in  PRIPs  department, 
except for intermediaries because of their fear that some a number of small providers 
might exit the market as a result of the ban on inducements (see explanation below).  

109 
110 

Idem footnote 84. 
The option chosen for general insurance products already applies also to insurance PRIPs, however, the 
previous options cannot address all problems related to this market because insurance PRIPs are similar 
to  investments  therefore  higher  consumer  protection  standards  should  apply  (see  more  explanations 
supra). 

EN 

51 

   EN 

 
 
                                                 
Under  the  baseline  scenario,  no  consistency  with  MiFID  would  be  ensured.  This 
means less protection for consumers buying insurance investments compared to other 
PRIPs  (see  section  on  problems).  Market  players  are  subject  to  different  regulation 
that would lead to an unlevel playing field as Member States would develop different 
rules  which  would  lead  to  a  fragmented  Internal  Market  as  sellers  would  have  to 
comply  with  different  rules.  In  most  of  the  Member  States  the  sellers  of  insurance 
products are not obliged to provide the clients with sufficiently detailed advice; this 
is necessary especially when complex products are sold to them (obj.1, 2 &3.). 

Option (1) would ensure better consumer protection rules (obj. 1) as it would give a 
better understanding of the preferences of consumers when buying more complex life 
insurance products, resulting in consumers' needs being better served. Levelling the 
playing  field  between  sellers  selling  interchangeable  and  substitutable  products 
which  serve  investment  purposes  would  result  in  wider  choice  for  consumers  (obj. 
2). Harmonised rules applicable for all sellers could enhance cross border sales (obj. 
3).  

Option  (2)  would  create  more  transparency  but  this  could  have  a  slightly  negative 
effect  on  more  vulnerable  consumer  groups  which  have  less  understanding  of 
complex insurance products but are not willing to pay for independent advice. In the 
case of sale of PRIPs this negative effect is outweighed by the fact that the PRIPs are 
complex  and  expensive  products  and  if  sellers  receive  commissions  from  the 
insurance companies this could lead to conflicts of interests which bring significant 
consumer  detriment  (obj.  1).  With  regard  to  undistorted  competition,  (obj.  2),  the 
introduction  of  independent  advice  is  not  likely  to  distort  competition  since  an 
independent  broker  providing  independent  advice  will  be  competing  with  other 
intermediaries  providing  fair  analysis  advice111  without  either  of  the  two  having 
unfair  competitive  advantages  stemming  from  the  current  regulation.  Consumer 
might switch between the two types of advice and advisers will see which business 
model is viable for them. There is a possibility that small brokers would not find it 
profitable to provide independent advice and either become tied agents112 or sell only 
non-PRIPs  products  (obj.  3).  Harmonised  rules  applicable  for  all  sellers  could 
facilitate cross border entry. 

Compliance cost implications 

Option  (1)  and  Option  (2)  are  cost-efficient,  as  implementation  costs  would  be 
compensated  by  benefits  for  firms  (most  entities  selling  different  categories  of 
investments and investment based insurances (such as PRIPs) would apply the same 
rules  irrespective  of  products  they  sell  and  clients.113  Costs  would  be  for  firms 
choosing to provide independent advice paid for by consumers who have a demand 
for such service. No separate costs calculations were made for Options (1) and (2). 
Total costs are only calculated in relation to Level 2 measures as Level 1 rules only 
contain  high  level  principles  therefore  these  will  not  entail  any  costs.  Total  cost 
implications of level 2 measures were already presented in section 7.2. (together with 
conflicts of interests for sales of PRIPs insurances, cost analysis for Option (2). 

111 

112 
113 

We  refer  to  fair  analysis  advice  as  concept  of  advice  that  is  given  on  a  non-independent  basis.  (Art 
12.(3) of IMD1. 
Art 2 of IMD1. 
Idem footnote 84. 

EN 

52 

   EN 

 
                                                 
Overall  assessment:  The  preferred  options  are  Options  (1)  &  (2)  because  these 
would provide a high level of consumer protection for the sales of investment-based 
insurances products. 

Issue 3. Advice 

Effectiveness (benefits) 

A. Low quality advice 

General insurance and insurance PRIPs 

Consumer  protection 
and  clear  conduct  of 
business rules (Obj.1.) 

Undistorted 
competition  

Market 
integration 

(Obj.2.)  

(Obj.3.)  

0 – Take no action (Baseline scenario) 

1  –  Ensure  that  professional  qualifications  are 
proportionate to the complexity of the products 
sold  (guidelines  to  be  drafted  at  Level  2  by 
EIOPA/ESMA) 

2  –  Full  harmonisation  of  professional 
level  of 
qualifications 
requirements  (irrespective  of  the  complexity  of 
the product sold) 

regime  setting  high 

0 

+ 

+ 

3-  Soft  law  (issuing  guidelines,  self-regulation, 
ethical codes) 

+++ 

0 

++ 

++ 

+ 

0 

+ 

+ 

+ 

Cost 
effectiven
ess 

N/A 

+ 

---- 

0 

Stakeholders'  view:  This  is  an  uncontroversial  issue.  The  vast  majority  of 
stakeholders  agreed  that  professional  qualifications  should  be  proportionate  to  the 
complexity  of  the  products  sold.  The  soft  law  approach  was  encouraged  by  the 
intermediaries. 

Under  the  baseline  scenario,  differently  qualified  salespersons  would  continue  to 
face the client. Different levels of qualification requirements, depending of the type 
of  sales  and  national  requirements  would  continue.  The  current  figure  for  cross-
border trade (5%) could continue (obj.1, 2 and 3). 

Defining  the competence  profile of a qualified insurance seller (Option  (1)) would 
ensure  that  the  consumer  faces  similarly  qualified  salespersons  across  all  sales 
channels, as appropriate for the business being conducted (obj. 1). It would not put 
up barriers for intermediaries who may be able to demonstrate competence through 
market  experience.  It  would  not  require  too  high  a  level  of  knowledge  and  ability 
from  market  players  selling  simpler  general  insurance  which  is  incidental  to  their 
main business (obj. 2). Mutual recognition of intermediaries’ knowledge and ability 
would render the cross-border process more effective. Those intermediaries who are 
operating  in  markets  with  lax  rules  would  be  competing  with  more  qualified 
intermediaries  when  operating  on  a  cross-border  basis  (obj.  3.).  This  option  would 
reflect  proportionality  as,  for  instance,  persons  who  are  working  in  the  marine 
division of an intermediary do not need knowledge on, say, car insurance.  

In  order  to  realize  the  best  consumer  protection  and  undistorted  competition  (obj. 
1&2),  Option  (2)  would  ensure  that  everyone  responsible  for  insurance  mediation 
activity  should  demonstrate  the  same  technical  knowledge  and  ability.  Restricting 
competence to a full qualifications framework may put up barriers for intermediaries 
who may be able to demonstrate competence through market experience. Those who 
usually sell simpler products would be driven out of the market (due to standardised 
qualification  requirements).  Total  harmonisation  of  training  requirements  might 

EN 

53 

   EN 

 
 
render  cross  border  trade  more  effective  because  no  mutual  recognition  is  needed 
(obj.3.)  

Option  (3):  Existing  legislation  and  self-regulatory  standards  (developed  by  the 
profession) do not provide enough clarity to stakeholders. However, proportionality 
and  subsidiarity  should  also  be  considered.  Training  also  has  a  competitive  aspect; 
indeed,  the  knowledge  of  the  persons  working  in  an  insurance  intermediation 
business distinguishes the business from another intermediation business.  

Compliance cost implications  

The vast majority of stakeholders replying to the public consultation suggested that 
Option  (1)  would  be  the  most  cost  effective  system  without  providing  quantifiable 
data. This option would require appropriate knowledge and ability for all those who 
are  in  contact  with  the  consumer.  The  costs  for  Option  (2)  would  be  the  highest 
(training  costs).  To  develop  an  exhaustive  list  of  all  the  desired  competencies  and 
abilities for insurance sellers that suit each Member State could be too challenging or 
not  feasible.  Option  (3)  would  involve  slight  costs.  Exact  cost  will  be  measured  in 
the impact assessment at Level 2. 

Overall  assessment:  Options  (1)  &  (3)  combined  would  ensure  that  training  rules 
are designed to the needs of markets/market players/products and proportionality is 
taken into account. 

3. B Low quality advice

114

Insurance PRIPs only 

0 – Take no action (Baseline scenario (3.A.) 
which means that professional qualifications 
are proportionate to the complexity of the 
products sold (guidelines to be drafted at Level 
2). 

Effectiveness (benefits) 

Cost 
effectiveness 

Consumer 
protection  and  clear 
conduct  of  business 
rules (Obj.1.) 

Undistorted 
competition 

Market 
integration 

(Obj.2.)  

(Obj.3.)  

++ 

++ 

++ 

N/A 

Full 

1– 
qualifications regime 

harmonisation 

of 

professional 

++ 

-- 

+ 

---- 

Stakeholders' view: The vast majority of stakeholders agreed with the baseline (see 
in  the  table).  For  instance,  EIOPA  and  intermediaries  preferred  to  retain 
responsibility  for  specifying  details  of  professional  standards  at  national  level  even 
for sellers of PRIPs insurances. 

114 

NB.  The  option  chosen  for  general  insurance  products  already  applies  also  to  insurance  PRIPs, 
however,  the  previous  options  cannot  address  all  problems  related  to  this  market  because  insurance 
PRIPs are similar to investments (see more explanations supra). 

EN 

54 

   EN 

 
 
                                                 
When  the  baseline  scenario  is  assessed,  the  assumption  is  that  the  previously 
identified preferred options have already taken effect. To achieve all three objectives 
to  the  best  level,  the  earlier  options  would  mean  that  IMD2,  plus  the  Level  2 
measures  would  require  similar  professional  qualification  rules  as  contained  in 
MiFID II. This option would not involve any cost (obj. 1&2, 3). 

Option (1) a common knowledge and ability requirement system, irrespective of the 
method of distribution, would be beneficial to consumers and market players (obj.1.) 
However,  restricting  competence  to  a  full  qualifications  framework  may  put  up 
barriers  for  intermediaries  who  may  be  able  to  demonstrate  competence  through 
market experience. Those who usually sell simpler products would be driven out of 
the  market  (due  to  standardised  qualification  requirements)  (obj.  2).  Total 
harmonisation  of  training  requirements  might  render  cross  border  trade  more 
effective (no mutual recognition procedure) (obj. 3).  

Compliance cost implications 

Costs (training costs) for Option (1) would be much higher than under option (0), and 
this  is  not  compensated  for  by  benefits.  To  develop  an  exhaustive  list  of  all  the 
desired competencies and abilities for insurance sellers that suit each Member State 
could be too challenging (too costly) or simply not feasible (due to the overlapping 
national  competence).  115Exact  costs  will  be  measured  in  the  impact  assessment  at 
Level 2. 

Overall  assessment:  The  preferred  option  is  Option  (1)  because  this  ensures 
proportionality and effectiveness at a low cost. 

Proportionate  approach  to  preferred  policy  options  in  problems  2  and  3 
(explanatory table) 

Conduct of Business rules 

Information requirements– Disclosure rules – Advice standards – Professional requirements 

High + Level 2 

PRIPs insurances 

Standard 

Low  

All insurance products 

Ancillary  service  provider  (car  rental  firms,  travel 
agents,  suppliers  of  goods  not  meeting  conditions  for 
the  exemption)  +  after  sales  players  (loss  adjusters, 
claims handlers) 

115 

Idem footnote 84. 

EN 

55 

   EN 

 
 
                                                 
7.4. 

Cross-border business 

Issue 4. Cross-border business 

Effectiveness (benefits) 

Consumer  protection  and 
clear  conduct  of  business 
rules (Obj.1.) 

Undistorted 
competition 

Market 
integration 

(Obj.2.)  

(Obj.3.)  

0 – Take no action (Baseline scenario) 

1– Revise "general good" rules 

2  –  Introduce  FOS  and  FOE  definitions  and 
mutual  recognition  system  as  well  as  a 
simpler notification system process  

0 

0 

0 

3  –  Introduce  a  centralised  registration 
system  

++ 

4- Soft law approach 

- 

0 

+ 

+ 

+ 

0 

0 

+ 

++ 

++ 

0 

Cost 
effective
ness 

N/A 

-- 

+ 

+ 

0 

Stakeholders' views: The preferred options were in line with EIOPA advice and the 
vast majority of stakeholders (consumers, intermediaries, insurers) agreed on it.  

Under  the  current  situation  (baseline  scenario),  the  level  of  cross-border  trade  in 
insurance  is  very  low  and  it  would  not  increase  significantly  (see  section  on 
problems). 

Option  (1)  would  not  substantially  affect  consumer  protection  (obj.  1).  More 
competition  would  be  expected  at  EU  level  due  to  the  clarity  of  rules  applied  by 
Member  States  (obj.  2).  This  scenario  would  be  positive  in  relation  to  market 
integration  as  similar  rules  are  to  be  applied  for  all  cross-border  trade  in  insurance 
services (obj. 3).116 

Option (2) would not substantially affect consumer protection (obj. 1) either. More 
competition through a less burdensome notification system and more willingness by 
sellers to go cross-border can be achieved through this option (obj. 2.). Clarification 
of the definitions of freedom of establishment and freedom to provide services would 
render the cross-border process more effective (the vast majority of stakeholders in 
the  public  consultation  agreed  on  this  option).  It  is  likely  that  fewer  complaints 
related  to  registration  problems  would  be received if this option  were  implemented 
(obj. 3.).  

Option  (3)  appears  plausible  in  achieving  the  objective  of  consumer  protection.  It 
would  provide  easily  accessible  information to the consumer. The consumer  would 
be able to check the status of an intermediary (in which capacity he is acting; where 
he is registered)  (obj.  1.)  There  would  be  more  competition  due  to  easier  access  to 
cross border markets and easier market mapping (whereby one can check how many 
competitors are on the market) (obj. 2.). Market integration would be improved as a 
central website through which notifications could be submitted would make it easier 
for firms passporting in to other countries (obj. 3). 

116 

EIOPA advice. 

EN 

56 

   EN 

 
                                                 
Option  (4):  Existing  legislation  and  self-regulatory  standards  (developed  by  the 
profession)  do  not  provide  enough  clarity  to  stakeholders. Mis-selling  cases  can  be 
further  expected.  The  Luxembourg  Protocol  would  co-exist  with  other  soft  law 
guidelines. This may create legal uncertainty (obj.1, 2 &3).  

Compliance cost implications 

As  for  the  costs,  Option  (1)  is  too  burdensome  in  terms  of  codification  and 
subsidiarity. To develop an exhaustive list of all the desired "general good rules" that 
suits each Member State might be too challenging or not feasible at this stage. The 
costs  involved  cannot  be  quantified  at  this  stage.  The  cost  of  implementation  of 
Option  (2)  would  be  low  because  Luxembourg  protocol  already  contains  these 
definitions.  Estimated  administrative  burden  for  setting  up  a  mutual  recognition 
system is €30/market players (but only fo r those who want to go cross-border). The 
compliance  costs  for  such  a  mutual  recognition  regime  is  around  €600/market 
players  but  95%  of  the  total  cost  is  business  as  usual  costs  (costs  related  to  the 
current  notification  process,  fees  for  certifications,  fees  for  translations)  As  for 
Option (3), the initial (one-off) fee would be low. (according to the PwC study and 
stakeholders)  The  expected  recurring  costs  are  annual  registration  fees  of  €  40  per 
company/year. Option (4) would entail slight costs. 

Overall assessment: Options (2) & (3) are the preferred ones as they involve slight 
costs and they may trigger more cross-border trade. 

7.5. 

Sanctions 

Issue 5. Sanctions 

Effectiveness (benefits) 

Consumer  protection 
and  clear  conduct  of 
business rules (Obj.1.) 

Undistorted 
competition 

Market 
integration 

(Obj.2.)  

(Obj.3.)  

0 – Take no action (Baseline scenario) 

1  –  Introduce  a  general  framework  of 
sanctions and enhanced harmonisation of 
sanctioning power (guidelines level 2) 

2  –  Introduce  fully  harmonised  sanction 
regime  by  unifying  sanctioning  powers  and 
enforcement rules 

3– Soft law  

0 

++ 

++ 

0 

0 

++ 

- 

0 

0 

+ 

+ 

0 

Cost 
effective
ness 

N/A 

+ 

-- 

0 

Stakeholders'  view:  Issues  on  sanctions  were  not  included  in  the  public 
consultation. The current impact assessment benefitted from the public consultation 
on sanction and on MiFID II. 

The current scenario (baseline option) has so far failed to provide a sufficient level 
of deterrence for market players not to infringe IMD1 requirements (see section on 
problems). If the current system remains in place, consumers would not be protected 
at  the  same  level  in  all  the  Member  States.  Market  players  would  be  subject  to 
different sanctioning regimes depending on the regulation that they were required to 
comply with and the Member State concerned (obj. 1, 2 & 3). 

EN 

57 

   EN 

 
Option  (1)  would  be  effective  as  it  would  immediately  alleviate  the  administrative 
burden  that  a  multitude  of  different  sanction  regimes  entail.  It  would  reinforce  and 
harmonise powers for supervisors. This would provide better protection for persons 
providing information on infringements and more information  on  infringements for 
supervisors  (obj.  1).  In  terms  of  achieving  undistorted  competition  (obj.  2),  this 
option  would  create  a  sounder  insurance  market  thanks  to  more  efficient  fighting 
against  unauthorised  practices  detrimental  to  customers.  This  would  have  a  more 
dissuasive effect for infringers as well. It would limit regulatory arbitrage; therefore 
it would be effective for reaching market integration (obj. 3). It would be an initial 
step towards further harmonisation of sanctions across EU.  

Option (2) would introduce reinforced and harmonised powers for supervisors. This 
information  on 
would  also  entail  better  protection  for  persons  providing 
infringements.  That  means  full  information  on  infringements  for  regulators  and 
supervisors (obj.1). However, as regards competition issues, sanctions (e.g. level of 
fines)  may  be  proportionately lower in some Member States where the economy is 
less  developed  but  where  the  insurance  market  has  the  same  level  of  penetration 
(obj.2). It would also limit regulatory arbitrage, and therefore would be as effective 
as  Option  (1)  to  promote  market  integration  (obj.  3).  It  is  already  a  step  towards 
further harmonisation of sanctions across EU.  

Option  (3):  Existing  legislation  and  self-regulatory  standards  (developed  by  the 
profession) do not provide enough clarity to stakeholders and the effect would be the 
same as if the baseline scenario remains. 

Compliance costs implications 

As  regards  Option  (1),  costs  would  be  compensated  by  benefits  for  all  market 
participants and consumers who would receive better protection due to the deterrent 
effect  of  harmonisation  of  sanctions.  As  for  Option  (2),  costs  would  not  be 
compensated for by benefits, as this option is too costly. To develop an exhaustive 
list of all the desired "sanctions" that suits each Member State might be unfeasible at 
this stage (Option (3)). The soft law approach would entail slight costs (Option (4)). 

Overall  assessment:  Option  (1)  is  the  preferred  option  because  it  leaves  sufficient 
flexibility to Member States and is not too costly. Harmonisation of general rules on 
sanctions would not distort Member States' legal traditions. 

8. 

ANALYSIS OF THE IMPACTS 

8.1. 

Overall impacts of the package 

Summary of the costs/benefit impact of the combined preferred options. 

Preferred policy options 

Compliance costs  

Expected benefits 

Extend  the  scope  to  all  sellers  of 
insurance  products  and  after-
of 
sales 
insurance  complementary  to  the 

apart 

from 

sales 

Total  costs  around  €240,000,000  
one-off, 
ongoing 
€51,2,00,000  
costs (excluding claim handlers due 
to lack of data) 

The  consumer  will  get  the  same 
protection 
no  matter  which 
distribution channel he uses.  

So 

far  48%  of 

the  market 

EN 

58 

   EN 

 
supply of goods (e.g. opticians) 

IMD1:737.740 entities 

Declaration  regime  for  ancillary 
and after-sales services  

IN:  direct  writers,  agents,  brokers, 
travel  agents,  car  rental  firms,  loss 
adjusters, claims handlers 

OUT  of  conduct  of  business  rules: 
professional customers 

Introduction  of  a  European 
Standard  for  status  information 
("business  card  solution")  and 
remuneration disclosure 

IN:  direct  writers,  agents,  brokers, 
travel  agents,  car  rental  firms,  loss 
adjusters, claims handlers 

IMD2:  around  847000  entities 
(excluding  claim  handlers  due  to 
lack of data) 

€200 

for  all  market 

Best  estimates 
players:  average 
(one-off 
costs)  /company  and  average  €100 
(recurring costs) (printing, training, 
IT,  paper, 
administration 
and 
costs). 

Aggregated  costs  estimates  for  the 
scope of IMD2: €168,200,000  (one 
off  costs)  €84,100,  000   (recurring 
costs)  

(insurance 
is 
contracts 
covered  by  IMD1;  the  extension 
will cover about 98%. 

sold) 

This could lead to better mitigation 
of  possible  conflicts  of  interests 
between  the  intermediary  and  the 
consumer  arising  from  misaligned 
incentives.  In  order  to  ensure  a 
level-playing  field  the  insurance 
in  direct 
undertakings  engaged 
sales  should  disclose  the  variable 
remunerations  of  their  employees 
linked to the sale. 

Introduction  of  a  definition  of 
insurance advice 

No costs is foreseen for introducing 
a definition of advice 

This  would  benefit 
consumer 
choice  and  the  quality  of  service 
received. 

IN:  direct  writers,  agents,  brokers, 
travel  agents,  car  rentals,  suppliers 
of goods not meeting conditions for 
the exemption 

Introduction of a revised MiFID-
like  regime  based  only  on  the 
conduct of business rules (Level 2 
guidelines by ESMA/EIOPA) 

IN: Sellers of insurance PRIPs  

Introduction  of  a  suitability  test 
as part of the advice process 

IN: Sellers of insurance PRIPs  

Ban 
on 
independent advice 

commission 

for 

IN: Sellers of insurance PRIPs  

Cost is not measurable separately at 
this stage. 

The  consumer  will  get  the  same 
protection 
no  matter  what 
investment type product he buys. 

(No 

Compliance  costs  would  entail  IT 
costs,  training costs,  administrative 
costs,  costs  related  to  adjusting 
data,  etc. 
specific  costs 
estimates  were  volunteered,  either 
by  the  interviewees  of  the  PwC 
the  stakeholders 
study,  or  by 
responded 
public 
consultation.) 

the 

to 

consumer 
This  would  benefit 
choice  and  the  quality  of  service 
received. 

Total  one-off  costs  of  €350–€550  
million  and  a  total  of  €110–€220  
million in ongoing costs. 

This  would  benefit 
consumer 
choice  and  the  quality  of  service 
received. 

Average  total  costs:  €450  million 
on-off, €165 million ongoing costs 

The  estimated  number  of  market 
entities  that  will  be  selling  PRIPs 
insurances  under  IMD2  is  around 
500.000. 
administrative 
burden 
therefore  averages  800 
EUR/company. 

The 

The  most  significant  costs  item  is 

EN 

59 

   EN 

 
 
 
Professional  qualifications  are 
proportionate  to  the  complexity 
of  the  product  and  soft 
law 
approach 

IN:  direct  writers,  agents,  brokers, 
travel  agents,  car  rental  firms, 
suppliers  of  goods  not  meeting 
conditions  for  the  exemption  and 
sellers of insurance PRIPs  

freedom 

Introduce  provisions  relating  to 
services 
to  provide 
freedom 
(FOS) 
of 
and 
establishment  (FOE)  definitions 
and  a  mutual  recognition  system 
as  well  as  a  simpler  notification 
process (to provide greater detail 
and clarity). 

Introduce 
registration system by EIOPA 

centralised 

a 

This  would  benefit 
consumer 
choice  and  the  quality  of  service 
received.  Consumer  will  get  the 
same information, no matter which 
distribution channel he uses.  

EIOPA  predicts  more  cross  border 
entry 

related to the application of MiFID-
like  conduct  of  business  rules  to 
sellers of PRIPs insurances. 

Cost is not measurable at this stage. 

Exact  cost  will  be  measured  in  an 
IA at level 2. 

Commission 
educated 
guess based on stakeholders' input: 

services' 

Training costs: €250/company one-
off  and 
€150  ongoing  costs 
(yearly). 

Total:  €212  million  one-off  and 
€127  million 
costs 
(yearly). 

ongoing 

are 

costs 

No 
for 
introducing  definitions  for  market 
players  

foreseen 

Estimated  administrative  burden 
for  setting  up  a  mutual  recognition 
system  is €70/market players (only 
for  those  who  wants  to  go  cross-
border). 

It is estimated that 100,000 entities 
will  provide  services  cross  border 
under the new IMD2. 

General framework for sanctions  No  costs  are  foreseen  for  market 

players 

channel 

One 
deterrence and enforcement 

to 

strengthen 

8.2. 

General expected impact of revised IMD on market structure  

Insurance  distribution  markets  differ  significantly  between  Member  States.  Some 
markets may be slightly more affected by the introduction of IMD2, but the overall 
assessment is that no major changes to market structures for insurance mediation are 
expected  due  to  IMD2.  Recent  statistics117  have  shown  that  even  in  the  Member 
States where the insurance regulation has been developed into the direction of MiFID 
already,  meaning  more  transparency  of  the  remuneration  and  higher  consumer 
protection  standards,  the  number  of  insurance  intermediaries  has  not  decreased. 
Moreover, the number of bankruptcies and defaults amongst insurance intermediaries 
has decreased and the level of consumer satisfaction has been improved. Of course, 
these figures could not be indicative for the entire EU market because of the different 

117 

Information received from supervisors. 

EN 

60 

   EN 

 
 
 
 
 
                                                 
market  structures  in  the  different  Member  States,  however,  it  shows  that  more 
regulation in the insurance distribution field would be welcomed by a large number 
of stakeholders. 

Indeed,  some  changes  are  expected  irrespective  of  IMD2.  It  is  expected  that  the 
increase  in  internet  sales  generally  will  lead  to  a  further  increase  in  the  use  of  this 
distribution  channel  in  relation  to  insurance  products.  This  channel  is  used  by  both 
insurance  undertakings  and  intermediaries.  Some  consolidation  of  the  intermediary 
sector may be expected as a result. These changes are quite independent of IMD2. 

Some  consolidation  can  also  be  expected  due  to  the  introduction  of  more  stringent 
selling  rules  for  insurance  PRIPs,  based  on  the  rules  in  MiFID.  And  for  insurance 
PRIPs  the  trend  towards  more  complex  products  means  that  this  change  would  be 
likely to be seen in any event, although the regulatory changes may accelerate this.  

Remuneration  disclosure  may  have  an  initial  marginal  impact  on  consumers' 
behaviour, as some studies suggest that vertical integration (clients going directly to 
the  insurance  companies  rather  than  through  a  broker)  may  occur.  Remuneration 
disclosure may have an initial impact on consumer behaviour, but if as industry also 
says,  customers  buy  on  price  alone,  showing  how  much  of  premium  is  paid  as 
commission  will  make  no  difference  in  the  longer  term.  Improved  information  and 
increased  transparency  are  likely  to  lead  to  better  competition  and  benefit  efficient 
intermediaries,  as  well  as  those  offering  specialised  services/an  enhanced  level  of 
service to their clients.  

The  ban  on  commission  for  independent  advice  in  relation  to  insurance  PRIPs  is 
expected to have only limited impact, as this type of service is used less in insurance 
than  for  financial  instruments.  Accordingly  these  advisers  are  more  likely  to 
transform  themselves  into  non-independent  insurance  intermediaries  providing 
"regular"  or  "fair  analysis"  insurance  advice,  continuing  to  be  remunerated  by 
commission  from  insurance  companies,  than  to  leave  the  market  altogether.  The 
extent to which this occurs will depend on the extent to which consumers are willing 
to pay for “independent" advice.  

No structural changes in the markets for ancillary insurance distribution are expected 
to result from the changes to IMD1. The relatively smaller amounts involved, as well 
as  the  clear  ancillary  nature  of  these  products  would  make  changes  in  consumer 
behaviour slower to appear. 

Cross-border sales will increase in the longer perspective, but this is not expected to 
significantly change the structure of the market. 

8.3. 

IMD2 proposed rules and their proportionate application to SMEs 

8.3.1.  Are  the  preferred  policy  options  proportionate  for  smaller  market  players  selling 

insurance products?  

SMEs and Micros which carry on insurance mediation as their principal business are 
already subject to the IMD. They are accordingly currently subject to requirements as 
to good repute, competence, disclosure of status ( in relation to conflicts of interest) 
and whether advice is given and on what basis. As noted above, some 48% of sales 

EN 

61 

   EN 

 
are  currently  covered  by  the  IMD,  and  this  will  increase  to  98%  under  these 
proposals.  That  is  mainly  because  of  the  inclusion  of  sales  by  insurance 
undertakings,  which  by  virtue  of 
Insurance 
directives/Solvency II] are not SMEs.  

requirements  of 

[the 

the 

Those intermediaries which are SMEs or Micros currently outside scope and which 
will  be  brought  into  scope  by  these  proposals  are  essentially  businesses  whose 
principal activity is other than insurance mediation (so mediation is purely ancillary 
to their main business). These intermediaries will be subject to a light touch regime 
as a proportionate approach to the ancillary nature of the mediation they perform. 

Proportional  requirements  have  been  introduced  to  take  account  of  SME  concerns 
and to respect the principle "less complex products, less complicated rules". This is 
expressed graphically below: 

Disclosure 
status  

of 

Registration 

Professional 
qualifications 

Advice standard 

Full 

Full 

High 

(level)  

(level) 

High 

Full 

Full 

Average 

Average 

Full 

Light regime 

Light regime 

Low 

(declaration 
only) 

none 

none 

none 

none 

A.  SME  insurance 
intermediaries 
selling  high  risk 
products (PRIPS) 

B.  SME  insurance 
intermediaries 
selling 
insurance 

general 

C. Ancillary service 
providers 
(travel 
agents,  car  rental 
firms,  suppliers  of 
goods  not  meeting 
conditions  for  the 
exemption) 
and 
after-sales  services 
(loss 
adjusters, 
claims handlers) 

D. 
of 
Seller 
insurance  policies 
ancillary  to  sale  of 
goods,  under  600 
euro  premium  per 
year  and  satisfying 
criteria 
other 
the 
under 
exemption 

8.3.2. 

Impact on SME intermediaries selling insurance as their main activity (approx. 700 
000 entities) - A and B categories  

A. SME insurance intermediaries selling high risk products (PRIP) 

EN 

62 

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The only MiFID rules which it is proposed should apply are the conduct of business 
rules  for  investor  protection.  No  other  MiFID  rule  will  apply.  Organisational  rules 
for insurance intermediaries and insurance undertakings are in the IMD or Solvency 
II.  

The MiFID rules applied are high level rules and are adjusted to the specifics of the 
insurance  sector.  Level  2  measures  are  also  proposed  in  this  chapter  in  order  to 
ensure  those  high  level  principles  are  applied  proportionately.  In  this  respect  the 
Commission Services' approach already takes into account in a proportionate way the 
particular  position  of  insurance  intermediaries.  Any  different  policy  choice  would 
mean  that  an  investor/policyholder  could  expect  different  levels  of  protections 
depending  on  who  is  selling  the  same  product  to  him/her.  This  does  not  seem  a 
desirable result.  

The  fact  that  MiFID-based  rules  on  conduct  of  business  are  applied  to  some 
insurance intermediaries does not necessarily mean extra administrative burden. All 
these  MiFID  requirements  already  apply  to  investment  firms,  which  also  include 
small  entities.  Moreover,  proportionality  is  ensured  in  respect  of  applying  MiFID 
conduct  of  business  rules.  It  is  proposed  that  MiFID  conduct  of  business  rules 
pertaining  to  investor  protection  (such  as  the  proposed  new  restrictions  on 
inducements; the provisions on mitigation of conflicts of interest; the suitability and 
appropriateness test) will be included in IMD2 to ensure a level playing field for the 
sales practices in relation to all PRIPs products across the investment and insurance 
sectors. The administrative burden of this approach is significantly less than applying 
the  full  MiFID  rules  written  for  the  investment  sector.  The  sellers  of  insurance 
products  usually  sell  different  types  of  products,  including  non-life  insurance 
products  -  if  they  were  required  to  register  under  MiFID  for  the  sale  of  PRIPs  it 
would  mean  double  registration  requirements:  once  under  IMD  (with  insurance 
supervisory  authorities)  and  secondly  under  MiFID  (with  investment  supervisory 
authorities). The countries applying MiFID rules more widely than the MiFID scope 
(NL,  IT,  UK)  tend  to  apply  a  proportionate  approach  to  make  the  rules  useful  and 
suitable  for  insurance  intermediaries,  and  they  only  apply  the  conduct  of  business 
rules in MiFID, not full MiFID. 

B.  SME  insurance  intermediaries  selling  general  insurance  products  (agents 
and, brokers) 

Most  insurance  intermediaries  are  SMEs  involved  in  selling  comparatively  simple 
insurance products (e.g. general insurance). The impact of new registration rules on 
SME  intermediaries  is  limited,  as  they  already  have  to  register  under  similar  rules 
according to IMD1.  

The main policy changes relevant for SMEs are the introduction of the business card 
solution  and  remuneration  disclosure.  The  Commission  Services'  best  estimates  for 
all  market  players  are  around  €200  one -off  costs  per  company  and  around  €100 
recurring costs per company (printing, training, IT, paper, and administration costs). 
It  should  be  noted  that  several  Member  States  have  already  introduced  similar 
requirements118. It appears that the biggest cost driver of the preferred policy option 

118 

Sweden, Finland and Denmark have a full disclosure of remunerations regime, the UK and Ireland has 
disclosure upon request and France apply disclosure upon request for premiums above 20 000 euros. 

EN 

63 

   EN 

 
                                                 
is remuneration disclosure. However, intermediaries already possess data about their 
remuneration. Where their data does not have (or cannot calculate) the exact amount 
in cash terms, they will still know the basis of the calculation of their remuneration. 
Accordingly, it is simply a question of developing systems for disclosure of this to 
customers. 

As for the remuneration disclosure, a transitional period will be introduced. It means 
that  a  mandatory  'full  disclosure'  regime  is  envisaged  for  the  sale  of  life  insurance 
products and an 'on–request' regime (i.e. on customer's demand) for the sale of non-
life  products  with  transitional  period  of  3  years.  After  the  expiry  of  3  years 
transitional period, the full disclosure regime will automatically apply for the sale of 
non-life products as well. A 3-years-period is long enough to allow SMEs to prepare 
and  adjust  themselves  to  the  legislative  change  and  measure  the  impact  of  the 
suggested  change  in  real  life,  whilst  it  is  sufficiently  short  to  put  a  full  system  in 
place  in  the  foreseeable  future.  Very  long  transitional  period  would  jeopardize  the 
efficiency  of  the  measure.  This  is  in  line  with  the  views  of  most  stakeholders 
(intermediaries, insurance industry) as well as EIOPA and, at the same time, ensures 
proportionality  and  flexibility  towards  SMEs.  It  will  provide  a  useful  midway 
balancing  consumer  groups'  and  intermediaries'  as  well  as  SME's  interests.  The 
transitional 'on request regime' minimizes the impact on smaller intermediaries where 
the  cost  of  introducing  systems  to  account  for  mandatory  disclosure  may  be 
disproportionate to the number of customers who use and act on this information. 

Concerning professional qualifications, Member States should impose requirements 
in  a  proportionate  manner  taking  into  account  the  complexity  of  the  products  sold. 
This  would  equally  apply  to  EIOPA  when  it  develops  Level  2  measures  on 
professional qualification requirements. Exact costs will be measured in the impact 
assessment at level 2 at a later stage but no significant cost can be expected.  

8.3.3. 

Impact on SME intermediaries selling insurance as an ancillary activity (approx. 80 
000 entities) - C and D categories  

C. Ancillary service providers (travel agents, car rental firms, suppliers of goods not 
meeting conditions for the exemption) and after-sales services (loss adjusters, claims 
handlers) 

Apart  from  insurance  complementary  to  the  supply  of  goods,  sellers  of  insurance 
ancillary to goods and services (including travel agents and car rental firms) would 
be  within  scope  instead  of  full  registration  for  these  intermediaries,  a  simple 
declaration procedure is proposed. This will impose a lighter regime. The European 
business  card  rules  and  information  provision  rules  will  apply.  .  Basic  professional 
requirements  and  good  repute  (they  should  know  the  features  of  the  products  they 
sell,  clean  police  record)  are  required.  An  insurance  undertaking  or  registered 
insurance  intermediary  takes  responsibility  for  ensuring  the  compliance  of  the 
intermediary concerned. 

D. Fully exempted sellers of insurance products under IMD1 

Sellers of insurance complementary to the supply of goods (such as mobile phones or 
glasses) remain out of scope, as in IMD1, except that (reflecting an increase which 
has  already  been  implemented  by  Member  States  in  compliance  with  provisions 

EN 

64 

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contained  in  IMD1)  the  premium  limit  on  an  annualised  basis  is  increased  to  €600 
per annum which should be applied pro rata (less than €2 per day).  

8.4. 

Employment and social impact 

The  impact  for  employment  will  likely  be  low,  given  that  the  initiative  is  more 
focused  on  amendments  than  on  the  introduction  of  new  requirements  that  might 
have  general  impact.  In  general  terms,  the  new  requirements  may  have  some 
marginal impact (training needed, some higher costs and thereby possible manpower 
consequences), but it is not expected that the direct impact would be material.  

Social  benefits  result  from  better  consumer  information  and  advice  when  buying 
insurance  products.  This  could  lead  to  a  lower  number  of  defaults119  (early 
withdrawals),  and  mis-selling,  and  therefore  a  decreased  level  of  consumer 
dissatisfaction  and  a  more  efficient  insurance  of  consumer  risks.  Indirectly,  greater 
levels of consumer confidence should contribute to growth in EU financial services 
more generally.  

8.5. 

Administrative cost and administrative burden 

Estimated  administrative  burden  is:  around  617  EUR  millions  (aggregated 
estimate)  for  the  first  year  of  application  of  IMD2.  This  figure  has  been  derived 
according to the following methodology: 

Input for the administrative costs calculations 

In  order  to  estimate  the  administrative  cost  associated  with  the  proposals,  the 
Commission Services have used the PwC study (with significant adjustments), CEA 
statistics, BIPAR statistics, Eurobarometer, as well as some anecdotal evidence and 
own analysis by the Commission Services.  

The  Commission  also  organised  in  July  2011  a  meeting  with  a  number  of 
stakeholders (BIPAR, FECIF, EFICERT, CEA, EUROSTAT, ECTAA, BMW, VW, 
Daimler  Financial  services)  in  order  to  collect  data  on  the  costs  of  the  different 
policy options envisaged.  

The PwC study as the starting point 

The  PwC  study  covered  only  five  Member  States  and  some  participants  were 
unwilling  or  unable  to  provide  a  precise  estimation  of  costs.120  In  many  cases  total 
figures for administrative costs have been given, not specifically those related to the 
proposal.  

The PwC study provided cost elements for the purpose of calculating administrative 
costs.  Their  estimations  were  combined  with 
the 
organisations listed above). As result, the aggregated administrative costs amount to 

industry  statistics  (from 

119

120 

"Default and lapse" on your life insurance policy means that the client stops paying his/her premiums. In 
this case, the insurance company could use any money that the client has accrued in his/her policy to 
cover the unpaid premiums every month until the money is depleted. 
The following types of costs were taken into account by the above mentioned study: regulatory, internal 
supervision, training, sales and marketing, IT, administration and operation and other costs.  

EN 

65 

   EN 

 
                                                 
 
a  maximum  of  12,000,000,000  EUR  in  the  field  impacted  by  IMD2.  This  figure 
shows the full administration expenses for the running of insurance business activity 
across  the  whole  EU.  In  order  to  arrive  to  the  administrative  burden  estimate 
stemming  from  the  current  revision  of  the  IMD1,  the  Commission  services  have 
estimated business as usual costs. 

In  order  to  arrive  at  a  cost  figure  relating  to  the  draft  proposal,  the  Commission 
Services had the following observations: 

Cost  estimates  were  given,  taking  into  account  highly  regulated,  more  mature 
markets (notably the UK). However, these markets already have considerably higher 
protection measures in place so the marginal cost of implementing the new proposals 
is much less. 

It should be noted that the PwC study figures used for the calculation of the IT cost 
and the training cost linked to the preferred  options (tables in section 5) have been 
based  on  data  received  from  some  large  insurance  companies  from  very  developed 
insurance markets, such as the UK. Therefore, these figures must be revised in order 
to reflect the market reality in EU 27. 

Cost  estimates  include  "business  as  usual"  costs.  The  business  as  usual  cost 
corresponds  to  the  cost  resulting  from  collecting  and  processing  information  which 
would be done by an entity even in the absence  of the legislation. Evidence  shows 
(results  of  the  public  consultation,  meeting  with  stakeholders)  that  insurance 
companies  and  intermediaries  do  possess  the  relevant  data,  IT  equipment,  training 
and  other  relevant  systems  in  place  in  order  to  be  able  to  remunerate  the  sellers  of 
insurance  products  (i.e.  to  see  how  much  commission  or  fee  needs  to  be  paid  to 
them). The Commission Services – based on anecdotal evidence – have assessed the 
"business  as  usual"  part  to  be  between  50-95%  of  the  cost  estimates.  For  example, 
95% of training costs related to business as usual, but merely 50% of the fee for the 
declaration  procedure  is  business  as  usual  costs  for  travel  agents  and  car  rentals  as 
this is a new obligation for them at EU level. (They were only registered in national 
registration systems up to now, therefore 50% of the 'registration' fees still relates to 
the national registry (business as usual costs). 

Further input for the calculations 

Details on all calculations can be found in Annex 11. 

The  following  figures  were  used  to  calculate  the  administrative  costs  and 
administrative burden of the different policy options: 

Total estimated number of EU registered 
insurance intermediaries end-2010:  

Total 
undertakings in the EU27 in 2009 

number 

EU 

of 

insurance 

737 740.121 

4 618.122 

121 
122 

Source: BIPAR. 
Source:  CEA  European  market  operators  –  2009,  21  June  2011  -  Statistical  series  (see 
http://www.cea.eu/index.php/facts-figures/statistical-series/market-operators,  Number  of  companies 
operating on the market).  

EN 

66 

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Total number of EU car rental companies 
and car leasing end-2009:  

30 976. 

Total  number  of  EU 
companies end-2009:  

travel  agent 

68 000.123 

€150 yearly (ongoing) and €250 one-
off cost124  
This cost figure covers all usual 
training costs for intermediaries, 
therefore the estimated businees as 
usual cost is 95% of the total training 
costs. 

€200 on-off and €100 ongoing costs 
per entity 125 

Total training costs for intermediaries and 
employees of direct sellers 

Business card solution – designing 
information material (leaflet design, 
printing, paper and distribution costs): 

Submitting the information (sending it to 
the designated recipient, i.e. giving 
business card and disclosing remuneration 
to the customer):  

Buying /Running (IT) equipment & 
supplies:  

Annual fee for running a central electronic 
registry :  

Mutual recognition of foreign proof and 

€100  126.  
This cost figure covers all IT costs, 
therefore the estimated businees as 
usual cost is 95% of the total costs. 

40 euros127/per intermediary. 
Intermediaris are alredy registered 
under IMD2, therefore therefore the 
estimated business as usual cost is 
95% of the total registration costs. 

One-off costs of €600  128.  
As there is already notification 

123 
124 
125 

126 
127 
128 

Source: Eurostat 
Source: BIPAR and Commission estimates 
PWC study gave us a highly inflated number: 2300 EUR which was corrected downwards on the basis 
of  several  stakeholders'  opinion..  This  cost  figure  covers  all  costs  related  to  a  yearly  production  of  a 
business card. A similar already used in some Member States (UK, Germany, Belgium) , therefore the 
estimated business as usual cost is 95% of the total costs. 
Commission services' estimates 
FECIF data  
Commission services' estimates 

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costs related certification of translations:  

The declaration procedure (the cost of 
declaration and cots of business cards) 

Training costs for those who fall under 
declaration procedure 

procedure and othe administartive 
costs related to cross border business 
in place, the estimated business as 
usual cost is 50% of the total costs. 

For a travel agent company a €25 as 
one-off declaration cost and a one-off 
maximum of €600 costs for buying / 
adjusting IT equipment, printing, 
distributing business cards to comply 
with new obligations (the estimated 
business as usual costs id 95% of the 
total costs) 

For a car rental or leasing company a 
€25 as one-off declaration cost and a 
maximum of around one-off €600 costs 
for buying / adjusting IT equipment, 
printing, distributing business cards to 
comply with new obligations (the 
estimated business as usual costs is 
95% of total costs ) 

For travel agents : a €25 yearly costs 
((the estimated business as usual costs 
is 95% of total costs (€500)). 
For car rentals: a €10 costs per year 
(the estimated business as usual costs 
is 95% of total costs (€200)). 

Administrative burden 

Considering  the  above  input,  the  Commission  Services  estimate  the  actual 
administrative  burden  of  the  proposed  measures  to  around  617  EUR  millions 
(aggregated estimate) for the first year of application of IMD2, out of which 18 % 
is a one-off cost and the rest is a recurring cost per year. This was calculated based 
on the administrative costs calculation and estimations of business as usual costs (see 
explanation above). There are around 841,000 undertakings which will fall under the 
application  of  IMD2.  (due  to  lack  of  data,  claim  handlers  are  not  included  in  this 
figure). 

This  would  result  in  an  administrative  burden  per  undertaking  of  around  730 
EUR.  These  costs  will  not  affect  all  the  undertakings/persons  in  an  equal  manner 
since only those which are selling life insurance products with investment elements 
(intermediaries,  insurers,  banks)  will  have  to  comply  with  more  stringent  rules. 
(according  to  the  preferred  option  to  introduce  MiFID–like  regime  for  sellers  of 
PRIPs  insurances,  see  7.2.)  These  undertakings  are  selling  expensive  and  complex 
products  with  high  expected  return 
in  a 
disproportionate manner. 

they  will  be  affected 

therefore 

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The  Gross  Written  Premium129  (GWP)  (life  and  non-life)  for  2009  is  996  449  000 
000  EUR.  The  estimated  administrative  burden  for  the  first  year  of  application  of 
IMD2 represents around 0, 06 % of the total GWP of the insurance sector. 

Administrative burden can be reduced if the implementation is done in conjunction 
with  other  changes  (notably  MiFID2).Those  who  sell  investment  products  (banc-
assurances, insurers, banks, some intermediaries) already comply with MiFID rules.  

Annex 10 and 11 contains a detailed analysis of the possible administrative cost and 
burden associated with the preferred options identified for this initiative. Annex 11 
also shows the administrative burden estimations for introducing revised MiFID-like 
regime  based  only  on  the  conduct  of  business  rules  for  intermediaries,  insurance 
companies and banks. 

Implementation cost per Member State 

The implementation costs for Member States is estimated to be around 20 000 EUR 
per  Member  State.  This  figure  is  based  on  the  responses  of  Member  States  to 
stakeholder surveys.130 

8.6. 

Overview of costs on the basis of the preferred options in million EUR  

Costs on the basis of the preferred options in million EUR (one-off costs) 

Compliance costs 

From  0  to  IMD2 
(total) 

From IMD1-IMD2 

thereof 

thereof 

Substantive costs 

Administrative 
burden  

Extension of scope 

240 

168 

card 
and 

Business 
solution 
remuneration 
disclosure 

Introduction 
MiFID-like rules 

of 

450 

Professional 
qualification 
(training) 

212 

3 

168 

450 

85 

2 

10 

50 

35 

1 

158 

400 

50 

129 
130 

Total premiums that the insurance company will collect over the duration of an insurance policy 
Study on the costs and benefits of different policy options for mortgage credit, London Economics with 
Achim  Dübel  (Finpolconsult)  in  association  with  the  institute  für  finanzdienstleistungen  (iff), 
November 2009. 

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60 

10 

3 

7 

Mutual 
recognition– 
Simpler 
notification 
procedure– 
Centralised 
registration 
EIOPA 

by 

Total 

1,130 

716 

100 

616 

For details on the calculation, please see Annex 18. For ongoing costs calculation, please see 
Annex 19. 

Short explanation to the table:  

From  0  to  IMD2:  it  shows  the  total  costs  of  implementing  IMD2  from  scratch,  disregarding  that  IMD  1  is 
already in place. 

From IMD1 to IMD2: total upgrading costs from IMD1 to IMD2 

Substantive  costs  are  induced  by  obligations  for  businesses  to  change  their  products  and/or  production 
processes. 

Administrative  costs/  administrative  burden:  The  administrative  costs  consist  of  two  different  cost 
components:  the  business-as-usual  costs  and  administrative  burdens.  While  the  business-as-usual  costs 
correspond to the costs resulting from collecting and processing information which would be done by an entity 
even in the absence of the legislation, the administrative burdens stem from the part of the process which is done 
solely because of a legal obligation. 

8.7. 

Estimation of benefits 

By  reducing  conflicts  of  interest  between  insurance  intermediaries  and  consumers, 
and  by  strengthening  the  rules  against  biased  advice,  there  will  be  a  better  match 
between consumer's needs and products purchased. The policy options chosen in this 
impact  assessment  will  lead  to  a  situation  where  the  product  purchased  by  the 
consumer  is  better  suited  to  his/her  needs  as  well  as  his/her  financial  and  personal 
circumstances. The increased consumer confidence should lead to better integration 
of  the  internal  market  and  more  financial  stability  in  the  aftermath  of  the  financial 
crisis. 

8.7.1.  Quantitative approach to the calculation of the benefits 

The  consumer  needs  to  buy  insurance  policies  which  fit  his  needs  and  financial 
situation. Otherwise, there is a real risk that he may not be covered in the event of a 
claim, or may cease to pay the premiums with a cosequent default and cancellation if 
the  policy  is  a  life  insurance,  with  consequent  consumer  dissatisfaction.  For  an 
insurance product with an investment element, a mis-sale can also involve getting the 
'wrong' risk profile, which can mean a loss on a contract which would not have been 
sold  if  the  customer’s  risk  profile  had  been  correctly  assessed.  A  consumer  who 
defaults  on  an  insurance  contract  would  There  customer  may  also  incur  a  tax 
liability. In the variable annuity market, statistics suggest that in about 25% of cases 
consumers defaults.  

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The benefits to consumers and society as a whole from the introduction of high and 
harmonised  advice  standards  come  through  a  reduction  in  defaults  and  mis-sales. 
Different policy options have been examined in the light of their potential effect on 
the  numbers.  For  instance,  improved  quality  of  advice  at  the  point  of  sale  of  some 
complex  insurance  products  should  lead  to  an  important  reduction  of  mis-selling. 
The full methodology for the calculation of benefits can be found in Annex 11. The 
estimated impact of policy options on the level of defaults has been examined by the 
Commission  Services  on  the  basis  of  stakeholders’  contributions  and  the  evidence 
collected during the public consultation. Currently there are no market-wide figures 
that  show  how  many  defaults  and  lapses  have  occurred  per  year  in  the  insurance 
sector as a whole. 

The  consumer  detriment  stemming  from  the  lack  of  suitable  advice  for  the  sale  of 
insurance products with investment element could, as indicated before, reach a very 
high  figure,  especially  in  times  of  financial  crisis  and  uncertainty  in  the  financial 
markets. Therefore, the benefits of a more stringent regime and increased consumer 
protection  standards  can  be  calculated  on  the  basis  of  a  reduction  of  the  consumer 
detriment.  Since  it  could  reach up  to  €1  trillion  for  EU  27 131,  only  for  the  sale  of 
unit-linked insurance products, it could be assumed that even if a small percentage of 
reduction  of  consumer  detriment  could  be  attributed  to  improved  regulatory 
standards, it will still represent a very high figure of benefits which overpass largely 
the  administrative  burden  of  the  proposal.  Similarly,  in  regard  to  PRIPs,  UK  FSA 
figures highlight the scale of potential consumer detriment: in the UK alone for one 
particular  product  this  was  estimated  at  £92m,  owing  to  up  to  20%  of  sales  being 
influenced by factors other than the relative suitability of the different products132. 

8.7.2.  Qualitative approach to the calculation of the benefits 

8.7.3. 

Improved choice of insurance products for consumers 

By  introducing  improved  and  harmonised  advice  standards,  consumers  will  gain 
benefits  through  an  improved  comparability  of  offers,  including  across  different 
distribution  channels.  This  is  likely  to  lead  to  an  improved  understanding  by 
consumers of the services and products on offer. As a result, consumers will be better 
placed to compare offers and shop around for products and deals better suited to their 
needs.  This  should  increase  competition  between  the  sellers  of  similar  insurance 
products  and  reduce  the  cost/price  paid  by  the  consumer.  Such  benefits  are  not 
quantifiable due to the lack of data on consumer behaviour, price elasticity, etc.  

131 

132 

Calculation based on the Impact assessment on PRIPs. Insurance Europe (former CEA) data from 2008 
shows insurers hold overall investments in the range of €6 trillion (these investments cover savings and 
pensions,  and  some  will  be  institutional  holdings  of  funds  such  as  UCITS;  around  a  third  can  be 
estimated to be held as unit-linked life insurance).Therefore, if €2 trillion is allocated to unit-linked life 
insurance  and  around  57  %  of  it  is  sold  without  suitable  advice,  the  potential  consumer  detriment 
stemming out of the sale of unsuitable unit-linked life insurance products could be estimated to be close 
to €1.1 trillion for EU 27. 
Charles Rivers Associates (2005) and FSA calculations assessed recommendations of investment bonds 
(an  investment  product  that  involves  life  assurance)  against  those  of  a  tax  efficient,  MiFID-scope 
product  (equity  ISAs).  Despite  already  having  in  place  some  of  the  additional  investor  protection 
measures  in  MiFID  for  insurance-based  investments  bonds,  the  differential  remuneration  available  to 
firms  for  selling  the  different  products  has  been  put  forward  as  the  cause  of  12-20%  of  sales  being 
assessed  as  unsuitable  (see  Annex  1  of  Policy  Statement  10/6  Distribution  of  retail  investments, 
http://www.fsa.gov.uk/pubs/policy/ps10_06.pdf) 

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8.7.3.1.  Greater business opportunities for sellers of insurance products 

The  main  benefits  for  insurance  intermediaries  and  insurance  companies  will  be  in 
the  form  of  greater  business  opportunities.  These  would  stem  from  lower  costs  of 
operating cross-border and higher consumer confidence and therefore demand. This 
should increase competition between sellers. Similar impacts could be expected from 
policy  options  that  encourage  insurance  intermediaries’  cross-border  activity. 
Quantification of these benefits has not been possible due to the lack of relevant data. 
The  extended  scope  of  application  of  the  IMD  to  include  all  sellers  of  insurance 
products (travel agents, car rental/leasing companies and direct writers) will provide 
an enhanced level playing field for all market participants.  

8.7.3.2.  Reduced costs for sellers of insurance products 

As  a  result  of  improved  advice  standards,  market  players  will  save  on  some 
additional costs linked to defaults. These include costs linked to re-calculations and 
calibrations  of  risk  management  measures  by  insurers,  which  must  manage  a  wide 
range  of  risks  under  a  long-time  investment  perspective.  Finally,  market  actors 
should also benefit from enhanced financial market stability.  

Benefit stemming from consistency with MiFID - increased consumer protection for 
insurance-based  investments  –  a  benefit  for  consumers,  market  players,  and  for 
Member States (regulators, supervisors) 

There  are  areas  where  MiFID  requirements  are  much  stronger  than  in  IMD1, 
therefore  the  following  benefits  can  be  expected:  as  regards  conflicts  of  interest 
management  consumer  protection  could  be  materially  increased  by  stopping  firms 
from  operating  their  businesses  in  ways  that  conflict  with  the  interests  of  their 
clients.133. With regards to clients interests, this will provides regulator/supervisors 
with a clearly articulated standard to judge firms against. As far as inducements are 
concerned,  the  MiFID  standard  for  the  sales  of  insurance  PRIPs  is  significantly 
higher  in  that  it  bans  various  payments  and  benefits.  Both  the  consumer  and  the 
market  player  would  benefit from greater transparency and similar rules when they 
buy/sell investment based products.  

As  for  introducing  a  suitability  test,  consumer  protection  will  be  enhanced  in 
Member  States  where  no  protection  currently  exists  by  making  firms  take 
responsibility  for  the  advice  that  they  give.  It  was  also  suggested  by  a  study  in  the 
UK  that  applying  one,  MiFID-driven,  suitability  requirement  to  advisers  selling  all 
types  of  investment  products134  will  be  beneficial  to  firms,  not  just  consumers,  as 
they  did  not  want  the  confusion  of  multiple  standards.  As  regard  incorporating  an 
appropriateness  test,  this  may  involve  additional  time  and  cost,  but  as  it  is  only 
done  for  complex  products,  costs  should  be  proportionate  to  benefits.  For  instance, 
after MiFID was implemented, the UK FSA found evidence of potential benefits to 
vulnerable  consumers  “through  a  better  highlighting  and  reinforced  disclosure  of 

133 

134 

Financial  Services  Authority,  CP07/23  Organisational  systems  and  controls  –  extending  the  common 
platform, December 2007 http://www.fsa.gov.uk/pubs/cp/cp07_23.pdf 
Financial  Services  Authority,  Conduct  of  Business  sourcebook  (COBS)  post-implementation  review: 
2008 statement on interim findings (December 2008) 

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relevant  risks  by  means  of  questions  asked  of  clients,  warnings  given  and  the 
encouragement firms give clients to access information they make available”135.  

In  conclusion,  costs  are  outweighed  by  the  consumer  benefits  linked  to  more 
transparency  on  remuneration,  less  conflicts  of  interest,  stringent  rules  on 
inducements,  better  quality  of  financial  advice,  less  defaults  on  life  insurance 
policies, improved consumer confidence (PRIPs). 

9. 

MONITORING AND EVALUATION 

The monitoring and evaluation of the preferred policy options will be carried out in 3 
steps  (1)  a  transposition/transitional  period  plan,  in  cooperation  with  EIOPA, 
preparing for the application of the rules; (2) the regular monitoring activity by the 
Commission,  as  guardian  of  the  Treaty  (focusing  on  the  empowerment  of  national 
supervisors)  and  the  national  authorities.  EIOPA  would  prepare  a  report  on 
supervisory issues; and (3) the evaluation of the policy.  

A  full  evaluation  of  the  effects  of  the  policy  choices  could,  however,  only  be 
undertaken in the longer term. Some of the important policy choices will take time to 
have  any  impact  e.g.  remuneration  disclosure,  information  requirements,  European 
business card, stricter rules for selling insurance PRIPs, etc.). It would be necessary 
to  carry  out  such  evaluation:  a  preliminary  examination  by  EIOPA  (possibly 
followed by an interim report by the Commission), on selected issues: e.g. changes in 
insurance market  structure; changes in the patterns of  cross-border activity; interim 
assessment of the improvement in quality of advice and selling methods; impact of 
the changes regarding SMEs.  

The evaluation of the consequences of the application of this Directive will also take 
place five years after the transposition date for the legislative measure, in the context 
of  a  report  to  the  Council  and  the  Parliament.  The  report  will  be  produced  by  the 
Commission following the above mentioned consultation of the European Insurance 
and Occupational pension Authority (EIOPA). Key elements of such a report would 
assess  in  how  far  market  structures  have  changed  in  the  EU  following  the 
implementation of the IMD Review; how the potential conflicts of interest have been 
solved; and how the cost of operating for market participants has changed due to the 
measures implemented. 

The main indicators and sources of information that could be used in the evaluation 
process are as follows: 

• 

experience regarding the measures designed to strengthen consumer protection; 
estimate  of  the  impact  on  the  market  of  the  new  consumer  protection  rules 
(disclosure  rules  on  remuneration, 
information  requirements,  European 
business  card,  etc.);  impact  indicators  should  be  the  number  and  level  of 
complaints  in  the  EU;  mis-selling  scandals  as  opposed  to  numbers  and  levels 
set  out  before  the  entry  into  force  of  IMD2;  and  the  number  and  severity  of 
cases  where  consumers,  in  general,  and  retail  investors,  in  particular,  have 

135 

Financial  Services  Authority,  Conduct  of  Business  sourcebook  (COBS)  post-implementation  review: 
2008 statement on interim findings (December 2008) 

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• 

• 

• 

• 

• 

• 

suffered  losses  (sources:  stakeholders  feedback,  general,  already  existing 
supervisory reporting); 

progress made in achieving undistorted competition: impact indicators  should 
be  the  number  of  complaints  received  by  regulators  and  supervisor;  and 
competition  cases  at  national  and  EU  level  (sources:  stakeholders  feedback, 
reports from national competition authorities and DG COMP);  

experience  how  certain  provisions  are  applied  in  practice,  (e.g.  regime  for 
disclosure on remuneration), indicators should be the level of  bad application 
cases  and  complaints  (source:  mystery  shopping  to  assess  compliance, 
supervisory monitoring ); 

developments  on  enhanced  cross-border  business,  indicators  should  be  the 
change  in  number  of  businesses  providing  cross-border  services  (sources: 
statistics from competent authorities ); 

experience  with  third  country  regimes  and  a  stock-taking  of  the  number  and 
type  of  third  country  participants  granted  access,  impact  indicators  should  be 
the  uptake  of  third  country  firms  of  the  new  regime  and  the  supervisory 
experience in practice with such firms;  

regulatory  coherence,  impact  indicators  should  be  the  cases  of  known 
regulatory  arbitrages  (sources:  baseline  survey  and  follow-up  survey  in  5 
years); 

impact  of  the  proposed  measures  in  the  general  insurance,  and  insurance 
investment  markets,  impact  indicator  should  be  the  change  in  the  price  of 
premiums  in  both  general  insurance  and  insurance  investment  markets 
following implementation of the IMD Review. 

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