Insurance distribution. Recast
The European Parliament adopted by 579 votes to 40 with 67 abstentions, a legislative resolution on the proposal for a directive of the European Parliament and of the Council on insurance mediation.
Parliament’s position adopted at first reading following the ordinary legislative procedure amended the Commission proposal as follows:
Scope: the Directive lays down rules concerning the taking-up and pursuit of the activities of insurance and reinsurance distribution in the Union. However, it is aimed at minimum harmonisation and should therefore not preclude Member States from maintaining or introducing more stringent provisions in order to protect customers.
Exemptions: the Directive will not apply to ancillary insurance intermediaries carrying out insurance distribution activities when, for example, the insurance is complementary to the good or service supplied by a provider, where it covers damage to, or loss of, baggage and other risks linked to travel booked with that provider, or where the amount of the premium paid for the insurance product does not exceed EUR 600 calculated on a pro rata annual basis.
However, in such a case, an exempted undertakings must (i) ensure that certain essential information is supplied, particularly about its identity and how to lodge complaints; (ii) ensure it considers the demands and needs of the customer before the proposal of the contract.
Registration: insurance, reinsurance, and ancillary insurance intermediaries shall be registered with a competent authority in their home Member State.
The registers must specify: (i) the names of the natural persons within the management of the insurance or reinsurance distributor who are responsible for the insurance or reinsurance distribution; (ii) the Member States in which the intermediary conducts business under the rules on the freedom of establishment or on the freedom to provide services. The European Insurance and Occupational Pensions Authority (EIOPA) shall have the right to access the data stored in the register and data subjects hall have the right to access such stored data and the right to be appropriately informed.
Freedom to provide services and freedom of establishment: Parliament introduced new measures concerning the breach of obligations when exercising the freedom to provide services.
Where the competent authority of the host Member State has reason to consider that an insurance, reinsurance or ancillary insurance intermediary acting within its territory under the freedom to provide services is in breach of any obligation set out in this Directive, it shall communicate those considerations to the competent authority of the home Member State. If the competent authority of a host Member State becomes aware of any breaches of obligations occurring within its territory, it should inform the competent authority of the home Member State which should then be obliged to take the appropriate measures. The competent authority of the host Member State should be entitled to intervene if the home Member State fails to take appropriate measures or if the measures taken are insufficient.
Moreover, this Directive shall not affect the power of the competent authority of the host Member State to take appropriate measures to prevent an insurance distributor established in another Member State from carrying out activity within its territory under the freedom to provide services or, where applicable, the freedom of establishment, where the relevant activity is entirely or principally directed towards the territory of the host Member State with the sole purpose of avoiding the legal provisions which would be applicable if that insurance distributor had its residence or registered office in that host Member State.
Professional and organisational requirements: home Member States shall ensure that insurance and reinsurance distributors and employees of insurance and reinsurance undertakings carrying out insurance or reinsurance distribution activities possess appropriate knowledge and ability in order to complete their tasks and perform their duties adequately.
Home Member States shall have in place and publish mechanisms to effectively control and assess the knowledge and competence of insurance and reinsurance intermediaries and employees of insurance and reinsurance undertakings and employees of insurance intermediaries, taking into account the nature of the products sold, the type of distributor, the role they perform, and the activity carried out within the insurance or reinsurance distributor.
Home Member States may require that the successful completion of the training and development requirements is proven by obtaining a certificate.
Insurance and reinsurance intermediaries shall demonstrate compliance with the relevant professional knowledge and competence requirements as laid down in the Annex.
Professional indemnity insurance: insurance and reinsurance intermediaries shall hold professional indemnity insurance covering the whole territory of the Union or some other comparable guarantee against liability arising from professional negligence, for at least EUR 1 250 000 applying to each claim and in aggregate EUR 1 850 000 per year for all claims.
In order to protect customers against the inability of the insurance, reinsurance or ancillary insurance intermediary to transfer the premium to the insurance undertaking or to transfer the amount of claim or return premium to the insured, there is a requirement for insurance intermediaries to have financial capacity amounting, on a permanent basis, to 4 % of the sum of annual premiums received, subject to a minimum of EUR 18 750.
Out-of-court redress: Member States shall ensure that adequate and effective, impartial and independent out-of-court complaint and redress procedures for the settlement of disputes between customers and insurance distributors concerning the rights and obligations arising under this Directive are established in accordance with the relevant Union and national legislation, using existing bodies where appropriate.
Conflicts of interest and transparency: the insurance distributor should develop, adopt and regularly review policies and procedures relating to conflicts of interest with the aim of ensuring that the customer is adequately informed about fees, commissions or benefits.
An amendment stipulated that Member States shall ensure that in good time before the conclusion of an insurance contract, an insurance undertaking communicates to its customer the nature of the remuneration received by its employees in relation to the insurance contract.
Where the fee is payable directly by the customer, the insurance intermediary shall inform the customer of the amount of the fee or, where this is not possible, of the method for calculating the fee.
Advice: prior to the conclusion of an insurance contract, the insurance distributor shall specify, on the basis of information obtained from the customer, the demands and the needs of that customer and shall provide the customer with objective information about the insurance product in a comprehensible form to allow that customer to make an informed decision.
Any contract proposed shall be consistent with the customer’s insurance demands and needs.
Where advice is provided prior to the conclusion of any specific contract, the insurance distributor shall provide the customer with a personalised recommendation explaining why a particular product would best meet the customer’s demands and needs.
In relation to the distribution of non-life insurance products, the information shall be provided by way of a standardised insurance product information document that is clear, easy to read and accurate and not misleading, containing a summary of the insurance cover, including the main risks insured, the insured sum a summary of the excluded risks, the means of payment of premiums and the duration of payments.
Cross-selling: when an insurance product is offered together with an ancillary product or service which is not insurance, as part of a package or the same agreement, the insurance distributor shall inform the customer whether it is possible to buy the different components separately and, if so, shall provide an adequate description of the different components of the agreement or package as well as separate evidence of the costs and charges of each component.
Product oversight and governance requirements: in order to ensure that insurance products meet the needs of the target market, insurance undertakings and, in the jurisdictions concerned, insurance intermediaries manufacturing insurance products for sale to customers, should maintain, operate and review a process for the approval of each insurance product.
Information to customers as regards the distribution of insurance-based investment products: appropriate information shall be provided in good time, prior to the conclusion of a contract, to customers or potential customers with regard to the distribution of insurance-based investment products, and to all costs and related charges. ‘Insurance-based investment product' is defined as an insurance product which offers a maturity or surrender value and where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations.
The information shall be provided in a comprehensible form in such a manner that customers or potential customers are reasonably able to understand the nature and risks concerning the insurance-based investment product offered and, consequently, to take investment decisions on an informed basis.
Sanctions: without prejudice to the supervisory powers of competent authorities and the right of Member States to provide for and impose criminal sanctions, Member States shall ensure that their competent authorities may impose administrative sanctions and other measures applicable to all infringements of the national provisions transposing this Directive, and shall take all measures necessary to ensure that they are implemented.
Reporting infractions: in order to ensure that decisions on breaches by competent authorities have a dissuasive effect on the public at large and to inform market participants about behaviour that is considered detrimental to customers, those decisions should be published, provided that the time period for lodging an appeal has passed and no appeal was lodged, unless such disclosure jeopardises the stability of insurance or reinsurance markets. Where national law provides for the publication of the sanction or other measure which is subject to an appeal, such sanction or other measure, as well as the outcome of the appeal, should also be published without undue delay.
In any event, if publication of the sanction or other measure would cause disproportionate damage to the parties involved, the competent authority should be able to decide not to publish the sanction or other measure or to publish it anonymously.