Monday, 10 August 2015

Agreement reached on Insurance Distribution Directive: good news for European consumers?

The new Directive on insurance sale is a step closer to being adopted after representatives of the European Parliament reached agreement with the Council on the last day of the Latvian Presidency.

Background

The new Insurance Distribution Directive (IDD) will replace the 2002 Insurance Mediation Directive (IMD) that sets out the present regulatory framework for insurance brokers and other intermediaries and covers a broad range of insurance products, including life insurance with investment elements (so called unit-linked insurance). The IMD left European insurance markets fragmented, with significant inconsistencies in particular to information requirements. Aiming to raise consumer confidence in the aftermath of the financial crisis and to ensure a high level of consumer protection the Commission embarked on the revision of IMD. The Commission's proposal dates back to 2012 (IMD2)- see our summary here. The revised proposal was published on the 30th of June 2015, reflecting a compromise between the Parliament, the Council and the Commission.

Key features of the revised proposal

The Directive is renamed to reflect the wider scope of application (including insurance sold without the involvement of intermediaries).

The IDD complements the rules on the sale of investment products (MiFID II) and Regulation 1286/2014 on key information documents for package retail and insurance-based investment products (PRIIPS).

The IDD is a minimum harmonization directive.

The IDD will bring a number of benefits to European consumers:
  • wider scope of application, covering the entire distribution chain, all sellers of insurance products, including insurance companies that sell directly to customers (without engaging an intermediary),
  • greater transparency of the price and other costs, including an obligation to disclose whether the seller has an own incentive to sell the particular product,
  • eased decision making and product comparison -insurance companies are obliged to hand over a standardized information sheet summarizing the basic coverage of the (non-life) insurance policy and the main exclusions before the contract is concluded, 
  • additional rules for the sale of bundled products-consumers will now be able to buy the main good or service without the insurance product,
  • stricter requirements for the sale of life insurance products with investment elements (packaged retail insurance-based investment products - PRIIPS).
The Commission welcomed the new proposal. "This agreement is good news for European consumers", said Jonathan Hill, EU Commissioner for Financial Stability, Financial Services and Capital Markets Union. "Consumers will benefit from greater choice and information when they buy insurance products, with more accountability and competition."

While the proposal has many positive features, highlighting two significant drawbacks, BEUC seems somewhat less content:
  • sellers are not obliged to disclose the amount of fees and commissions they receive for selling insurance policies,
  • the proposal fails to extend recently adopted investor rights like those on investment advice for life insurance products.
Monique Goyens, BEUC's Director General commented: "As with any investment products, small investors spend a substantial amount of money on life insurance policies in the hope that it will result in some saving. It is inexplicable that consumers taking out life insurance policies will be less protected than those opting for an investment fund."

In addition, we may also wonder whether non-disclosure of  the amount of fess and commissions will make price comparisons more difficult, negatively influencing competition and consumer choice, and making harder for European consumers to make informed decisions. Should we care how much we pay in fees and commissions as long as we get the promised cover? What do you think?

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