IMD - Time to review?

Insurance intermediaries must now provide prescribed information to the consumer prior to the contract start date, and as required, upon amendment and renewal of their contract. In addition, a prescribed complaint procedure have been implemented.

• IMD was a minimum harmonisation Directive which has resulted in differences in how it has been implemented by Member States.
• IMD did not achieve sufficient transparency and certainty for consumers or sufficiently take their interests into account.
• IMD did not effectively facilitate cross-border provision.

Selling practices for financial products have also proved to be inadequate.

Currently IMD exempts insurers and their employees from its scope. This could result in less information and protection to consumers who buy direct from them rather than through an intermediary. By bringing direct sales within IMD2 this would create a level playing field between these distribution channels.

The Commission sought views on how the provisions of IMD can be applied to direct sales, websites that just provide information about insurance and the sales of insurance products by distance marketing (online, email, etc).
The Commission also wants to implement ‘conduct of business’ and ‘conflicts of interest’ rules in respect of the sale of insurance PRIPs modelled on the MiFID rules.

Insufficient quality of information provided to consumers

• The Commission sought views on whether the current prescribed information which must be provided to the consumer prior to the contract start date and as required upon amendment and renewal of the contract should also be applied to direct sales by insurers. 

Conduct of business rules: conflicts of interests and transparency

• The Commission is proposing to introduce high level principles concerning conflicts of interest, inducements and transparency to insurance intermediaries and insurers.
• The rules will be based on MiFID conflicts of interest rules, particularly in respect of their application to remuneration.
  New requirements regarding the disclosure of remuneration could also be implemented. 

Legal uncertainty due to unclear definition of scope in IMD

• The Commission is proposing that exemptions should be based on the activities being carried out rather than on the type of profession such as a lawyer.
• Direct sales by insurers and their employees could also be included.
• They also suggest that where an insurer sells the products of another insurer, the insurer selling the insurance should be deemed to be the intermediary of the other insurer and subject to the requirements for insurance intermediaries.               

.

Burdensome notification system

• The Commission is proposing to provide a more effective notification system. They suggest that introducing a definition of ‘Freedom of Establishment’ will provide more clarity.
• They also suggest that more clarity is required on the use of general good (disclosure) requirements by a Member State to ensure their appropriate and transparent use.
• Any new regulation must also reduce the administration requirements on companies.

Achieve a higher level of professional requirements

• The Commission sought views on whether a Member State’s professional requirements should be imposed on all persons in an insurer who are accountable for the distribution and sales of insurance products to ensure they have appropriate knowledge and expertise.  

Selling practices for Insurance PRIPS

• Consistent conduct of business, inducements and conflicts of interest rules should be applied to all persons selling PRIPS regardless of whether the distribution is through an intermediary or a direct sale.

The rules of MiFID provide an effective benchmark to use. The person selling the insurance PRIPS should:

• Act honestly, fairly and professionally in accordance with the best interests of their clients 
• Ensure the client receives information about the remuneration of the seller (making it clear the difference between the premium paid and the actual amount invested). Remuneration structures should not materially impact on the seller’s ability to act in the best interests of their clients
• Information should be obtained about the client’s knowledge, financial situation and investment objectives to enable suitable products to be recommended or to warn clients of unsuitable products for execution only business
• Identify conflicts of interest and where they are not managed in a way that prevents the risk of damage to clients interests, then disclosure of the general nature and sources of conflicts of interest should be provided to the client before business is undertaken.     

IMD2 therefore reviews the selling practices for both insurance PRIPs and general insurance products. It also provides conduct of business and conflict of interest rules which are based on the MiFID rules for the sale of insurance PRIPs. 

Therefore, the PRIPs, IMD2 and MiFID  consultations should be read alongside one another.