Explanatory Memorandum to COM(2000)511 - Insurance mediation - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2000)511 - Insurance mediation. |
|---|---|
| source | COM(2000)511  |
| date | 20-09-2000 |
The Financial Services Action Plan i, endorsed by the Cologne European Council in June 1999, underlines the urgent need to establish a truly integrated retail market in which the interests of customers and suppliers are properly protected. The document identifies insurance intermediaries as an area where priority action is required. A clear, common approach to the rules on intermediaries is essential in order to guarantee freedom of cross-border insurance services and to maintain protection of insurance customers at a high level.
The Action Plan thus provides for the modernisation of the binding Community rules on insurance intermediaries, which have not been updated since they were adopted in 1976. It announces that by mid-2000 the Commission is to adopt a proposal for a Directive which should be adopted by the European Parliament and the Council by 2002.
The Lisbon European Council of 23 and 24 March 2000 placed strong emphasis on the need to integrate financial services and markets within the Union. A single financial market will be a key factor in promoting the competitiveness of the European economy, the development of the new economy and social cohesion. That is why the Heads of State and Government called for the Financial Services Action Plan to be implemented by 2005.
In its Communication of 3 May 2000 i, the Commission pledged to take appropriate measures to follow up the conclusions of the Lisbon European Council. The full implementation of the Action Plan by 2005 is a major priority if financial markets are to become more effective and financial undertakings more competitive.
Contents
- 1.1. The need for a Community legal framework for insurance intermediaries
- Source: BIPAR
- 1.2. The objectives of the proposal for a Directive
- 1.3. Content of the proposal for a Directive
- 1.4. Consultations with interested parties
- 2. Comments on the articles
- Article 2 - Definitions
- Article 3 - Registration
- Article 4 - Professional requirements
- 1. Possession of appropriate general, commercial and professional knowledge and ability
- 2. Good repute
- 3. Professional indemnity insurance or comparable guarantee
- 4. Financial capacity
- Article 5 - Opening of branches and operation under freedom to provide services by insurance and reinsurance intermediaries
- Article 6 - Competent authorities
- Article 7 - Sanctions
- Article 8 - Complaints
- Article 9 - Out-of-court redress
- Articles 10 and 11 - Information provided by the insurance intermediary
- Articles 12 to 15
Insurance intermediaries are an essential link in the sale of insurance in the Community. As shown in the table below, the market share held by intermediaries in the distribution of insurance is over 50% in many Member States.
Market shares of the various insurance distribution channels in some countries of the European Union (%)
>TABLE POSITION>
Insurance intermediaries also play an important role in protecting the interests of customers, not only through the distribution of insurance sold by different insurance undertakings within the Community but especially through advising and assisting customers with an analysis of their specific needs. Their importance is likely to increase, partly because of the keener competition brought about by the establishment of the internal market and partly because of the greater complexity of insurance policies sold within it. Given the central role of intermediaries in the distribution of often complex financial products, it is vital to prevent as far as possible negligence or professional misconduct which could affect customers.The internal market in insurance has been completed for the most part as far as insurance undertakings are concerned. Since July 1994, thanks to the system set in place by the Third Directives i, each insurance undertaking is subject to a single regime of official authorisation and prudential supervision by the Member State in which it has its registered office. This 'European passport' allows it to carry on business throughout the Community, either by way of establishment or by way of freedom to provide services. This system has led to an increase in business, particularly in transactions relating to large industrial and commercial risks. The impact of this expansion has, however, been less marked in the case of insurance for private individuals, partly because there is no European legal framework for insurance intermediaries allowing them to take full advantage of the fundamental freedoms, i.e. freedom of establishment and freedom to provide services in the internal market. Intermediaries are thus, very often, quite unable to meet the demands of customers who wish to insure a risk in another Member State.
The current Community provisions relating to intermediaries (Directive 77/92/EEC i and Recommendation 92/48/EEC) i have certainly helped to bring national laws closer together. Nevertheless, insurance intermediaries are still subject to different national legal requirements, which isolate national markets and hinder cross-border business.
According to the professional association of insurance intermediaries (BIPAR), several obstacles prevent intermediaries from meeting the demands of customers living in another Member State, especially in the case of private individuals. BIPAR draws particular attention to:
- the uncertainties surrounding the European legislation applicable to insurance intermediaries;
- the need to comply both with the legal requirements of several different countries in cases where transactions have a cross-border element (this may mean having to register in the host country and, in order to do so, having to satisfy a number of national requirements i concerning coverage of professional liability, financial capacity, etc.);
- the lack of clear definition of the obligations of intermediaries when they do business in another Member State (problems are likely to arise in particular where intermediaries have to comply with a number of 'general good' requirements which are not clearly defined or where it has to be established at what point an intermediary becomes subject to the laws of the host country).
The number of cross-border activities carried out by insurance intermediaries is consequently still very limited, in particular with regard to business with individual customers. This affects insurance undertakings, which experience difficulties in gaining access to the various national markets by way of freedom to provide services and in acquiring appropriate distribution networks in the various Member States. The isolation of markets deprives insurance customers (firms and individual customers) of access to a broader range of insurance products which would enable them to obtain the best cover for their needs. Customers are also denied the advantages which would derive from greater competition between intermediaries.
The objective of achieving a genuine internal market in this sector is therefore seriously compromised.
The proposal for a directive establishes a legislative framework designed to ensure a high level of professionalism and competence among insurance intermediaries. A single registration system for intermediaries will facilitate cross-border activities by way of freedom of establishment and freedom to provide services. The proposal also guarantees a high level of protection of customers' interests.
The proposal focuses on the objectives which should be attained in order to reconcile insurance mediation with the internal market while properly protecting insurance customers. It was decided, however, not to attempt to harmonise too closely the methods the national authorities must employ in order to achieve those objectives. Intermediaries supply the products of companies which are already subject to close supervision throughout the Union. Furthermore, those companies must use the services only of those intermediaries who comply with the provisions of the Directive. The Commission considers that, under these circumstances, it is better to rely as much as possible on mutual recognition among the Member States rather than try to harmonise in detail the methods of control actually used.
For some years now, insurance companies, intermediaries themselves, customers and several Member States have been pressing for the establishment of a European legal framework for insurance intermediaries i. In its Resolution on the Financial Services Action Plan, the European Parliament took the view that an overhaul of Community rules was of the utmost importance i.
At present, only Directive 77/92/EEC i contains binding provisions on insurance intermediaries. However, its scope is limited since it does not harmonise the professional qualifications required of persons working as agents or brokers. It simply establishes a number of transitional measures designed to facilitate the free movement of such agents and brokers in the Community. These measures will no longer be necessary once more detailed Community rules have been adopted.
The Directive does not prevent the Member States from laying down specific provisions on access to and pursuit of these activities, or indeed from not doing so, and in fact the Member States have adopted widely differing rules. Such differences isolate national markets, preventing people from pursuing this kind of business by availing themselves of the freedom of establishment and the freedom to provide services. They also make for a lack of transparency with regard to the status and professional qualifications of insurance intermediaries, which does not help to guarantee a high level of customer protection.
A first step towards resolving these problems and bringing national rules closer together was taken with Commission Recommendation 92/48/EEC of 18 December 1991 i. It was felt at the time that a recommendation could help to guarantee the equivalence of national rules on insurance mediation, without binding coordination measures having to be adopted. In its Recommendation, the Commission calls on the Member States to ensure that insurance intermediaries established within their territory are subject to professional requirements and registration. Basically, the Recommendation calls on the Member States to adopt national rules requiring that insurance intermediaries have general, commercial and professional knowledge and ability; that they have professional indemnity insurance or an equivalent guarantee; that they be of good repute; that they have not previously been declared bankrupt and, in the case of brokers, that they have sufficient financial capacity. Finally, the Recommendation provides for the registration of insurance intermediaries in their home Member State and the adoption of appropriate sanctions and measures against any person acting as an insurance intermediary without being registered as such. Only registered persons must be allowed to take up and pursue the activity of insurance intermediary and, in order to ensure that the registration requirement is met, appropriate sanctions and measures must be in place.
The measures advocated in the Recommendation aim to improve the protection of customers where they acquire insurance products and services via an intermediary. Professional indemnity insurance means that a customer who is the victim of negligence on the part of an intermediary is able to obtain compensation. Similarly, if brokers are required to have a certain financial capacity, the customer has extra protection against bankruptcy on the part of the broker. If there were no such requirement, premiums paid to the broker but not yet forwarded to the insurer could be lost. It is also clear that a system of registration, effective sanctions and an appropriate programme of professional training can only strengthen customer confidence in the competence and integrity of the intermediary.
Most Member States have adopted measures based on the Recommendation. However, national rules, where they exist i, are still different. The effect of these disparities is to create needless barriers to market entry, in particular for sales by way of the freedom to provide services, and to fragment the single market. If the single market in insurance is to offer better guarantees of customer protection, customers must enjoy at least some level of protection for each transaction, irrespective of the intermediary and the Member State he is located in. The Commission believes that only measures adopted at Community level will remove the existing differences and establish an internal market for insurance intermediaries.
When it adopted its Recommendation, the Commission also said that it reserved the right to propose a binding Directive in the future if such coordination measures were necessary to remove any remaining obstacles to market access or to introduce new guarantees aimed at protecting customers.
The aim of the proposal for a Directive may be summed up as follows: to guarantee that all persons (natural or legal) taking up and pursuing the activity of insurance or reinsurance mediation have been registered on the basis of a minimum set of professional requirements. Registered intermediaries will be able to operate in other Member States by availing themselves of the freedom to provide services or by establishing a branch. Member States may add to the professional requirements laid down in the Directive, but only for the intermediaries that they register. The proposal also sets minimum requirements as regards the arrangements for, and content of, the information which insurance intermediaries must make available to their potential customers (this does not concern reinsurance intermediaries or insurance intermediaries where they are covering industrial and commercial risks).
The proposal for a Directive is based on the approach already put forward by the Commission in Recommendation 92/48/EEC and takes up the principles outlined there. The Commission believes that this approach will make it possible to achieve the objectives pursued by means of measures tailored to those objectives.
The proposal for a Directive is based on the following principles:
(i) All insurance intermediaries operating in the Community must be registered by a competent authority (Article 3). Registration of an insurance intermediary is subject to fulfilment of the following professional requirements:
(a) insurance intermediaries must possess appropriate general, commercial and professional knowledge and ability;
(b) they must have professional indemnity insurance or another comparable guarantee against liability arising from professional negligence;
(c) intermediaries who handle customers' monies must have sufficient financial capacity;
(d) intermediaries must be of good repute and must not have been declared bankrupt.
(ii) Registered intermediaries will be allowed to take up and pursue their activities anywhere in the Community by availing themselves of the freedom of establishment or the freedom to provide services, under the supervision of the authorities of their home Member State.
(iii) Insurance intermediaries must comply with the requirements laid down in the proposal as regards the information to be given to customers.
The present proposal was the subject of detailed consultation with experts from the Member States and organisations representing the parties concerned. These included insurers (the European Insurance Committee - EIC - and the Association of European Cooperative Insurers - AECI), intermediaries (the International Association of Insurance and Reinsurance Intermediaries - BIPAR), and the European Bureau of Consumers' Unions (BEUC). These organisations welcome the idea of a proposal for a Directive to regulate insurance intermediaries at European level and they approve of the main principles of the proposal.
Article 1 - Scope
The proposal covers all insurance intermediaries established in the Community, whether natural or legal persons.
All insurance or reinsurance intermediaries in the Community are subject to the provisions of the proposal for a Directive as regards the rules on registration and professional requirements (Articles 3 and 4). They may thus take advantage of the freedom of establishment and the freedom to provide services.
The provisions on the information to be provided by intermediaries to customers (Chapter III) apply only to insurance intermediaries dealing with customers who do not require cover for large industrial and commercial risks i. Nor do they apply to reinsurance intermediaries, who deal only with professionals (insurance and reinsurance undertakings). Less protection would appear to be necessary for transactions between undertakings.
The proposal allows Member States not to apply the provisions on professional requirements (Chapter II) or the rules on information to be provided (Chapter III) to persons providing insurance which does not require general or specific knowledge of insurance and which covers risks linked to the products or services they sell or provide as part of their principal commercial activity, provided that it is other than life insurance and does not cover any liability risks, that the amount of the premium does not exceed EUR 1 000 and that the principal activity of the person is not insurance mediation. This is aimed mainly at insurance contracts covering loss or damage to items such as spectacles and certain household electrical appliances and contracts providing guarantees of tourist assistance sold by travel agencies.
During the preparatory work, it was suggested that the scope of the Directive should be limited to insurance intermediaries with a certain level of activity (for example, a certain annual volume of premiums collected). This possibility did not meet with the agreement of the parties concerned. In order effectively to safeguard the interests of customers, it is preferable that the Directive should cover all insurance intermediaries. BIPAR and BEUC are very much opposed to excluding intermediaries who fall below a certain threshold of activity and stress that, very often, it is precisely those 'small' intermediaries which can pose problems for the protection of insurance customers.
An alternative possibility of restricting the scope of the Directive to intermediaries who wished to operate in the internal market was also explored. This was also opposed by most Member States and the professional organisations, who felt that the protection offered to customers, particularly with regard to the requirements concerning professional competence, financial capacity and professional indemnity cover, would be different depending on whether the intermediary had his registered office in their Member State or was operating by way of freedom of establishment or freedom to provide services. Such a limitation would also be difficult to square with the idea of a true single market since it would allow national frontiers to be maintained from an economic and legislative point of view.
The definitions of 'insurance undertaking', 'reinsurance undertaking', 'large risks', 'competent authorities' and 'parent undertaking' refer to definitions already used in other insurance Directives, in particular the Third Directives 92/49/EEC and 92/96/EEC, and Directive 98/78/EC.
For the concepts of 'insurance mediation', 'reinsurance mediation', 'insurance intermediary' and 'reinsurance intermediary' functional definitions are proposed. This makes it possible to capture the various different categories of intermediary (broker, agent, sub-agent) while encompassing other distribution channels such as 'bancassurance' and chain stores.
It does not appear possible to make a clear distinction between agents and brokers in all Member States. Often intermediaries act as agents for certain types of risk and as brokers for other risks. For this reason, the distinction is not drawn in the proposal. The important thing for the customer is to know, for each risk, whether he is dealing with an intermediary who works for a limited number of undertakings or with a person who is able to give advice based on a broad and impartial analysis of the market. Article 10 seeks ensure that the customer has a clear understanding in this respect.
The activities falling within the scope of the Directive are activities performed for remuneration, i.e. in a professional capacity.
The types of insurance advice covered by the proposal are those given in the context of insurance mediation and not those given in the context of another professional activity ancillary to a principal activity other than insurance mediation (e.g. accountant, tax consultant). The advice must be 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.
Under the provisions of this Article, all insurance and reinsurance intermediaries falling within the scope of the Directive must be registered.
A registration system was preferred to a system of official authorisation of each intermediary because of the practical difficulties this would entail. In some Member States there are tens of thousands of insurance intermediaries. It would therefore be very difficult for those countries to set up an authorisation system without committing considerable financial resources - which would probably be disproportionate to the objectives being pursued. Forms of self-regulation, particularly in relations between insurance undertakings and intermediaries, also help to maintain a high level of security, competence and good repute within the profession.
The intermediary must be entered in the register designated by the competent authorities of his home Member State. Registration takes place in the case of a legal person in the Member State in which the registered office is located and in the case of a natural person in the Member State where he has his central administration. In the case of a legal person, the registered office must be in the same Member State as the central administration. The purpose of this requirement, common to all Community legislation on financial services, is to prevent insurance intermediaries from opting for the legal system of another Member State in order to avoid stricter rules in the Member State in which they are actually established. It also brings the competent authorities closer to the insurance intermediaries and enables them effectively to supervise compliance with professional regulations.
Registration is subject to compliance with the professional requirements laid down in Article 4. If an intermediary no longer fulfils these requirements, he must be removed from the register and may no longer carry on mediation business.
Only intermediaries who have been registered may carry on that business and insurance undertakings may use the services only of registered intermediaries or the persons referred to in Article 1 i (Article 3(5)). Article 7 instructs Member States to provide for appropriate sanctions in the event of a person carrying on the business of insurance or reinsurance mediation without being registered in a Member State. Sanctions must also apply to insurance undertakings that use the insurance or reinsurance mediation services of persons who are not registered in a Member State.
The proposal does not oblige Member States to establish one central register. It simply provides that registers be under the control of a competent authority, which may be a public authority, a body recognised by national law or by public authorities expressly empowered for that purpose by national law (see Article 6). The proposal takes up the suggestions of Recommendation 92/48/EEC (Article 5), which does not provide for the establishment by Member States of a single register either but allows the possibility of establishing different registers for dependent and independent insurance intermediaries and which stipulates that registers may be administered by the public authorities or by other competent bodies (e.g. professional organisations) recognised by a Member State.
Registration allows the intermediary to take up and pursue the activity of insurance mediation anywhere in the Community, by way of freedom of establishment and freedom to provide services. The requirements of the home Member State are recognised by all the other Member States of the Community. In this way, the intermediary no longer has to meet the professional requirements laid down by host Member States. Article 5 lays down the procedure for opening branches or carrying on business by way of freedom to provide services.
This Article lays down the conditions which all insurance and reinsurance intermediaries must satisfy in order to be registered:
In line with Recommendation 92/48/EEC, the proposal for a Directive requires that insurance and reinsurance intermediaries possess appropriate general, commercial and professional knowledge and ability. Knowledge must be tailored to the functions and activities carried on by the intermediary and to the markets in which he operates. Professional knowledge must also be updated regularly. The Member States must decide and lay down the level and content of such knowledge, which must in any case be sufficiently high to ensure an appropriate level of professional competence.
Where the intermediary is a legal person, the management of the undertaking must include an appropriate number of persons who fulfil this requirement.
The requirement does not apply to all the staff of an insurance or reinsurance mediation undertaking. Only those directly involved in mediation must possess the relevant knowledge.
Member States need not require that natural persons acting as insurance intermediaries on an occasional basis possess the appropriate general, commercial and professional knowledge and ability referred to in the first subparagraph, provided that:
- insurance mediation is not their principal professional activity or the main source of their professional income,
- an insurance intermediary who fulfils the requirements laid down in the Directive or an insurance undertaking takes on full responsibility for the person's actions and also gives him appropriate and relevant basic training.
This covers in some Member States mediation carried out by certain persons on an occasional and ancillary basis. Application of all the provisions of the Directive would have put an end to their activities. This would be disproportionate to the objectives of the proposal. However, the proposal does stipulate that such persons should be given appropriate and relevant basic training by the undertaking which uses their services. Furthermore, they are strictly subject to the supervision of the insurance undertaking or intermediary for whom they operate and who take full responsibility for their actions.
Intermediaries are required to hold personal and confidential information on the private life of their customers. A relationship of mutual trust is thus essential. In the field of life assurance, for example, they help policyholders to take important financial decisions. For these reasons, insurance intermediaries must be persons of good repute and must not have previously been declared bankrupt.
The purpose of this requirement is to guarantee that any person affected by the professional misconduct or negligence of an insurance intermediary is able to obtain compensation. A minimum level of cover of EUR 1 000 000 per claim is stipulated, in order to guarantee comparable conditions for all intermediaries in the Community.
The intermediary does not have to take out professional indemnity insurance if it is already provided for by an insurance or reinsurance undertaking on behalf of which he is acting or for which he is empowered to act.
In many cases intermediaries are required to handle monies, either on behalf of the customer or on behalf of the insurance undertaking. In order to guarantee protection of customers' financial interests, all intermediaries who handle customers' monies must have sufficient financial capacity. The proposal provides for four possible ways of providing such protection which take account of the systems in place in the Member States:
(i) provisions laid down by law whereby monies paid by the customer to the intermediary are treated as having been paid to the undertaking, whereas monies paid by the undertaking to the intermediary are not treated as having been paid to the customer until the customer actually receives them;
(ii) a requirement for insurance and reinsurance intermediaries to have financial capacity amounting, on a permanent basis, to 8% of their annual net revenue, with a minimum amount of EUR 15 000;
(iii) a requirement that customers' monies be transferred via strictly segregated client accounts and that these accounts must not be used to reimburse other creditors in the event of bankruptcy;
(iv) a requirement that a guarantee fund be set up.
In line with other texts adopted in the field of insurance, in particular the Third Directives on non-life insurance (Directive 92/49/EEC) and life insurance (Directive 92/96/EEC), Member States may adopt stricter rules with regard to their own insurance intermediaries.
Article 5 - Opening of branches and operation under freedom to provide services by insurance and reinsurance intermediaries
This Article establishes the procedure to be followed by a registered intermediary wishing to open a branch or to carry on business by way of freedom to provide services in a Member State other than his own. It consists of prior notification of the competent authorities of the host Member State before starting business and is based on the procedures laid down for insurance undertakings in the Third Directives 92/49/EEC and 92/96/EEC.
The procedure could be modernised: the content of registers and the rules to protect the interest of the general good could be published on the website of each competent authority. Any intermediary wishing to operate in a Member State other than his own would write to the competent authority of that country. He would consult the general good rules on the authority's website. The host-country authority would check that the intermediary was in fact registered by consulting the website of the home-country authority. In the absence of any written objection by the host country, the intermediary could start business one month after sending his written notification.
This procedure will have to be discussed in detail by the Commission together with the Member States.
The Member States must designate the competent authorities empowered to oversee application of the Directive. They may designate public authorities or bodies recognised by national law or by public authorities expressly empowered for that purpose by national law.
This Article is based essentially on Directive 93/22/EEC on investment services in the securities field i (Article 22). At all events, the competent authorities designated must have all the powers necessary for the performance of their functions.
The Member States must be able to adopt appropriate sanctions or measures against insurance or reinsurance intermediaries and insurance or reinsurance undertakings which fail to comply with the provisions of the proposal. Such sanctions are essential in order to guarantee application of the system established by the proposal.
The competent authorities are called on to cooperate and share information. They are bound by the rules of confidentiality and professional secrecy in the same manner as laid down in the Third Directives 92/49/EEC (Article 16) and 92/96/EEC (Article 15).
This Article provides that Member States are to establish a facility for consumer complaints in the field of insurance mediation.
The Financial Services Action Plan provides for the adoption of effective judicial and extrajudicial mechanisms for settling disputes between customers and financial institutions. The setting up of such mechanisms is essential to establish confidence in cross-border business and to facilitate the development of the internal market.
The purpose of this Article is to ensure that customers have access to out-of-court procedures in order to settle differences with insurance intermediaries. In accordance with the Action Plan, the proposal stipulates that Member States must encourage the use of such procedures for the settlement of cross-border disputes, which means closer cooperation between the bodies concerned.
The purpose of this section is to lay down information requirements which will ensure a high level of protection of customers who use insurance services.
Article 10 stipulates the type of information which every insurance intermediary must provide to the customer with whom he comes into contact, prior to the conclusion of a contract. He must disclose his identity and address, his links, whether direct or indirect, with insurance or reinsurance undertakings, any contractual obligation to do business with one or more insurance undertakings, and the names of those undertakings. The intermediary must also state who is liable in the event of negligence, misconduct or inappropriate advice by the intermediary, whether he advises customers on insurance cover from a broad range of insurance undertakings or whether his business is limited to dealing with a fixed number of insurance undertakings.
If the intermediary declares that he gives advice on insurance from a broad range of insurance undertakings, he must base his advice on an impartial and sufficiently broad analysis of insurance contracts available on the market, in order to enable him to recommend the insurance contract appropriate to the customer's needs. If it later emerges that the analysis did not meet these requirements, the customer may take action against the intermediary. Such a mechanism may justify a relatively high level of professional indemnity cover (see Article 4).
Finally, intermediaries must - at least - set down in writing the needs and demands of the customer and clarification of the reasons which underpin their advice.
Article 11 sets out the arrangements for presenting the information. Generally speaking, it should be given on paper or on another durable medium available and accessible to the customer. It should be clear and accurate and in an official language of the Member State of the commitment or in a language agreed upon by the contracting parties. Most of the information may be presented on a standard form, which will limit the costs of these requirements. Finally, where the customer asks for immediate cover, the information may be given orally.
Article 12 repeals Directive 77/92/EEC. Once the Directive is adopted, there will be only one Community instrument applicable to insurance and reinsurance intermediaries. Community rules will be clearer and more consistent, to the benefit of both operators and customers.
Articles 13, 14 and 15 contain provisions regarding the addressees of the Directive, the date for transposal and implementation by the Member States and the date of entry into force.