Ferma vows to fight back on watered down broker transparency rules in EU

Ferma announced at the end of March that it is ‘concerned’ that the latest revised version of the IMD does not treat all insurance buyers equally, particularly on the thorny matter of disclosure standards. In the current version of IMD2, only individual policyholders and small businesses would be entitled to mandatory disclosure of their intermediary’s remuneration on request. The introduction of on request disclosure for all risks was a major innovation introduced by the Commission when it drafted the updated directive.hideBut a proposed amendment to IMD2 from the European Parliament’s Parliamentary Economic and Monetary Affairs committee (ECON) would remove even this protection for buyers of insurance coverage for larger risks, pointed out Ferma at the end of March. Ferma said that it had ‘strongly’ expressed its opposition to the latest developments in a position paper to ECON which will consider the draft directive before it goes to plenary at the European Parliament for a final vote in July. Mr Luzzi said at the time: “Voluntary disclosure works well in a number of countries…but…not all business insurance buyers are in a position to negotiate full disclosure.” The Ferma president added: “We ask the legislators to consider business customer concerns and, as a minimum, provide them with a legal basis on which to request information from their intermediary. This would enable them to make fully informed decisions about their insurance coverage.” The accompanying Ferma statement continued: “Ferma is calling on the European Parliament to make sure that ALL insurance buyers are included in IMD2…and at minimum; all should have an enforceable right to request the information.” Ferma also points out that the threshold for defining large risks and professional customers is too low. For large risks, the criteria remain the same as defined in the current IMD. These are based on Directive 88/357/EEC, which has never been updated. Two of the three criteria must be met: a balance sheet total of €6.2m, net turnover of €12.8m and an average number of 250 employees. For professional customers, the legislators have introduced separate criteria based on different European Union legislation, Directive 2004/39/EC (MiFID). A large undertaking is defined as an entity that meets two of the three criteria—a balance sheet total of €20m, net turnover of €40m and own funds of €2m. Many medium-sized businesses would be left without a legal right to information about their broker’s remuneration if this proposal is adopted, points out the federation. In response to its members’ concerns, Ferma worked with the European Federation of Insurance Intermediaries (BIPAR), and in 2010 the organisations adopted a non-binding protocol for information disclosure by intermediaries. It has therefore called for the principles of the protocol to be integrated into IMD2. Mr Luzzi took part in the annual RIMS conference of American risk managers late last month. During a session on international trends he was asked by a US risk manager whose company is active in Europe to outline the key insurance trends that she should look out for. Mr Luzzi was quick to warn about broker transparency and the fact that the broker lobby appears to be winning the battle in Brussels and Strasbourg currently. This is a situation that he said cannot be allowed to continue. “We have a very strong position in favour of full transparency but after lobbying from the brokers they appear to have decided to exclude large risks so we will be protected by nothing. There is still a big discussion about that and a directive is coming,” Mr Luzzi told the US risk manager. As with seemingly all EC directives the IMD2 has been delayed and so there remains a little time for the risk manager lobby to counter the efforts of the brokers. Ferma pointed out that the directive entered its ‘active parliamentary phase’ in January and its schedule has already suffered delays of several months as its final adoption has already shifted from May to July. Ferma stated that it will ‘continue to press its view strongly for changes to the directive to provide greater protection for the corporate insurance customer’. Law firm Mayer Brown LLP also pointed out that other potentially significant changes had been slipped in by ECON. It appears that, if adopted, the changes would significantly water down the rules to make life easier for the brokers. Under the directive, the Commission sought to expand the scope of the IMD to encompass sales of insurance contracts by insurance and reinsurance undertakings without the intervention of an insurance intermediary, claims management and insurance policies sold along with other services. But, the law firm pointed out, ECON considers that claims management by insurance undertakings or by third parties under insurance outsourcing contracts is already covered by Solvency II and therefore does not need to be included in IMD2. Another area of change is that covered by professional and organisational requirements. “ECON welcomes the Commission’s recommendation that insurance intermediaries be required to update their knowledge and ability through continuing professional development, but it considers that the form, substance and authentication requirements thereof should be left up to the member states (subject to minimum requirements regarding knowledge and abilities),” stated Mayer Brown. The directive is currently with ECON and the next vote is planned for 27 May and final adoption by parliament in July. Ferma also pointed out that progress is being made, however, at a local level as some member national associations strengthen market transparency ahead of the final adoption of IMD2. At its annual conference in February the French association AMRAE signed a charter with the brokers’ association CSCA and insurance association FFSA to formalise good practices in risk transfer. This latest pact updated previous market agreements which began in 2006. In Poland, POLRISK president Slawomir Pijanowski told Ferma that he hopes to start discussions on good practices of risk transfer and alternative risk transfer on a country level with local stakeholders this year. “POLRISK decided to support Ferma’s position on IMD2 mainly due to the fact that in 2010, Ferma and the European intermediaries’ association BIPAR reached agreement on disclosure of brokers’ remuneration, which was acceptable and reasonable for both sides of the market. We at POLRISK always support dialogue. There should be a balance of interests, also taking into account concerns of intermediaries and not only our own as risk managers,” said Mr Pijanowski.

Ferma vows to fight back on watered down broker transparency rules in EU

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