Ferma vows to fight on as Parliament votes to exclude large risks from mandatory broker pay disclosure

Following its partial plenary vote last week on revisions to the Insurance Mediation Directive (IMD2), the Parliament effectively agreed that buyers of insurance for large risks, and a new category of 'professional customers', should not be automatically entitled to disclosure of their intermediary's remuneration and will instead have to rely on voluntary agreements. Ferma believes that all insurance buyers should be automatically entitled to a minimum European standard of remuneration disclosure under IMD2. But as the draft currently stands, the majority of its members will not enjoy such benefits. A Parliamentary text stating its position on IMD2 following the partial plenary vote on 26 February does not alter this fact and exempts large risks from EU-wide remuneration disclosure requirements.hideAccording to Guy Soussan, Partner in the EU insurance group of Steptoe & Johnson LLP in Brussels: "This means that with respect to large risks/professional customers, the Parliament disregards any need for EU-wide protection and leaves the discretion to member states to introduce or maintain stricter national rules." Member states would, therefore, be entitled to maintain their current disclosure rules for business customers ranging from enhanced disclosure-on-request requirements in the UK, to ad-hoc upon request for business contracts with premiums of more than €20,000 in France, the lawyer explained to Commercial Risk Europe. Ferma told Commercial Risk Europe yesterday: "Despite the vote of the European Parliament on IMD2, Ferma still wishes to see the draft directive amended to include professional insurance buyers and large risks in the disclosure of information requirements. We know that the Council will resume discussions on the directive in April before trialogue negotiations with the European Parliament and the Commission, probably after the European elections. Ferma is, therefore, looking at the best way to put its case to member states." The Parliament's vote and text is the latest step in the process towards the adoption of IMD2. This text only reflects the views of the Parliament on the Commission's IMD2 proposals and, via the Council of Ministers, member states still need to provide their input. Some of the parliamentary amendments are unlikely to survive further legislative scrutiny, pointed out Mr Soussan. "But I do not see any further opportunity to introduce EU-wide disclosure rules for commercial risks at this stage," he said. The final version of IMD2 will not be passed until trialogue discussions have taken place between the European Parliament, Commission and Council. Only then will consensus finally emerge and all three legislative bodies will ratify the directive. Like Ferma, other experts believe this is unlikely to take place before the European Parliament elections in May. The European Parliament wants the revised directive to be considered alongside revisions to the Markets in Financial Instruments Directive (MiFID2) and Packaged Retail Investment Products Regulation (PRIPs) that will apply to all investment products. This means that the timescale for progression of IMD2 remains unclear. "The European Parliament has not yet fully and formally voted on IMD2. It will not do so before a trialogue from which a consensus will emerge. You can consider that the partial plenary vote expresses the Parliament's views before further review by Council and the Commission," explained Mr Soussan. The need for mandatory broker remuneration requirements in the placement of large risks was raised by the Commission in its 2007 Business Insurance Inquiry. It backed away from such moves following a report by CEIOPS, now EIOPA, which found that disclosure for commercial risks was not an issue to be addressed at EU level. "The Parliament, and ultimately the Council, do not appear to want to take any action either on this matter," said Mr Soussan. The self-regulatory approach developed within the Lloyd's market and by the Bipar-Ferma Protocol appears to have further tempered any appetite to mandate remuneration disclosure for large risk, he added. In response to member concern over broker remuneration, Ferma, along with the European Federation of Insurance Intermediaries (BIPAR), produced in 2010 their joint non-binding protocol for information disclosure by intermediaries. But while this has solved problems in some instances, not all Ferma members are reaping its benefits. Back in March of last year Ferma called on the European Parliament to ensure that all insurance buyers are entitled to a minimum European standard of disclosure in the revised IMD2. Its wishes seem to have been ignored thus far. "Ferma believes that the relationship between insurance buyer and the intermediary should be transparent. A large majority of Ferma members would like to take this a step further and for the revised Insurance Mediation Directive (IMD2) to give all insurance buyers the right to know what remuneration the intermediary receives for handling their business," the federation said this week. "As major buyers of commercial insurance, Ferma members generally have good and open relationships with their brokers. As a matter of principle, however, Ferma believes that transparency should not depend just on good will or the weight of the account. This is particularly important where the insurance buyer depends strongly on the broker," it added. The risk management federation has previously raised concerns that the current threshold for defining large risks and professional customers under IMD2, which both look set to remain exempt from mandatory disclosure, is 'quite low'. The draft criteria for buyers of large risks in IMD2 remain as defined in the current IMD. Two of the following three criteria must be met: a balance sheet total of €6.2m, net turnover of €12.8m and an average number of 250 employees. The new professional customer category is defined as an entity that meets two of the three following: 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," said Ferma. The Parliamentary text published last week surprisingly maintains the professional customer category but 'virtually eliminates any benefits envisaged by the Commission for professional customers to have the right to request in writing information from the intermediary, at least as to the nature of the risk', said Mr Soussan. "This calls into question the need for this additional category, which does not correspond to the large risks category, despite the fact the latter thresholds have never been updated," he added.

Ferma vows to fight on as Parliament votes to exclude large risks from mandatory broker pay disclosure

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