Time to get real in Brussels – Comment

Nobody should really be surprised to hear that the European Commission is considering the introduction of new rules on broker remuneration and transparency. The EC said that it was not happy with the state of affairs over two years ago when it published its inquiry into the Business Insurance Sector and said it would review the situation as it prepared the Insurance Mediation Directive. The industry was therefore effectively given a two-year gap during which it could devise a market solution to stave off any formal action from the EC and national regulators.hideAll insurance buyers and brokers that I have spoken to over this period agree that a market agreement would be much better than another set of external rules that will inevitably lead to more bureaucracy and increased cost. Furthermore such rules are likely to be wide of the mark as they would be aimed at the mass personal lines and SME market not the big corporate risk market. Unfortunately no such agreement has occurred yet. FERMA is pushing hard to try and work out a solution with BIPAR and deserves credit for this attempt. And we have no idea what BIPAR thinks of the effort because it does not comment on such things as a matter of policy. We have to presume, however, that the brokers understand that an agreement is needed to avoid formal regulatory action that may even include a Nordic style ban on commissions from insurers altogether. But even if FERMA can persuade BIPAR to agree on a set of high level principles that must include automatic disclosure, the national associations will still have to implement it locally, which will be both time-consuming and difficult. And, even if FERMA and the national risk management associations can come up with a sufficiently robust set of agreements and satisfy the Commission that corporate insurance buyers are safe, what about the huge SME market? The likelihood that any agreement reached between FERMA and BIPAR could be extended to the mass SME market is low because insurance buyers at this level simply do not have representative bodies like FERMA, because it is a part time job in most cases. Karel Van Hulle made it clear to Commercial Risk Europe last week that the Commission has not made any decisions on this yet and the debate has only just begun. But, the reality is that the debate has not only just begun. It started very publicly some seven years ago when former New York Attorney General Eliot Spitzer ripped open that very smelly can of worms in the United States and it has been raging ever since. The best the big brokers can come up with in Europe is to point the finger of blame at the SME brokers and simultaneously try to impose a 2.5% or higher “service charge” for unidentified services given to insurers. This does not suggest that the market has a good chance of convincing the Commission that all is fine in this garden. It would seem sensible therefore for FERMA and BIPAR, and individual brokers and insurance buyers, to start thinking seriously about what kind of rules the Commission will eventually devise. More importantly they will need to work out how that new level playing field, possibly with a ban on payments by insurers to brokers, can be made to work. In this sense this debate is very similar to the parallel discussion about Solvency II and its impact on the captive and wider insurance market. Captive owners should be grateful that FERMA, ECIROA, Marsh and Aon are taking the debate to the national finance ministries because it does not seem that CEIOPS is willing to bend on this one. However, it does not seem to matter how many times the captive lobby explains that captives are a different beast and thus need to be treated differently to commercial insurers and reinsurers. The fact is that the Commission cannot make exceptions for every niche case that comes across its desk, otherwise every Directive it prepares would wind up riddled with holes and the end result would be a very bumpy playing field indeed. To the Commission, and the mass population, that it believes it represents, a captive is an insurance company and therefore should be subject to the same rules as everyone else, especially if it writes third party risks of any sort. The key for the captive lobby, therefore, must surely be to start talking as constructively as possible with the national supervisors who will actually apply the rules. In order to ensure they do so in the proportional manner that the original Directive clearly stated they should. The contact I have had with national supervisors suggests that such discussions will not be ignored and they do understand the difference between captives and multi-line, cross border insurance groups. It would be useful of course to have a few words of comfort from the Commission to back this up. But it does not look like the captive lobby should hold its breath on this one, as the new Commission does appear to have bigger fish to fry currently.

Time to get real in Brussels – Comment

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