global insurance management

Insurance Mediation Directive (IMD) 2

Dec 10 2012

Insurance Mediation Directive (IMD) 2

Relevance:                   All firms.

Action required:           Consider the impact on your business (including commission disclosure).

In July, the European Commission put forward a number of proposals to review the Insurance Mediation Directive (IMD) which originally led to FSA regulation. The proposals are contained in IMD2.

The IMD2 will now sit in queue of European legislation but it would be reasonable to expect implementation to start within 5 years.

So, what does it mean for insurance intermediary firms?

  • It seems that the IMD will be activity driven, which means that in future “introducers” may be excluded but price comparison websites, travel agents and loss adjusters will be included within the scope of future regulation.
  • Customers need to understand the status of the person who sells the insurance product and so the salesperson will have to ‘clearly demonstrate’ the role in which he or she is acting; such as agent, broker, direct writer and so on.
  • The seller will also need to disclose the nature (fee, commission or salary) and the structure (financed directly by the client or an undertaking) of their remuneration and what the premium encompasses in terms of services such as claims handlings, advice, administration and the like.
  • There will be a mandatory disclosure regime which means that the intermediary needs to disclose their remuneration to the customer as opposed to an “on request” regime by which the intermediary needs only to disclose his remuneration if a customer specifically requests the information.  A five-year transitional period is being proposed.

As the whole issue of commission is under scrutiny by the CEO of the FCA anyway, we believe that firms should be taking a look at all their commission and fee charging arrangements in readiness for the changes to come. 

Having a long lead-in time may prove very useful to get training and documentation fully prepared and wrinkles ironed out rather than having to rush things through in a matter of months.

Intermediaries and brokers should be able to show to the public how the benefits of their service, knowledge and experience can far outweigh going it alone, particularly when difficult or complicated situations arise.  Offering great value for money has got to be better than facing criticism for excess profiteering.

As an aside but closely linked, we have learned of a situation where a property managing agent is being accused by a leading supermarket under Bribery and Corruption legislation relating to the alleged high levels of commission charged on insured commercial properties.  Acting sooner rather than later in assessing the firm’s remuneration position may prevent getting involved in such action in the future.

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