European Commission proposes legislation on insurance sales

The European Commission has published a package of measures aiming to improve consumer protection in financial services. Three legislative proposals cover:

• new requirements for insurance sales, involving the revision of the Insurance Mediation Directive;
• key information documents for packaged retail investment products (PRIPs); and
• enhanced protection for those buying investment funds (currently governed by the UCITs Directive).

Insurance Mediation Directive

The Commission's proposed recast of the Insurance Mediation Directive (IMD1) establishes new point-of-sale requirements for insurance products and extends the scope of IMD1.  "IMD2" is not expected to take effect before 2015.

To ensure that consumers have the same protections, irrespective of how they buy insurance, IMD2 will extend to cover the activities of:

• insurance companies;
• certain price comparison sites;
• claims management companies and loss adjusters; and
• firms for whom sales of insurance are ancillary to their main business, such as travel agents and car rental companies.

Key changes for firms that are already caught by IMD1 include:

• a simplified registration process for firms selling insurance as an add-on to their main business;
• new rules on conflicts of interest including, most controversially, mandatory disclosure of remuneration by insurance intermediaries; and
• the application of MiFID standards to life insurance products that contain an investment element.

The impact of IMD2 will vary, therefore, from firm to firm.  Member States will also be affected differently by IMD2, depending on how IMD1 was implemented nationally and the extent to which national laws went beyond the minimum standards it required.  This may mean that UK firms are affected less by the proposals than firms in other jurisdictions.  Nonetheless, all firms should look carefully at the implications of IMD2 for their business.

The attached briefing considers some of the changes to the current regime that IMD2 would bring.  We will be issuing a briefing on the PRIPs proposals shortly