Global Corporate Insurance & Regulatory Bulletin - January 2012

Keywords: IMD2, EIOPA, European insurance contract law, Solvency II, FSA, Lloyds

Europe - IMD2 update

ECON PUBLISHES DRAFT REPORT ON IMD2

On 11 January 2013, the European Parliament's Committee on Economic and Monetary Affairs ("ECON") published a draft report (dated 14 December 2012) on the European Commission's proposal to introduce a revised Insurance Mediation Directive ("IMD2"). The draft report contains a draft European Parliament legislative resolution which sets out a number of suggested amendments to the Commission's original proposal (which was published in July 2012). It also includes an explanatory statement by the rapporteur, Werner Langen, in which he sets out his views on, and explains the proposed amendments to, the following key areas covered by IMD2:

scope - the Commission is seeking to expand the scope of the directive 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 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; registration and simplified declaration procedure - ECON supports the propositions that (i) although they are now within the scope of the directive, insurance undertakings and their employees will not need to register again, and (ii) tied intermediaries may be registered by registered intermediaries; however, ECON considers that the Commission's proposal for a simplified registration procedure for the provision of ancillary insurance mediation and claims management services should be deleted to ensure a level playing field for all intermediaries; 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); conflicts of interest and transparency - ECON acknowledges that conflicts of interest and transparency are one of the major areas of change under the revised directive, but expresses concern that compulsory disclosure of commissions and variable remuneration would lead to spiralling competition rather than greater consumer protection; however, given existing disparities in the EU insurance market, ECON considers that Member States should be free to introduce disclosure requirements over and above those of the directive; cross-selling - ECON expresses concern that the Commission's proposal in this regard (namely that, where insurance services or products are offered as a package, they must also be offered separately) could result in consumers no longer being offered advantageous package deals, so ECON suggests amending the draft directive to provide that consumers should simply be informed if parts of a package may also be purchased separately; insurance investment products - ECON has indicated that it considers it necessary to take account of the distinction between insurance and pure investment products; in addition, ECON is opposed to the proposed ban on commission-based advisory services, as this could seriously detract from the supply of insurance products in certain markets, and suggests that harmonisation in this area should be kept to a minimum; ECON also suggests that, with regard to the disclosure of remuneration, Member States should have freedom to adopt divergent provisions in accordance with their perceived market requirements; and delegated acts and levels of harmonisation - ECON is opposed to the Commission's proposal for a number of delegated acts in major areas of the directive, suggesting instead that detailed arrangements should be determined by the Member States themselves or through a co-decision procedure in Council and Parliament in cases where a real need for harmonisation is shown to exist. Annexed to the draft report is a letter to ECON from the European Parliament's Committee on Legal Affairs ("JURI") enclosing the 11 September 2012 opinion of the Consultative Working Committee of the Legal Services of the Parliament, the Council and the Commission.

The final version of the ECON report will be considered by the European Parliament during its plenary session on IMD2, which is currently scheduled to be held in early July 2013 (see IMD2 - anticipated timetable below).

DRAFT JURI OPINION ON IMD2

On 21 January 2013, JURI published its draft opinion (dated 18 January 2013) on IMD2. In the draft opinion, JURI calls on ECON to incorporate a number of amendments to the European Commission's original IMD2 proposal into ECON's report on IMD2 (see ECON publishes draft report on IMD2 above).

UK TRANSPOSITION AND IMPLEMENTATION OF IMD2

On 15 January 2013, the UK Government announced, by way of a written ministerial statement, its decision to opt in to IMD2. The statement explains that the European Commission's proposal for IMD2 includes provisions on alternative dispute resolution which impose requirements on the UK's civil justice system, in terms of the operation of limitation periods and the availability of interim remedies. On this basis, the Government considers that the Justice and Home Affairs opt-in protocol (under which the UK has the right to decide whether or not to participate in new EU legislation) applies. The statement explains that the Government has opted in as it believes that, in view of the wider significance of the IMD2 proposals, it is in the UK's interests to participate.

IMD2 - ANTICIPATED TIMETABLE

The European Parliament has updated its procedure file on IMD2, indicating that it will consider the legislative proposal during its plenary session to be held from 1 to 4 July 2013.

The European Commission and the European Insurance and Occupational Pensions Authority are expected to work on level 2 measures during 2013/2014, with the new regime expected to come into force in 2015.

Europe - EIOPA update

One of the principal recent developments from the European Insurance and Occupational Pensions Authority ("EIOPA") is the launch of the long-term guarantee assessment for Solvency II (see our article Europe - Solvency II update below). In addition to this, EIOPA has recently published key documents relating to strategy for colleges of supervisors and EIOPA's activities in general.

2013 ACTION PLAN FOR COLLEGES OF SUPERVISORS

On 29 January 2013, EIOPA published its 2013 action plan for colleges of supervisors (the "Action Plan"). The main objective of the Action Plan is "to make further progress in improving effectiveness by enhancing the risk analysis and efficiency of the supervision of cross-border insurance groups and their undertakings and, thus, to support crisis prevention and financial stability in the EEA under the current regulatory regimes as envisaged under the EIOPA regulation". The Action Plan is divided into four key areas, each with separate objectives:

risk analysis in colleges Objective (i): to develop a common understanding of risks and structured analytical approach (to be complied with by 31 December 2013). Objective (ii): to reach a common understanding on a final assessment of the risk exposure of the group and its major solo entities (to be complied with by 1 July 2014). internal model related tasks (applicable only to colleges for groups applying for internal model use) Objective: to review existing work plans for the pre-application and application process under consideration of the implementation of interim guidelines for the period leading up to Solvency II (ongoing task - no deadline for compliance). review and alignment of the college work to the interim guidelines for the period leading up to Solvency II Objective (i): to update the college work plan...