Impact of EU legislation on the distribution landscape

Transcription

2 Towers Watson: the insurance specialist Insurance sector Strategies Expertise Experience Concentrating on the insurance sector Local management team: > 200 years of experience from careers in consultancies and insurance companies. Extensive knowledge of the regulatory framework. Advising top management in corporate, risk, sales and product strategy. Why Towers Watson? Unique expertise in operational effectiveness and product development. Risk and financial modelling experts. Software: MoSes, RiskAgility,, Radar, Igloo, ResQ. Investment expertise and ALM: > 400 associates in Europe. World leaders in risk & capital management, Solvency II, M&A, company valuations and IFRS. 2

3 Towers Watson is a leading actuarial consulting company but we are a management consultancy too Towers Watson has started to enlarge its insurance management consulting practice (IMC) in Core service offerings of our management consulting practice The IMC practice is focused on Strategy Products Distribution topics like strategy, markets, products, distribution, risk management and performance improvement. It is our goal to increase the capabilities, the efficiency and the competitive position of your business. Combining strategic thinking with our actuarial and analytical depth, Development and supervision of growth strategies Strategic advide regarding market entry or market exits Formulation of business plans M&A support Performance improvement Product development, e.g. of capital-efficient products, alternative guarantees, products for special target group Adjustment to regulatory changes Product benchmarking Price optimisation Development/review of distribution strategy Set-up of new distribution channels Search and selection of distribution partners Remuneration and efficiency of sales forces we develop the suitable concepts for you. Due diligence of sales network 3

4 The past: EU Insurance Mediation Directive 1 (IMD1) National regulations (incl. situation in Croatia) The future: IMD2, MiFID2, PRIPs Theory and impact Outlook / Recommendations

5 The first Insurance Mediation Directive IMD1 Insurance Mediation Directive 1 (2003): It is a Directive so it is only a guideline/framework for the Member States, who have to implement it (the implementation might differ substantially) Main regulations: Mandatory official register of intermediaries Intermediary has to tell client, what status he has (independent or tied agent) Intermediary has to give advice and document it Many countries have introduced minimum qualifications for intermediaries, but they are different from country to country. In Germany, for example, the preparation for the exam to become intermediary comprises a minimum of 220 hours. Employed sales staff do not have to pass the exam (bankassurance, employed sales force of insurers, employed sales staff in agencies). Therefore as far as I know the Croatian regulations the old regulations in Croatia before entry into the EU have in this respect been stricter than the German ones after the introduction of IMD1! 5

6 After IMD1: Distribution mix in European markets 1) Non-Life Insurance Distribution channel split in terms of gross written premiums Source: CEA, 2010 Every market is different! Effect of IMD1 difficult to see! UK: a mature market dominance of independent agents and Internet Traditional structures in Italy, Austria, France and also CEE remained 6

7 After IMD1: Distribution mix in European markets 2) Life Insurance Distribution channel split in terms of gross written premiums Source: CEA, 2010 Every market is different! Effect of IMD1 difficult to see! Traditional dominance of bankassurance in many markets Different structures in UK, Slovakia and Germany 7

8 After IMD1: Number of registered insurance intermediaries in Germany Type of registered intermediary January 2011 January 2013 Tied agents registered by insurer 182, ,759 Tied agents registered by themselves (including banks) 33,829 32,035 Insurance brokers 44,192 46,271 Annex sales (travel agents, ) 2,899 2,949 Fee-based consultants Total 263, ,401 Large numbers, but only 100,000 individual agents are said to be active! Attention! Deutsche Bank etc. are counted as 1 in these figures, because employed sales staff do not have to be registered! Source: DIHK Service GmbH 8

9 IMD1 did not have a substantial impact on the distribution mix in Germany Distribution Channel Mix German life insurance in terms of APE Source: annual Towers Watson survey (88% market coverage) Implementation of IMD1 in Germany (delayed) Tied agents Tied MLM structures** Independent intermediaries *** Bank Direct**** Other * Estimation ** e.g. Ergo Pro, OVB, DVAG *** incl. brokers, multi-tied agents, advisedbased MLM companies (AWD, MLP etc.) **** Internet sales are part of Direct P&C: 56% tied agents, 24% brokers, 4% direct Some impact only for MLM structures. 9

11 Regulatory changes regarding intermediation in Germany The problem: Greed, Scandals, Loss of Customer Trust, Bad Media Coverage The solution: Tighter regulations (even under an industry friendly government Merkel + FDP) Telemarketing ( ): Very strict standards in Germany. Difficult to purchase quality leads. Prices for Opt-in addresses are increasing. FinVermV (2012): IMD-type standards for intermediaries of investment funds and closed-end funds. Lower commissions for comprehensive health insurance products. Sales Code of Conduct (2012): Initiative of the German Insurance Association. Each and every distribution partner has to confirm compliance. Fee-based consultants (2013): Regarding investment products (non-insurance products), intermediaries have to decide whether they want to be remunerated in the future via commissions or fees. Initiative by Insurance Association (2013): Commission ceiling for life insurance. 11

12 Regulatory changes regarding intermediation commissions banned in many EU member states already In 2013, the Financial Services Authority in the UK prohibited the payment of commissions to independent advisors (fee-based remuneration is now the only option form them). This regulation already led to a 25% decline of the number of independent advisors. As of 2009, brokers in the Netherlands may not accept payment for unit-linked policies. Since October 2009 the acquisition payments have been limited to 50% of the total compensation, including regular payments. In Norway and Sweden, there are no legal requirements that prohibit commission payments. However, the majority of the insurers follow the recommendations of local Insurance Associations and have stopped paying commissions voluntarily. In Denmark and Finland, a commission ban for brokers was introduced in Brokers are only entitled to earn fees from their clients. As a consequence, the number of brokers has declined by 50%. This model is considered to be a framework for Poland, the Czech Republic and Hungary. Source: GoNews, Gothaer, October

14 In the context of MiFID2 and PRIPs, a commission ban for independent agents is discussed/planned MiFID2 PRIPs Name Markets in Financial Instruments (recast) Packaged Retail Investment Products Link What is it about? What are the possible implications? What is the current status? eprocedure.do?reference=2011/0298(cod) Regulations for the delivery of financial services regarding securities, derivatives, structured products etc. Disclosure of remuneration for intermediaries regarding investment products No kick-backs ( inducements from third parties ) for independent advisers and portfolio managers (Article 52) EU Commission proposal from October 2011 Already passed ECON committee, Parliament and Council Awaiting EU-Parliament 1st single reading e.do?lang=en&reference=2012/0169(cod) Key information documents (KID) for investment products Unit-linked insurance products are also regarded as investment products (and maybe also traditional life/pension products) Disclosure of direct and indirect costs in the KID ( hard or soft disclosure?) and maybe a ban of commissions for independent advisors, in combination with MiFID2 ( level playing field ), IMCO and JURI committees have opted against a ban (ECON is expected also to opt against a ban) EU Commission proposal from July 2012 Awaiting ECON committee decision Indicative 1st plenary sitting not before

15 IMD2 will harmonise the standards for insurance sales throughout the EU and will probably lead to higher transparency about commissions paid IMD2 Name Link What is it about? What are the possible implications? What is the current status? Insurance Mediation Directive (recast) Goal: increased harmonisation of insurance distribution standards in member states All forms of distribution are within the scope, i.e. also employed sales agents, direct sales, internet and annex sales. Intermediaries have to disclose their status to the customer Manage and mitigate conflicts of interest : (Soft) disclosure of intermediary remuneration (real EUR values, including bonuses and incentives) for all types of intermediaries (incl. employees) immediately for life products for non-life products after a transition period of 5 years Customer protection standards in IMD2 must comply with MiFID2 standards (+ PRIPs) Increased disclosure regarding product bundles. Marketing communication has to be fair Employed sales staff are not a loophole regarding qualification standards any more Certain distribution channels might be hurt more than others by the duty to disclose the remuneration/commission level (e.g. MLM), customers might ask to get part of the commission A commission ban (e.g. for independent agents) is indirectly addressed in the IMD2 proposal EU-Commission proposal from July 2012 Awaiting ECON committee decision, i.e. discussions about Directive are still in early stage Legislation probably not finalised before EP elections in May 2014 therefore changes / new discussion due to new EP majorities possible 2 years deadline for implementation into national law afterwards effective not before end of

17 Outlook Regulation is being tightened across many markets in Europe Many national regulators are ahead of the EU regulations The UK is the most extreme example: the new Financial Conduct Authority is challenging the insurers regarding their integrity and treat customers fairly -standards. For example, they ask the following questions: How do you test customers understanding of the design features of your products? How do you show the balance between customers needs and shareholder profits in your product design / profit testing? How do you make sure feedback from customer complaints is addressed in product re-designs? The current European Parliament has proven to be quite industry friendly. But if you look, e.g., at the work of MEP Sven Giegold of the Green Party, you realise that it does not need to stay like this Currently, the EU is still occupied with the banking regulation after the financial crisis so expect more delays regarding insurance regulation 17

18 Recommendations VOLATILITY Be proactive regarding your sales standards, processes and Challenges: Financial markets new bubbles? (stock markets, gold ) Solutions: Guarantee products: I-CPPI! Furthermore: documentation Index orientend standards! products (e.g. Allianz IndexSelect). Who other than brokers should be able to explain them? Increase efficiency! Excessive margins might come under regulatory pressure in the medium term. COMPLEXITY Challenges: Complex products, complex administration, demanding customers Raise qualification standards of your intermediaries! Solutions: a) Increase level of qualification, learn from others, innovate! b) Let others do it join a pool! c) Join forces with other intermediaries! Maintain good relationships with your MEPs, local politicians and HANFA! 18

19 Questions? 19

20 Contact Martin Baier Habsburgerring Köln Germany T +49 (0) F +49 (0) martin.baier@ Daniel Matic Habsburgerring Köln Germany T +49 (0) F +49 (0) daniel.matic@ Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 20