COMPARATIVE IMPLEMENTATION OF EU DIRECTIVES (III) INSURANCE MEDIATION

CITY RESEARCH SERIES NUMBER TWELVE COMPARATIVE IMPLEMENTATION OF EU DIRECTIVES (III) INSURANCE MEDIATION CRA International MAY 2007

CITY RESEARCH SERIES NUMBER TWELVE COMPARATIVE IMPLEMENTATION OF EU DIRECTIVES (III) INSURANCE MEDIATION Authors: Fiorenzo Bovenzi, Daniel Jacobson, Kyla Malcolm, Mark Tilden, Nonthika Wehmhorner CRA International 1 Undershaft London EC3A 8EE United Kingdom Tel: +44 20 7664 3700 Fax: +44 20 7664 3998 http://www.crai.com/ MAY 2007

Comparative Implementation of EU Directives (III) Insurance Mediation is published by the City of London. The authors of this report are Fiorenzo Bovenzi, Daniel Jacobson, Kyla Malcolm, Mark Tilden and Nonthika Wehmhorner of CRA International. This report is intended as a basis for discussion only. Whilst every effort has been made to ensure the accuracy and completeness of the material in this report, the authors, CRA International, and the City of London, give no warranty in that regard and accept no liability for any loss or damage incurred through the use of, or reliance upon, this report or the information contained herein. May 2007 City of London PO Box 270, Guildhall London EC2P 2EJ http://www.cityoflondon.gov.uk/economicresearch

Table of Contents Foreword. 1 Executive Summary. 3 1. Introduction.. 7 2. Overview of the Insurance Mediation Directive 8 2.1 Mandatory registration and professional requirements. 8 2.2 Information requirements 9 3. Overview of the implementation of the IMD in the EU-15... 11 3.1 Case studies 11 3.1.1 Austria 11 3.1.2 Belgium. 12 3.1.3 Denmark... 12 3.1.4 Finland.. 12 3.1.5 France... 12 3.1.6 Germany.. 13 3.1.7 Greece. 13 3.1.8 Ireland... 13 3.1.9 Italy 14 3.1.10 Luxembourg. 14 3.1.11 Netherlands.. 15 3.1.12 Portugal... 15 3.1.13 Spain. 15 3.1.14 Sweden. 16 3.1.15 United Kingdom... 17 3.2 Rationale for the choice of representative case studies. 17 4. A comparative analysis of the implementation of the IMD... 21 4.1 Scope of national rules implementing the IMD and exemptions.. 21 4.2 Retention of acquired rights (Grandfathering). 22 4.3 Choice and regulatory style of competent authority. 22 4.4 Requirements relating to competence and good repute 24 4.5 Obligations relating to professional indemnity cover, protection of client money, and solvency requirements... 26 4.6 Minimum requirements for disclosure of information to customers.. 26 4.7 Arbitration procedures and compensation schemes. 28 4.8 Cost of regulating insurance mediation after the implementation of the IMD. 29 4.8.1. Direct regulatory fees.. 30 4.8.2. Compliance costs. 31

4.9 The impact of the implementation of the IMD on market structure of the insurance mediation sector.. 32 4.10 Role of the industry in the process of the implementation of the IMD and of regulation of general insurance mediation. 32 Annex A: Case study for France. 34 Annex B: Case study for Germany 44 Annex C: Case study for the Netherlands.. 54 Annex D: Case study for the United Kingdom.. 65 Annex E: Comparative Tables. 80 Acknowledgements. 83

Foreword Michael Snyder Chairman, Policy and Resources Committee City of London Our series of research reports on the comparative implementation of EU directives is intended to help overcome inconsistencies and differential costs in the implementation of EU Financial Services Action Plan (FSAP) measures because these were designed to achieve a harmonized market place across Europe in the interests of greater competition and improved international competitiveness. These reports seek not simply to identify areas in which implementation has been uneven, but also to analyse the factors which have produced such disparities. While it is sometimes the case that problems have arisen because of flaws or ambiguities in the directives themselves, it is also common to discover that they have been caused or exacerbated at the national state level by such things as differences in legal frameworks, variations in the existing regulatory regimes, the presence or otherwise of earlier legislation, and regulators enthusiasm for super-equivalence i.e. going beyond the scope of the directive. This report, on the comparative implementation of the Insurance Mediation Directive, illustrates the sort of problems that can arise due to national differences. The IMD itself is a minimum harmonisation directive, with the apparently simple objectives of introducing minimum professional requirements for intermediaries, requiring them to be registered with a competent authority in the home Member State, and establishing the minimum amount of information that they must give to consumers before concluding an insurance contract. Implementation has, however, thrown up a host of problems. Only four of the EU-15 countries transposed the IMD into National legislation before the 15 January 2005 deadline, and one, Germany, had still not completed the process at the time of writing. In addition, all four of the countries covered in detail in this report, France, Germany, the Netherlands and the UK, have been guilty, to a greater or lesser extent, of gold-plating the Directive through the imposition of either additional rules or higher than required standards. In their analysis, CRA International suggest that there are two main reasons for these variations: the presence or otherwise of statutory regulation before the IMD was introduced, and whether the Member States concerned have single or sectoral regulators. The most worrying conclusions, however, are that interviewees in all four countries felt that the IMD would increase cost and the regulatory burden which it was feared might drive smaller operators out of the market, and that the cost of implementation itself has varied significantly. The available evidence suggests strongly that the heaviest burden has fallen on the UK.

We note, however, that the FSA has in recent months been conducting a review of its Insurance Conduct of Business (ICOB) rules for certain general insurance products. This has so far resulted in the publication of an Interim Review which found limited evidence of consumer detriment (for example, by buying insurance that was either overly expensive or inappropriate to their needs) for standardised products such as home or motor insurance. As a result, the FSA is proposing to remove most of the ICOB requirements that exceed minimum IMD rules. In the context of the attached report this is a positive development which can be said to have been stimulated by the Davidson Review of the implementation of the EU legislation in the UK, to which we contributed. This called last November on the FSA to consult on removing gold-plating in the insurance mediation field by the end of 2007. Overall, we hope that the report will aid in the pursuit of the responsibilities the EU Commission and the national regulators have for ensuring more consistent transposition and more effective implementation of EU financial services legislation. This is key to achieving real gains from the FSAP measures and ensuring that the EU s financial services sector fulfils its full potential in contributing to European economic growth and fulfilment of the objectives of the Lisbon Agenda. Michael Snyder London May 2007 2

Executive Summary The City of London asked CRA International to carry out a study into the implementation of the Insurance Mediation Directive (IMD). This Directive introduces minimum professional requirements for all insurance intermediaries across Europe and requires them to be registered with a competent authority in the home Member State. The Directive also establishes the minimum amount of information that intermediaries must give to consumers before concluding an insurance contract. Incomplete implementation across the EU The IMD was published in December 2002 and was supposed to be implemented before 15 January 2005 in all Member States. Only four countries in the EU-15 transposed the IMD into national legislation on time (Austria, Denmark, Ireland and the UK); among the remaining countries which were late in implementing the Directive, Germany was still in the process of implementation at the time of writing. A brief review across the EU-15 finds differences between countries regarding the regulatory landscape in place before implementation and the competent authority used for implementation. In some countries (such as Belgium and Sweden), the IMD appears to have led to an insurance regulator being folded into a new single regulator. Focus on France, Germany, the Netherlands and the UK In this report we provide detailed information about the implementation of the IMD in four different countries: France, Germany, the Netherlands and the UK (which is the only country in our sample that implemented the IMD in a timely manner). This selection combines countries that have a single regulator across the financial services sector (the Netherlands and the UK) with those that have implemented the IMD through a more sector-specific regulator (France and Germany). All Member States except Germany and the UK already had some form of statutory regulation in place before the introduction of the IMD which in many cases also meant the existence of a regulator specifically in charge of the insurance sector. Partly as a result of this regulatory history, the majority of Member States have designated the pre-existing regulator as the competent authority according to the IMD requirements, although a few changes do exist (e.g. in France and the Netherlands). Differences in implementation in these major markets Our report finds that there have been noticeable differences in implementation of the IMD amongst these four countries. While there are specific details associated with each country, there are a number of themes that are possible to identify and we provide details on these below. One of the clear results from the study is that all four countries have imposed some additional rules ( gold-plating ) when implementing the Directive: 3

The area of information requirements seems to have been particularly affected with additional requirements relating to the provision of a risksheet, a policy summary, or the disclosure of fees received by the intermediary. The requirements relating to competence have also been susceptible to gold-plating in most countries. In the UK, the Financial Services Authority (FSA) allows considerable flexibility. In the other three countries there are stricter rules such as the possession of certain qualifications, previous experience, and required number of hours of training. The presence of statutory regulation before the IMD seems to have affected the implementation process: Both France and the Netherlands had a statutory regime and some form of register prior to IMD and, according to our interviewees both appear to have achieved a relatively smooth implementation of IMD. By contrast, interviewees indicated that implementation in the UK (where there had been previously been a voluntary regulatory regime) had been more difficult. The German experience is still unclear because implementation has not yet been completed. In addition, the different ways in which gold-plating has occurred also appear to be dependent on the previous regime in place. For example, some countries gold-plated those requirements where the IMD set lower standards compared to those that were already in place in the country (e.g. minimum limits of professional indemnity cover in France). Different national regulatory dimensions Whether or not countries have sectoral or single regulators in financial services also appears to have had an impact (although with only four case studies this conclusion should be seen as tentative): In the UK and Netherlands, where a single regulator is in charge of the whole financial services sector, the IMD requirements have been applied to direct selling of insurance products beyond the IMD scope as well as to intermediaries. It seems likely that in both cases the regulator wants to supervise the distribution of insurance products in a consistent manner regardless of the channel used to carry out the activity. In contrast, France and Germany, which have applied the IMD through sectorspecific regulators, follow the text of the IMD and do not include direct selling within the scope of the rules. Although the split between direct sales and sales through other intermediaries varies between countries, the application of IMD requirements to direct sales has a significant impact in the UK and the Netherlands. 4

In the UK, one of the implications of insurance intermediaries being regulated by the FSA is that other rules contained in the FSA Handbook have also been applied which interviewees have perceived as leading to greater burdens than in other countries. In contrast, French and Dutch interviewees were much less critical of the rules adopted in their countries. The German experience is still not clear as implementation has not been completed. The style of regulation of the UK and the Netherlands appears to be similar in terms of a proactive approach involving inspections, supervision and on site visits. The French approach appears to be less proactive, although this is still to be determined as the regulatory bodies that have been formed as a result of IMD are still relatively new. The German regime is not yet in place. Grandfathering differences The Netherlands, France and Germany all allowed existing insurance intermediaries to retain their rights and continue their activity without having to re-qualify for their national register ( grandfathering ). This is not surprising for France and the Netherlands where some form of register was already in place pre-imd. In contrast, it is perhaps surprising that Germany where there was no register at all permitted grandfathering for certain kinds of intermediaries. In the UK, grandfathering was not permitted; even for those intermediaries who were already complying with the voluntary regime through the General Insurance Standards Council (GISC) (approximately 6,000 intermediaries or one third of the market). Wide variation in the cost of implementation Available evidence suggests a wide variation in the cost of the implementation of the IMD and compliance with the new rules. It appears that implementation costs were significantly higher in the UK than elsewhere based on the cost benefit analysis performed by the FSA. The Dutch also performed a cost benefit analysis which appears to show that their implementation was less costly than the UK. France and Germany have not performed any cost benefit analysis. Interviewees in all four countries felt that IMD would increase cost and regulatory burden, and that this would cause small players to leave the market. There were mixed views as to whether this was beneficial or not. Respondents from France, Germany and the Netherlands cited the benefits of the IMD as a counterweight to the loss of smaller players from the market. Consultation process Lastly, different countries appear to have used different processes of consultation before finalising their IMD implementation. The extensive degree of constructive engagement with industry bodies may help explain the relative ease of implementation in the Netherlands and France. In this respect, we note that the FSA will soon consult the industry in order to simplify the current rules for the sale of insurance products following the Davidson Review. 5

In summary, it is clear that implementation of IMD varied widely in the countries we studied. This manifests itself in the detail of each nation s final regulation, but also in the manner and ease or difficulty of the implementation process. Not surprisingly, these differences are partly related to the nature of the pre-existing regulatory regime in the countries we studied. For example, where a register already existed together with a statutory body of rules not dissimilar to IMD (such as in France), IMD implementation appears to have gone relatively smoothly and without excessive cost. It also seems clear that single regulators (as in the UK and the Netherlands) had an impact on the final form of IMD in their countries, for instance in terms of extending the regime to other distribution channels for which they were responsible, but which were not included in IMD. Finally, it is clear that all countries we studied in detail engaged in some form of gold-plating. 6

1 Introduction The City of London asked CRA International to carry out a study into the implementation of Directive 2002/92/EC on insurance mediation (hereafter referred to as the Insurance Mediation Directive, the IMD, or the Directive) in Europe. The IMD introduces minimum professional requirements for all insurance intermediaries across Europe and requires them to be registered with a competent authority in the home Member State. The Directive also establishes the minimum amount of information that intermediaries must give to consumers before concluding an insurance contract. Once they meet these requirements in their home country, insurance intermediaries can freely provide their services in the other Member States. Published in December 2002, the Directive had to be implemented before 15 January 2005 in all Member States. Its implementation, however, has suffered from delays in several countries; in addition, there are concerns that its transposition into national legislation has not been uniform across Europe. According to many commentators, these facts hinder the creation of a single market for insurance mediation and may entail greater costs for those intermediaries located in countries where the IMD has been implemented earlier or where national rules go beyond the Directive. This report provides a comparative analysis of how the IMD has been implemented in Europe, whether the way that IMD has been implemented reflects the different regulatory structures observed in different markets, and major policy implications. The structure of this report is as follows: Chapter 2 provides an overview of the main provisions contained in the IMD; Chapter 3 is an up-to-date survey of the implementation of the IMD across the EU-15. It provides information on whether, and when, the Directive has been transposed into national legislation, which type of regulatory regime was in place before the IMD (e.g. statutory or voluntary regulation), and which type of authority was designated as the competent authority responsible for implementing the IMD (i.e. whether the authority was specialised in the insurance sector or multi-sectoral). Using this information we also explain the rationale behind our choice of France, Germany, the Netherlands, and the UK as representative examples of how the IMD has been implemented across Europe; Chapter 4 presents a comparative analysis of the implementation of the Directive in France, Germany, the Netherlands, and the UK. The analysis in this chapter draws on the detailed case studies for these countries, which are found in the annexes. 7

2 Overview of the Insurance Mediation Directive The IMD aims at enabling insurance intermediaries (e.g. brokers, agents, and bancassurance operators) to operate across the entire EU (under the regime of both freedom of establishment and freedom to provide services), while enhancing customer protection at the same time. The Directive only applies to persons who provide insurance mediation services to third parties in exchange for remuneration. 1 Moreover, it does not apply to persons who provide advice on insurance cover on an incidental basis in the course of other professional activities (e.g. tax experts or accountants; see article 2.3) or as an ancillary activity under certain strict conditions. 2 The main provisions of the IMD refer to: mandatory registration and professional requirements of insurance intermediaries (chapter II of the Directive); and, information requirements for insurance intermediaries (chapter III). 2.1 Mandatory registration and professional requirements Under the rules set out in chapter II, insurance and reinsurance intermediaries of all Member States are required to be registered with a specifically designated competent authority in their respective jurisdictions. Registration of intermediaries is subject to the fulfilment of strict professional requirements and enables them to operate across the entire EU, after previous notification to the home competent authority of the decision to carry our insurance mediation abroad. The professional requirements considered by the Directive relate to the competence, good repute, professional indemnity cover and financial capacity of insurance intermediaries. 1 According to article 2.3 of the Directive, insurance mediation includes the activities of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim. It does not include direct selling, i.e. when these activities are carried out by an insurance company or its employees. 2 According to article 1.2 of the IMD, the Directive does not apply to persons providing mediation services for insurance contracts if all the following conditions are met: (a) the insurance contract only requires knowledge of the insurance cover that is provided; (b) the insurance contract is not a life-insurance contract; (c) the insurance contract does not cover any liability risks; (d) the principal professional activity of the person is other than insurance mediation; (e) the insurance is complementary to other products or services (e.g. it covers the risk of breakdown, loss or damage to goods, or it is travel insurance); (f) the amount of the annual premium does not exceed 500 and the total duration of the insurance contract, including any renewals, does not exceed 5 years. Also, the Directive does not apply to tied insurance intermediaries who act under the full responsibility of an insurance company and do not collect premiums from customers (article 2.7). 8

According to article 4.1 of the IMD, insurance and reinsurance intermediaries must possess appropriate knowledge and ability, as determined by the home Member State of the intermediary. These requirements can vary with the activity of insurance or reinsurance mediation and the products distributed. Moreover, intermediaries must be of good repute (article 4.2), i.e. they must at least have a clean police record (in relation to serious criminal offences linked to crimes against property or other crimes related to financial activities) and have not been previously declared bankrupt (unless they have been rehabilitated). Intermediaries are also required to hold professional indemnity insurance covering the entire EU for at least 1,000,000 for each claim and 1,500,000 in aggregate for all claims in a single year (article 4.3). Article 4.4 of the IMD requires Member States to adopt measures relating to client s money including any of the following: Provisions established by law or contract whereby monies paid by the customer to the intermediary are treated as having been paid to the insurer, whereas monies paid by the insurer to the intermediary are not treated as having been paid to the customer until the customer actually receives them; A requirement for insurance intermediaries to have financial capacity amounting to 4% of the sum of annual premiums received, subject to a minimum of 15,000; A requirement that customers' monies are transferred via strictly segregated client accounts and that these accounts shall not be used to reimburse other creditors in the event of bankruptcy; and A requirement that a guarantee fund be set up. According to article 4.6 of the IMD, Member States are allowed to adopt stricter or further requirements than those described above for intermediaries registered within their jurisdiction. Article 5 of the IMD introduced the possibility of the retention of acquired rights ( grandfathering ). In other words, Member States had the ability to decide that people who had been carrying out insurance mediation before 1 September 2000, were included in a register, and had a level of training and experience similar to that required by the Directive might be automatically entered in the newly established register (once the conditions relating to professional indemnity cover and financial capacity were met). As established in articles 10 and 11 of the Directive, Member States must also ensure that procedures are in place for registering clients complaints about intermediaries and for the out-of-court settlement of disputes between clients and intermediaries. 2.2 Information requirements Article 12.1 of the IMD (in chapter III) describes the minimum amount of information that insurance intermediaries must provide to customers before the conclusion of any insurance contract. An intermediary must specify: 9

name and address; the register in which he is included; whether he holds more than 10% of the voting rights or the capital in a given insurance company; whether an insurance company holds more than 10% of the voting rights or capital in the intermediary; and the procedures which allow customers to register complaints and the out-of-court dispute resolution procedures. Furthermore, an intermediary must also inform the client whether: he gives advice based on the obligation to provide [ ] a fair analysis, or he is under a contractual obligation to conduct insurance mediation business exclusively with one or more insurance undertakings, [ ] or he is not under a contractual obligation to conduct insurance mediation business exclusively with one or more insurance undertakings and does not give advice based on the obligation [ ] to provide a fair analysis. According to article 12.2 of the Directive, if an intermediary provides advice on the basis of a fair analysis, he is then required to conduct a fair and sufficiently wide-ranging analysis of products available in the market, so that his proposed choice of insurance products is adequate to meet the customer s needs. Moreover, as per article 12.3, before the conclusion of a contract an intermediary must specify, on the basis of information provided by the customer, the demands and the needs of that customer as well as the underlying reasons for any advice given to the customer on a given insurance product. In respect of these information requirements, the Directive gives Member States the option of adopting stricter provisions if they so wish (article 12.5); these stricter provisions would apply to all intermediaries operating in the concerned Member State, even though not registered with the local competent authority. Lastly, article 13.1 states that this information must be provided on paper or other durable medium available and accessible to the customer, and in a clear and accurate manner, comprehensible to him. The information, however, may be provided orally if the customer requests it, or where immediate cover is necessary (article 13.2). The deadline for Member States to comply with the IMD was set as 15 January 2005, although very few countries (Austria, Denmark, Ireland, and the UK) managed to implement it on time. In most European countries the Directive was only implemented in late 2005 or during 2006. At the time of writing it has not yet been fully implemented in Germany. 10

3 Overview of the implementation of the IMD in the EU-15 In this chapter we provide a review of the current state of the implementation of the IMD in the EU-15 countries. In particular, for each country we report when the IMD was implemented, the designated regulatory authority for insurance mediation and what regulatory regime was in place prior to the implementation of the Directive. 3 We also use this information to inform our choice of case studies of regimes of insurance mediation in Europe as described in section 3.2. 3.1 Case studies 3.1.1 Austria The IMD was implemented in Austria on 29 November 2004 with the law modifying the previous framework defined by the Trade and Commercial Regulations Act, the Broker statute, the Insurance Contract Act, and the Banking Act (Novelle der Gewerberordnung BGBI. I. Nr. 131/2004). This law entered into force on 15 January 2005, as required by the Directive. According to this law insurance intermediaries must be registered by the district authorities (Bezirksverwaltungsbehörde), which are in turn supervised by the Federal Ministry of Economy and Labour. The Federal Ministry is also the competent authority for the central register of insurance intermediaries, as it centralises the collection of data entered by the district authorities. The Financial Markets Authority (FMA) is the regulatory authority for insurance intermediaries who are employed by credit institutions. 4 Under the previous regime, brokers and agents were required to be registered in a central register of all businesses instead of a specific register for insurance intermediaries and the existing requirements regarding professional qualifications and registration were comparable to those in the IMD. As a result, all insurance intermediaries which were previously registered were considered to fulfil the requirements set out by the IMD on reputation and professional qualification. The requirements of the IMD, however, are stricter with reference to past bankruptcies and good repute. 5 3 For the drafting of this section we used Implementation of the IMD by EU Member States 9 th Update, a report published by BIPAR (the European Federation of Insurance Intermediaries) in December 2006. We thank BIPAR for kindly making available this report to us. 4 Federal Ministry of Economy and Labor: http://www.bmwa.gv.at/en/topics/enterprise/crafts/insurancemed/default.htm. 5 Document by the BMWA (Austrian Federal Ministry of Economy and Labour) on the implementation of the amended business code, (Umsetzungsbestimmungen): http://www.bmwa.gv.at/nr/rdonlyres/397f098d-a227-4d37-bea4- E0106C02EC47/0/UmsetzungsbestimmungenVersicherungsvermittlung.pdf. 11

3.1.2 Belgium Belgium implemented the IMD on 15 March 2006, when the new law modifying the previous framework established in 1995 entered into force. 6 The authority in charge of supervising insurance intermediaries in Belgium is the CBFA (Commission Bancaire, Financiere et des Assurances). On 1 January 2004 the Insurance Supervisory Authority was incorporated into the CBFA which is now the single supervisory authority for the Belgian financial sector. Prior to the implementation of the IMD into the Belgian legislation, insurance intermediaries (including brokers, agents, and sub-agents) were subject to statutory regulation, as described by the law of 27 March 1995. The impact of the IMD was therefore expected to be small as it has been noted that the IMD was prepared during the Presidency of Belgium and was therefore largely inspired by the existing Belgian legislation. 7 3.1.3 Denmark Denmark implemented the IMD into national legislation in August 2005 with the Insurance Mediation Act 767 of 5 August 2005. 8 Under the previous regime only brokers were regulated; in contrast, the new Act covers all intermediaries (i.e. agents and brokers). The competent authority for regulating insurance mediation in Denmark is the Danish Financial Services Authority (Finanstilsynet). 3.1.4 Finland In Finland the new Act on Insurance Mediation (Act No. 570/2005, Laki vakuutusedustuksesta) implementing the IMD into national legislation entered into force on 1 September 2005. 9 All insurance intermediaries are now regulated, whereas only brokers were regulated under the previous regime. The regulator is the Insurance Supervisory Authority (ISA Vakuutusvalvontavirasto), which is part of the Ministry of Social Affairs and Health. 3.1.5 France France transposed the IMD into national legislation in December 2005 with law no 2005-1564 of 15 December 2005, which modified Book V of the Insurance Code. The corresponding decrees and ministerial orders which work out in detail the general provisions of the law were then published during 2006. 10 Statutory regulation of insurance mediation was already in place in France prior to the implementation of the IMD. In particular, insurance mediation 6 BIPAR, Implementation of the IMD by EU Member States 9 th Update, December 2006, p. 4. 7 C/M/S, IMD Guide Selling Insurance Across Europe January 2006, page 22: www.cms-bfl.com/jahia/webdav/site/myjahiasite/shared/cms/cms279_final_links_0306.pdf. 8 BIPAR, Implementation of the IMD by EU Member States 9 th Update, December 2006, p. 10. 9 BIPAR, Implementation of the IMD by EU Member States 9 th Update, December 2006, p. 15. 10 BIPAR, Implementation of the IMD by EU Member States 9 th Update, December 2006, p. 18. 12

was regulated by the Insurance Code (Code des Assurances, in French), first published in 1976. 11 The French regulatory authority for the insurance sector is now ACAM (Autorité de contrôle des assurances et des mutuelles). Registration of intermediaries, however, is now entrusted to a separate agency (ORIAS), whereas this task was previously carried out by ALCA (Association de la Liste des Courtiers d'assurances). 12 3.1.6 Germany Germany has only very recently implemented the IMD into national legislation: the law was published in the Federal Gazette on 22 December 2006 and will come into force on 22 May 2007. 13 The implementation of the IMD will represent a major change in Germany, as insurance intermediaries (including brokers, agents, and sub-agents) are currently subject neither to authorisation nor to any other registration requirements. After long discussions, the local Chambers of Industry and Commerce which are in turn supervised by the Federal Lander have been designated as competent authority and responsible for setting up the register of intermediaries. 14 3.1.7 Greece In Greece the IMD was implemented on 14 September 2006 when the new law amending the Insurance Mediation Act of 1985 was published in the Official Journal. 15 The supervisory authority is the newly-formed Commission for the Supervision of the Insurance Market, which is part of the Greek Ministry of Development. It is expected that the Ministry of Development, which was responsible for regulating insurance intermediaries in Greece before the IMD, will continue to supervise both intermediaries and insurance companies until the new Commission is fully operational. 3.1.8 Ireland Ireland implemented the IMD in accordance with the timescale in the Directive on 14 January 2005 through Statutory Instrument no. 13 of 2005. 16 Before the implementation of the IMD, the Insurance Act of 2000 provided the general regulatory framework for the insurance sector and also introduced a system of statutory authorisation and supervision of insurance and reinsurance 11 C/M/S, IMD Guide Selling Insurance Across Europe January 2006, page 30: http://www.cmsbfl.com/jahia/webdav/site/myjahiasite/shared/cms/cms279_final_links_0306.pdf. 12 ALCA, however, only represented brokers. 13 BIPAR, Implementation of the IMD by EU Member States 9 th Update, December 2006, p. 23. 14 BIPAR, Implementation of the IMD by EU Member States 9 th Update, December 2006, p. 23. 15 BIPAR, Implementation of the IMD by EU Member States 9 th Update, December 2006, p. 26. 16 BIPAR, Implementation of the IMD by EU Member States 9 th Update, December 2006, p. 33. 13

intermediaries. 17 Moreover, investment and insurance intermediaries were regulated by the Financial Regulator under the Investment Intermediaries Act of 1995. The Irish Financial Services Regulatory Authority (IFSRA) is responsible through its Insurance Section for regulating, supervising and enforcement. Both intermediaries and insurers are regulated by the IFSRA. 18 3.1.9 Italy In September 2005 the Italian government published the new Insurance Code (Legislative decree 209/2005), which implemented the IMD into the Italian legislation. The new Code entered into force on 1 January 2006, although ISVAP the Italian supervisor for the insurance sector was given 24 months from such date to adopt specific regulations. In October 2006 ISVAP approved the regulation concerning the activity of insurance mediation (regulation 5 of 16 October 2006). This regulation introduces a single register of insurance intermediaries (including: agents, brokers, canvassers, banks, and employees/freelance affiliates to agents, brokers or banks), which became operational on 1 January 2007. Insurance mediation had already been subject to statutory regulation in Italy since 1984 (with Law 792/1984) when a compulsory public register of insurance intermediaries was created. The original register, however, included only 2 categories, instead of the 5 listed above in the new register. ISVAP is the specific supervisor for the insurance sector and is independent of the Italian financial services authority CONSOB. The new Code also stipulated that all competencies concerning insurance intermediaries are transferred from the Ministry of Trade and Industry to ISVAP. 3.1.10 Luxembourg Luxembourg adopted the IMD with the law of 13 July 2005, which modified the existing legal framework defined in December 1991. The law was complemented by the regulation of 24 November 2005 on the licensing and pursuit of the business of insurance and re-insurance intermediaries, which came into force on the 6 December 2005. 19 The law governs all intermediaries, including agents, brokers and sub-brokers, who are all defined in the law. The competent authority for insurance mediation in Luxembourg is the Commissariat aux Assurances, the specialised supervisor for the insurance sector. 17 Irish Financial Services Regulatory Authority, Insurance Statistical Review 2004, p. 115: http://www.ifsra.ie/data/pub_files/final%20version%20statistical%20review%2004.pdf. 18 Irish Financial Services Regulatory Authority: http://www.ifsra.ie/frame_main.asp?pg=/industry /in_int_intr.asp&nv=/industry/in_nav.asp. 19 BIPAR, Implementation of the IMD by EU Member States 9 th Update, December 2006, p. 44. 14

3.1.11 Netherlands The IMD was initially brought into Dutch law by the Financial Services Act (Wet financiële dienstverlening Wfd) of 12 May 2005 which entered into force on 1 January 2006. The Wfd has subsequently been integrated in the Act on Financial Supervision (Wet op het financieel toezicht Wft) of 26 September 2006, which came into force on 1 January 2007. 20 The competent authority in charge of implementation of the IMD is now the Authority Financial Markets (AFM), which is also in charge of general financial services in the Netherlands. Insurance mediation as well as advice (in a professional capacity and resulting in a recommendation of a specific product) fell under the scope of the Financial Services Act implementing the IMD and then of the Act on Financial Supervision. Intermediaries were already subject to compulsory registration with the regulator before the IMD. Previous registration requirements included proof of experience and knowledge by providing certificates to show completion of courses as well as having no prior criminal records or bankruptcy. 21 3.1.12 Portugal Portugal implemented the IMD into national legislation with Decree Law no. 144 of 31 July 2006, which entered into force on 28 January 2007. 22 This replaced the old regime which was established in 1991 (Decree Law no. 388). The authority regulating insurance mediation in Portugal is the ISP (Instituto de Seguros de Portugal, in Portuguese), the specialised regulator for the insurance sector. Whilst the supervisory body will be in charge of the registration, insurers will be competent to verify if tied intermediaries comply with professional requirements before registering. 23 3.1.13 Spain Spain implemented the IMD on 17 July 2006 with the approval and publication of Law no. 26 of 2006 on mediation of private insurance and reinsurance (Ley de mediación de seguros y reaseguros privados, in Spanish). Prior to the implementation of the IMD, the regulatory framework on insurance mediation in Spain was contained in Law no. 9 of 1992. The new Law is built around the following three principles: Introduction of new intermediaries (like insurance agents linked to multiple insurance companies and reinsurance brokers); Equality of treatment of all intermediaries, including equivalent professional requirements; and, 20 BIPAR, Implementation of the IMD by EU Member States 9 th Update, December 2006, p. 68 21 C/M/S, IMD Guide Selling Insurance Across Europe January 2006, page 52: www.cms-bfl.com/jahia/webdav/site/myjahiasite/shared/cms/cms279_final_links_0306.pdf. 22 BIPAR, Implementation of the IMD by EU Member States 9 th Update, December 2006, p. 55. 23 BIPAR, Implementation of the IMD by EU Member States 9 th Update, December 2006, p. 55. 15

Enhancement of transparency requirements in order to protect consumers. The Spanish competent authority as per article 7 of the IMD is the General Directorate of Insurances and Pension Funds (Dirección General de Seguros y Fondos de Pensiones, or DGS, in Spanish). This is a division of the Ministry of Economy and Finance and separate from the general Spanish financial services authority CNMV. Under the previous regime, only brokers were regulated and subject to registration, whereas insurance agents were trained by (and registered with) their insurance company only. Insurance companies managed their own registry of agents and assumed the administrative responsibility for its agents. 24 As a result, insurance companies were not required to be registered or authorised to carry out insurance mediation activities through directly selling to customers. The new regime requires all intermediaries including tied and multi-linked agents to be registered with the supervisor, in accordance with the principle of equality of treatment. The DGS has also published answers to a list of practical questions raised by industry representatives. 25 3.1.14 Sweden Sweden implemented the IMD on 1 July 2005 with the parliamentary approval of the Insurance Mediation Act and Insurance Mediation Ordinance and the publication of the corresponding regulations. Insurance intermediaries in Sweden have been under the obligation of being authorised by (and registered with) the supervisory authority and keeping professional requirements since 1989. Moreover, direct selling of insurance products has always been regulated in Sweden. Finansinspektionen, the single financial supervisory authority in Sweden, is the competent authority responsible for the supervision of the insurance mediation business (including authorisations and legal issues), whereas Bolagsverket, the Companies Registration office, is responsible for the registration of insurance intermediaries. 26 24 C/M/S, IMD Guide Selling Insurance Across Europe January 2006, page 62: www.cms-bfl.com/jahia/webdav/site/myjahiasite/shared/cms/cms279_ final_links_0306.pdf. 25 DGS, Contestaciones a las preguntas de las entidades aseguradoras sobre la nueva normative de mediación de seguros y reaseguros privados, July 2006: http://www.dgsfp.mineco.es/profesionales/documentos/contestaicoinespreguntasjorna DAMEDIACI%C3%93N%2003082006.pdf. 26 Finansinspektionen, Activity of EEA-Intermediaries in Sweden, 24 th January 2006: http://www.fi.se/upload/90_english/20_publications/20_miscellanous/2006/eea_intermed.pdf 16

3.1.15 United Kingdom In the UK the IMD was implemented on 14 January 2005. In December 2001, HM Treasury chose the FSA as the competent authority responsible for the implementation of the IMD. The transposition of the IMD into UK legislation represented a major change in the regulation of general insurance mediation, as the industry was not subject to statutory regulation before the IMD. In the pre-imd regime GISC (the General Insurance Standards Council) an independent organisation voluntarily created by the industry set standards and good practices for its more than 6,000 members (estimated to be about a third of the market). 3.2 Rationale for the choice of representative case studies The overview presented in section 3.1 provides an assessment of when IMD was implemented; whether statutory or voluntary (or no) regulation of general insurance mediation was in place before the IMD; and, whether the current supervisory authority is specialised in the insurance market or is in charge of the whole financial services sector. Table 1 provides a summary of the implementation of the IMD across the EU-15. 17

Table 1: Summary of the implementation of the IMD across the EU-15 Country Date of Implementation Competent Authority Previous regime Austria 29/11/2004 Federal Miistry of Economy and Labour Brokers and agents were required to be registered in a central register of all businesses Belgium 15/03/2006 CBFA Insurance intermediaries were subject to statutory regulation Denmark 05/08/2005 Financial Services Authority Finland 01/09/2005 Insurance Supervisory Authority Only brokers were regulated Only brokers were regulated France 15/12/2005 ACAM Statutory regulation of insurance mediation was already in place Germany 22/05/2007 (expected) Chamber of Industry and Commerce No previous regulation Greece 14/09/2006 Commission for the Supervision of the Insurance Market Ireland 14/01/2005 Irish Financial Services Regulatory Authority Regulated by Ministry of Development A system of statutory authorisation and supervision of insurance and reinsurance intermediaries Italy 01/01/2006 ISVAP Compulsory public register of insurance intermediaries Luxembourg 24/11/2005 Commissariat aux Assurances Insurance intermediaries were subject to statutory regulation Netherlands 01/01/2006 AFM Compulsory registration with the regulator Portugal 28/01/2007 ISP Insurance intermediaries were subject to statutory regulation Spain 17/07/2006 General Directorate of Insurances and Pension Funds Only brokers were regulated Sweden 01/07/2005 Finansinspektionen Regulation for all intermediaries since 1989 UK 14/01/2005 FSA Voluntary regulation with GISC Source: CRA analysis 18

Almost all countries included in this section have transposed the IMD into national legislation after the deadline of 15 January 2005, although four countries did meet the deadline (Austria, Denmark, Ireland, and the UK). At present only one of the old 15 Member States has yet to implement the IMD, as the law implementing the IMD in Germany will only come into force during the first half of 2007 (see section 31.6). The survey of the EU-15 identified two important characteristics of the regulatory regime that differed between Member States, namely: whether statutory or voluntary (or no) regulation of general insurance mediation was in place before the IMD; and, whether the current supervisory authority is specialised in the insurance market or is in charge of the whole financial services sector. We use these two dimensions to define a matrix (see Figure 1) and to inform our choice of representative case studies. In all countries except Germany and the UK there was some form of statutory regulation for general insurance mediation in place before the IMD; in some cases (e.g. Belgium) this statutory regulation was also very similar to that contained in the IMD. As for the regulatory authority, the supervision of insurance mediation is carried out by sector specific regulators in most countries. In some countries where, by way of contrast, a single regulator is in charge, the former insurance regulator was folded into the new super regulator (e.g. Belgium and Sweden). The UK and Germany, however, had no sector specific regulator prior to IMD. We used this matrix to choose a subset of four Member States to focus our analysis. The objective is to understand whether the structure of the competent authority (i.e. sector specific versus single regulator ) and existence (or not) of statutory regulation for insurance intermediaries has affected the implementation of IMD in various countries. The UK and Germany are similar in that they were the only countries where there was no statutory regulation of general insurance mediation before IMD. The two countries, however, have adopted a different approach to choice of the competent authority, and are therefore located in different sections of the matrix. In the UK, the independent body voluntarily set up by the industry (GISC) was dissolved and the FSA was given responsibility for regulating the sector. In Germany after long discussions it was finally decided to designate the local Chambers of Commerce as competent authorities, without involving the financial regulator Bafin. Among the countries where statutory regulation was already in place before the IMD, our selected countries are the Netherlands and France. In the Netherlands, the single Dutch financial authority AFM follows a similar approach to regulation as the FSA in the UK, for instance, through the use of public consultations and requirements to carry out cost-benefit analysis. 19

Among the countries with a specialised regulator (as opposed to a single overarching regulator) we have chosen France because it is one of the largest insurance markets in Europe, together with Germany. Figure 1: Summary of regulatory regimes for insurance mediation in Europe Sectoral regulator Single regulator Statutory regulation of general insurance in place prior to IMD - Austria - Finland (only brokers) - France - Greece - Italy - Luxembourg - Portugal - Spain (only brokers) - Belgium - Denmark (only brokers) - Ireland - Netherlands - Sweden Voluntary (or no) regulation of general insurance in place prior to IMD - Germany - United Kingdom Source: CRA analysis. Note: Germany has designated the local Chambers of Commerce (IHKn) as competent authority, which is in turn supervised by the Ministry of Economy. The comparative analysis of the implementation of the IMD in these countries (the UK, France, Germany and the Netherlands) is presented in the next chapter, which is followed by detailed case studies for each country. 20