What does the new IMD directive means for UK brokers?

Last week, Ceiops (the Committee of European Insurance and Pensions Supervisors) published its long-awaited advice to the European commission on the revision of the Insurance Mediation Directive.

Why does it matter?

The IMD provides the framework for regulation in the EU’s 27 member states. It will be replaced by IMD2, which is designed to ensure a fair market for insurance intermediaries across Europe.

What are the key points?

The key issue over IMD2 for the UK industry is the effect it will have on requirements to disclose commission. At present, European countries have different approaches: while 'Club Med' countries — those of southern Europe — do not expect insurance intermediaries to reveal commission payments, the Scandinavian countries ban such remuneration. The UK regime, with disclosure on request, lies between these positions.

The arguments over these different approaches is understood to have been the key factor behind the four-month delay in the publication of the Ceiops’ advice.

The supervisors’ umbrella body has recommended that an 'on request' regime should be the minimum benchmark for the disclosure of commission across the EU.

Ceiops' submission says: “Under the 'on request' regime, the intermediary should be obliged to inform the customer if the intermediary receives any kind of remuneration.“

The document says that, should they want to do so, it will be possible for member states to impose stricter requirements. It suggests as a further safeguard for consumers that intermediaries should be obliged to notify customers of their right to request commission levels before contracts are concluded or amended.

With regard to intermediaries who deal with large risks or reinsurance, Ceiops suggests that member states agree there should no requirement that information on commissions be disclosed.

Will the commission take Ceiops' advice?

The commission has indicated that it wants much greater transparency regarding the disclosure of commission.

Earlier this year Karel Van Hulle, head of the commission’s insurance unit, told Insurance Times that pressure was mounting for greater transparency about fee levels in IMD2. He said: “Issues of conflict of interest and remuneration are higher on the agenda than they were five or six years ago. There’s no doubt that they are issues of political importance.”

What happens next?

The commission is expected to publish the draft IMD2 next week. Then on 10 December, the commission will consult on its proposals at a public hearing. The commission is due to publish the final version of IMD2 in spring 2011.