European elections 2014

Distribution and remuneration schemes – preserve the variety of national systems

Irregular sales practices in some EU member states have caused politicians to review European distribution regulation. More stringent pre-contractual information requirements and far-reaching transparency regulations have to be implemented in order to better protect customers from incorrect decisions in the future. Sustained customer satisfaction is a basic prerequisite for the financial success of insurance companies. Therefore, the insurance industry supports searching for solutions of how insurance customers can be enabled to decide on a specific product based on relevant facts.

Financial education and quality of advice should be focussed on much more. The German insurance industry has recognised the signs of the time and taken adequate measures here. In order to increase the quality of advice and to prevent undesirable developments the industry has initiated a strict code of conduct for distribution and a well directed qualification initiative.

GDVCoexistence of commission based and feebased remuneration systems
One-sided orientation on a single remuneration model is unhelpful. The insurance industry calls on law makers to ensure that fee-based remuneration systems can continue to coexist in Europe in the future. The unilateral stigmatisation of a particular remuneration model does not do justice to either the varying interests of consumers or the national insurance markets.

Radical interventions in mature distribution structures would not only threaten the livelihoods of countless intermediaries, but would also overlook the fact that fee based advice does not only entail advantages. For example, post-contractual fee based services, such as claim assistance, and the lack of preparedness of consumers to conclude contracts can lead to a socially undesired undersupply with insurance products among the general public, if it was decided for a one-sided orientation on a fee based model.

Insurance intermediaries and advisors
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GDVFacilitate consumer decision-making through transparency
The revised Insurance Mediation Directive (IMD2), which may come into force in 2015, is intended to avert potential conflicts of interest between consumers and intermediaries and foresees specific regulations for the disclosure of remuneration structures. Additional information must actually enable consumers to compare products. Simply disclosing the specific remuneration will most likely not fulfil this objective. Therefore, the insurance industry supports disclosure of the acquisition and distribution costs factored into premiums, as this portrayal better presents the cost of insurance products than merely specifying the remuneration.

GDVNo general transfer of banking regulations to the distribution of insurance policies
Parallel to IMD2, the regulations of the Markets in Financial Instruments Directive (MiFID2) are being revised and will take force in 2014. The political demand for regulatory coherence is obvious. A simple copy-and-paste approach, however, is not enough: Insurance companies are structurally very different from banks and a one-to-one transfer of banking regulations is therefore not possible. Adjustments specific to the insurance industry are urgently needed in all cases, because insurance contracts concluded for the long term, in contrast to banking products, serve to secure the biometric risk of policyholders over the long term and not as short term investments.

GDVSpecial information requirements for occupational pensions products
The proposal currently being debated for a regulation on a new Key Information Document for investment products (PRIPs) will also strongly impact IMD2 and MiFID2, determining the scope of application of both directives. The European Commission and Parliament have to date overlooked the fact that precise information requirements are necessary for pension products. These requirements are regulated for private pension in Solvency II and for occupational retirement provision in the Directive on the activities and supervision of institutions for occupational retirement provision (IORP Directive).

The Council has therefore expediently excluded pension products from the scope of application of PRIPs. Particularly delicate is also the European Parliament’s proposal to introduce a warning for complex products, even though the criteria list is so general that it also includes old pension products with high guarantees. The declared European goal of promoting old age provision would be counteracted by this unjustified warning.

>> Focus: Europe in the election year 2014 – The positions of the German insurers