BIPAR's struggle to achieve completion of the single market for insurance agents and brokers and their clients should be crowned with success in the not too distant future. On 20 September 2000, the European Commission adopted a proposal for a directive on insurance mediation which should enable insurance and reinsurance intermediaries, via the creation of home-state regulation, to do business in other EU member states by way of freedom to provide services or by establishing a branch. The directive, which is expected to be adopted by EU legislators in about 18 months, will also require minimum standards of consumer protection.
I truly believe that this directive will be a small step for insurance intermediaries but a giant leap for our customers throughout the EU. This legislation will at long last enable the profession to help our clients, both for their private and commercial risks, to benefit from the wide range of products on offer in the European single market for insurance. Intermediaries will be allowed to ensure the insurance follow-up of their clients when the latter move or invest abroad - as they increasingly do. At the same time, insurance intermediaries will be able to “import” interesting insurance products from other EU markets, thus allowing them to play their essential role as the catalyst for competition at the European level.
In theory, the single insurance market has existed since July 1994, set up by the so-called Third Life and Non-Life Insurance Directives which introduced a single licence system based on home country regulation of the insurance company. This means, for example, that a UK insurer can sell its products to consumers in EU countries other than the UK without needing separate authorisations from these countries. However, what has been missing to make this single insurance market work is a similar single license for intermediaries to help import and explain “cross-border” this range of insurance products to consumers. Insurance distribution is indeed the true “hub” of the single market insurance.
The International Federation of Insurance Intermediaries (BIPAR) has been urging for the introduction of such a single licence for intermediaries for years. The legal uncertainty over the basis upon which the intermediary can operate across frontiers has been a major concern for BIPAR. Without a single licence, an intermediary operating cross-border can be subject to the burdensome application of two or even more sets of legislation: home country legislation and those of the countries where it is doing cross-border business - which widely differ. This situation seriously affects intermediaries' ability to do cross-border business, leads them to restrict their activities to their home country and therefore deprives consumers from the benefits of the increased range of products on offer in the so-called single insurance market.
The directive on insurance mediation should change this situation. It would establish a system of registration for all insurance or reinsurance intermediaries based on several professional requirements. On the basis of this registration in the home member state, these intermediaries should be able to do business throughout the EU without having to comply with the host member state's legislation.
For example, via this home state regulation, a UK-registered intermediary should be able to do cross-border trade in France without having to comply with any additional regulatory requirements that may be imposed in France. Amazingly, this is still impossible today.
The directive comprises a whole range of binding rules through which the EC aims to enhance the protection of consumers in insurance matters. The rules would require intermediaries to obtain minimum standards of professional qualifications, to have a good reputation with a record clear of bankruptcy, and to maintain professional indemnity insurance as well as minimum financial capacity. Also, all intermediaries will have to provide their clients with specific information regarding their relationship with insurance companies and give them the main reasons underlying their advice.
The most important aspect, however, is the fact that the new rules will apply - with only very limited exceptions - to anybody involved in the activity of insurance mediation. By no longer referring to the title (for example “agent” or “broker”) under which a natural or legal person is dealing in the marketplace, but rather by extending the scope to anybody carrying out the activity of insurance mediation, the EC ensures a level playing field for any operator, and the same degree of consumer protection.
My EU Standing Committee at BIPAR will now monitor carefully the final stages towards the definite adoption of the directive by the EU's co-legislators, the European Parliament and the Council of Ministers. Over the coming months, BIPAR will try to ensure that the final text will contribute to the essential protection of consumers, while making sure that the future professional requirements are drafted in such a way as to fit in with the reality of a dynamic marketplace
The target date for adoption of the directive is January 2003. I believe that there is now the political will to drive this forward, strengthened with the additional impetus of the recently-adopted E-commerce Directive which recognises no borders in the sale of products and services, including on-line insurance services, over the web.
With their single licence, intermediaries should at last be able to provide, as said by Frits Bolkestein, EU Commissioner for financial services: “The vital link in the process of selling insurance products in the European Union”. In addition they will play “a pivotal role in protecting the interests of insurance customers, primarily by offering advice and assistance to insurance customers and by analysing their specific needs.”
Nicholas Davenport heads up the EU Standing Committee of the Brussels-based International Federation of Insurance Intermediaries and is a director of London broker, Well Marine.