AIDA-HILA SUMMIT , ATHENS MAY 2014
WP DISTRIBUTION OF INSURANCE PRODUCTS
8TH MAY 2014 , @ 11:30-13:30 HOURS
TOPIC:
“PRICING TRANSPARENCY IN BUNDLING INSURANCE”.
DR. KYRIAKI NOUSSIA
ATTORNEY AT LAW
NOUSSIA@GMAIL.COM, K.NOUSSIA@LEXARB.COM
noussia@gmail.com, k.noussia@lexarb.com
1. INTRODUCTION
Pure U/L product
 allocation of premium in M/F  fully transparent
 Fully transparent  way of such an allocation
i.e. - what is being allocated per year
- to which exact M/F
- with which price per invested unit.
 Such an allocation  no insurance risk.
 U/L or I/L products bundled with insurance
 product - entails insurance risk
- may additionally cover various occurrences
& give additional coverage
 (insurance riders added to pure U/L,I/L)

1. INTRODUCTION

IMD II  these will also need to be
NOT ONLY transparent
BUT ALSO fully detailed

Greek law  promotes transparency in pricing
Insurance offer (not only insurance contract per se )
- include detailed analysis of all financial features
Reason  augment chances of insurance buyer
Insurance buyer  have wide choice between
various insurance products
available and offered in market
2. PRICING TRANSPARENCY FEATURES

-
Pricing transparency should include:
exact amount invested in M/F
investments (analytically)  per year
commissions & various fees  (of ins. company)
analysis of insurance premium
> what part of it exactly covers what risks
> what part of it exactly relates to which benefits
This analysis  NOT ONLY in ins. contract per se
BUT ALSO in the ins. offer document
 ALSO  detailed exact time frame
from premium due date
on which date
 insurance company invests premium
3. IMD II CHANGES – THE REASON
BEHIND THE CHANGES

Problems relating to Packaged Retail Investment Products (PRIPs)

Consumer protection standards
 for sales of insurance PRIPs
- not sufficient at EU level
IMD I  NO special rules
for sales of life insurance products with investment elements
Market evidence  very high number of complaints
regarding the sale of unit-linked insurance products
in many Member States
 deficiencies in sale of products
 deficiencies re costs associated
with such types of investment
3. IMD II CHANGES – THE REASON BEHIND
THE CHANGES
Problems relating to Packaged Retail Investment Products (PRIPs)
 Example
 alleged mis-selling of U/L ins. product (Netherlands)
 this lead to class action law suit
 Complaint  insufficient disclosure of costs
associated with U/L policies
 lead to significant lower results
than those expected by customers
RESULT SOUGHT
Fully transparent / detailed commissions &
Any other bonuses of intermediary (ins. agent–tied & broker)
> declared
4. KEY IMD II PROVISIONS – RENUMERATION
DISCLOSURE
IMD II  new requirements for insurance intermediaries
- to disclose the nature (i.e. fee and/or commission)
basis and amount of remuneration received
Requirement  - in lieu of disclosure on request –
mandatory prior disclosure
of amount of commission
retained by intermediary/paid by the insurer
Very controversial  in the general insurance sector
across many countries
Transitional 5 year period
 mandatory disclosure regime only to life ins. products
Remuneration disclosure for non-life ins. products  “on-request”
BUT customers  to be notified of right to request disclosure

4. KEY IMD II PROVISIONS – RENUMERATION
DISCLOSURE

European Commission
 able to specify further detail
re requirements under delegated acts
Remuneration disclosure requirements
 mitigate conflicts of interest (sellers & buyers of ins. products)
 particularly significant new development
Disclosure required  BOTH BY intermediaries and insurers
BOTH nature and basis of calculation
(also employee remuneration structures)
4. KEY IMD II PROVISIONS – RENUMERATION
DISCLOSURE
IMD II  new requirements ‘bundling’ products
 New requirements
BOTH > insurance undertakings
carrying out direct sales
& intermediaries 
- Insurance undertakings/intermediaries
> offering bundled products
 NEED inform customers
- possible to buy package components separately
 PROVIDE INFO
- costs and charges of each package component
may be bought from/through them separately

4. KEY IMD II PROVISIONS – LIFE INSURANCE
INVESTMENT PRODUCTS
Additional requirements for sale of insurance investment products
> apply to BOTH - insurance undertakings carrying out direct sales
& intermediaries
Requirements :
 Identifying conflicts of interest
 Disclosing them to customers
 Providing appropriate information on
> services, advice, risks of investment strategies,
costs , associated charges
 Obtaining information from customers
> assess suitability and appropriateness of insurance products
 Preparing reports for customers > on services provided to customers

4. KEY IMD II PROVISIONS – LIFE INSURANCE
INVESTMENT PRODUCTS
Remuneration disclosure  also include :

- Nature of intermediaries’ remuneration

- How it is calculated

- Amount
5. PROBLEM

IMD II :  will extend ambit of disclosure obligation
- by increasing - amount of information
required to be disclosed to insured
(not only intermediaries’ remuneration
figures but also their employees’)
Disclosure requirement in IMD II:
 will likely be difficult to implement
 will probably cause confusion for insurers
- given different types of remuneration
that can be agreed by intermediaries.
5. PROBLEM

IMD II  intends to cover BOTH
case of the tied ins. agent & broker
 intends impose on both obligation to
declare & detail commissions

Tied ins. agent
 agent  accessing the potential insured
Customer (i.e. the potential insured)
 does not employ agent
Agent  offers services (no express direct mandate)
5. PROBLEM

Broker  not tied to specific insurance company
Clear mandate from customer to broker exists
Customer approaches broker
 seeking services & prof. advise
in order to choose right insurance scheme & company.
Customer (i.e. the potential insured)  employs broker
Broker  has direct mandate of customer
 chooses from the market the right insurance for him
In this second case  declaration of commission
 understandable and logical
(customer need know what exact commission the broker will get
 BECAUSE broker negotiates this commission)
5. PROBLEM

In the case of tied ins. agent
 agent (i.e. the ins. company via the agent) accessing the potential insured
 no need to pose an extra duty to the tied ins.agent to declare commission
Here  commission is invariable
& set by the company
in terms of is prof. relation with the ties ins.agent.


IMD II  NOT intended to make distinction between ins. agent and broker
> drawback
In addition  practically impossible to expect the ties ins. agent
to have to disclose in details to the customer commission
for one more reason,
i.e. the case of selling of insurance via telemarketing
6. EMPIRICAL RESULTS CONCLUSION



Study on the impact of the revision of the Insurance Mediation Directive (PWC,
23.3.11)
Summary – ‘On request’ disclosure of amount or percentage of remuneration
Summary Rating: Neutral/Negative
Response for Clients:
 Market studies (UK)  effects of remuneration disclosure
 Results  NO evidence of significant benefit for customer
 Majority of respondents  an “on request’’ regime
little or no effect
Remuneration information  may allow clients
deal with potential conflicts of interest
BUT  this  dependent on context and comparability
of information and products
6. EMPIRICAL RESULTS CONCLUSION





Study on the impact of the revision of the Insurance Mediation Directive (PWC, 23.3.11)
Summary – ‘On request’ disclosure of nature and source of remuneration
Summary Rating: Positive for clients and market players
Response of Clients:
- higher transparency  re nature of intermediary‘s remuneration
- clarity  re principal-agent relationship & how this may impact on advice
- discussion of distribution costs > superfluous to transaction & confuses clients
Response of Market Players:
- Implementation of policy  NOT onerous for any distribution channel
- Distribution channels  generally wish promote their market differentiation
(e.g. market independence regarding advice,
or sales without intermediaries)
7. GENERAL CONSLUSIVE
REMARK

Disclosure of remuneration

helps pricing transparency

positive with certain restrictions
AIDA-HILA SUMMIT , ATHENS MAY 2014
WP DISTRIBUTION OF INSURANCE PRODUCTS
8TH MAY 2014 , @ 11:00-13:00 HOURS
TOPIC:
“PRICING TRANSPARENCY IN BUNDLING INSURANCE”.
THANK YOU FOR YOUR ATTENTION !
DR. KYRIAKI NOUSSIA
ATTORNEY AT LAW
NOUSSIA@GMAIL.COM, K.NOUSSIA@LEXARB.COM
noussia@gmail.com, k.noussia@lexarb.com