Ladies and Gentlemen,
It is a great pleasure for me to be here today as your lunch-time speaker. I know it is my role to give you food for thought without causing you acute indigestion – always a challenging task!
Your Association is the leading professional body for insurance and investment brokers in Ireland. I firmly believe that the independent financial advisor has a crucially important role to play in financial services. Consumers need competent and unbiased advice, especially in today's world of expanding choice and the ever increasing complexity of financial products! It is your job to make sure that people take the right decisions and that they understand what they are buying and committing themselves to. This is important when you insure your house or your car but is absolutely crucial when providing for the future and for long years of happy and healthy retirement. These are investment decisions which we all have to take and have to get right. That's why sound professional advice is so important.
Before addressing the subject of the insurance mediation directive, which I know is of great interest to you; I would like to say just a few words on the philosophy underlying my work in Brussels. That philosophy is set out in the Commission's White Paper on financial services policy for the period 2005 to 2010.
White paper on financial services
Our White Paper was the result of a long and thorough consultation process following the successful completion of the Financial Services Action Plan. The motto of our new strategy is "dynamic consolidation". In Brussels jargon that means we are not standing still but are carefully planning and assessing the impact of our future moves.
Our aim is an open and competitive market place – encouraging innovation, creativity and flexibility. This is what we want to deliver over the next few years.
The next four years will see a phase of consolidation, with relatively few new legislative initiatives. The European rules must be effectively translated into national regulation, properly applied and correctly enforced by the supervisory authorities. The rules we have adopted have to be allowed to settle down and show us how they can work in practice. If they don't work properly the necessary adjustments can then be made.
Certainly we will need to finish the legislative job in a number of areas – Solvency II, for instance, on which I will say a few words in a minute, and the work aimed at creating a true internal market for payments.
As regards retail financial services, we would like to see more cross-frontier retail business across the financial services sector, including in insurance where we hope that the Insurance Mediation Directive might serve as a catalyst. Nonetheless we are aware of a number of factors still inhibiting retail business in the internal market and want to look at these in due course.
I stress again that the "better regulation" agenda will be fully respected in every case – with in-depth consultation and evaluation as key-elements.
Solvency II
In the insurance field our current top priority is Solvency II. The ambition is nothing less than to bring about a fundamental revision of insurance regulation and supervision in the European Union.
Insurance supervision has one basic goal: to provide consumers with sufficient protection and ensure that insurers remain solvent and are able to meet their future commitments. This means that insurers are required to comply with high solvency standards, including capital requirements. But for the insurance industry, capital is a cost factor, which insurers naturally want to fix at the lowest possible level.
Solvency II has the challenging job of achieving a balance between the expectations of consumers, supervisors and insurers. It is crucial that the industry should not lose its appetite for risk because of excessive supervisory obligations. But it is also important that companies are fully aware of the risks they are taking on and accept the corresponding consequences. Within the Solvency II framework, solvency requirements will be based on the company’s risk-profile. An insurer that better controls its risks may then be permitted to hold less capital.
We intend to adopt the proposal for a Directive in July 2007 and a new framework should be applied by the companies from the beginning of the next decade.
Harmonisation and better regulation
Generally, one of the objectives of European legislation is to achieve some degree of harmonisation between national legislation. I am not a great fan of harmonisation as such but sometimes it is needed in order to ensure a level playing-field and the free flow of insurance products. An increased level of harmonisation will be needed in Solvency II to make sure that all insurance undertakings are operating according to the same rules across the single market.
But when I talk about harmonisation, I mean genuine harmonisation. I don't want to see national regulators adding whole chapters of their own regulations into the European rulebook. I want to see Member States transposing EU Directives in a way that does not add thick layers of gold plating and load additional costs onto those who have to apply the regulations in their day to day business.
I strongly believe that we should avoid over-regulating business. Otherwise the competitiveness of companies will be hampered. Indeed, small businesses may be driven out of business altogether. I insist on finding an appropriate balance between the necessary regulation and the need for companies to remain competitive and profitable.
Insurance mediation
Let me now turn to the insurance mediation directive (the IMD) which was adopted in 2002. Insurance intermediaries play a central role in the distribution and selling of insurance products. The objectives of this Directive were clear:
- We wanted to introduce a single passport, just as we have done for insurance companies and reinsurers. The single passport means registration by the home Member State which will then inform the host Member State of the intention of the intermediary to offer his services cross-border or to establish a branch operation.
- The second objective was to have consumer protection measures agreed at European level. Accordingly, intermediaries must satisfy certain professional requirements and consumers must receive specific information before they actually conclude a contract. Moreover, the Directive obliges Member States to set up complaints procedures and ensure that in all cases consumers receive a reply if they complain about intermediaries. I would note in passing that the treatment of complaints and the home/host division of responsibilities are at the heart of the European Parliament's concerns in its examination of the near collapse of Equitable Life.
- Another objective was to establish good cooperation between the competent authorities of the home and host Member States. We are now well on the way to achieving that and a protocol of cooperation has been concluded in CEIOPS (the Committee of European Insurance and Occupational Pension Supervisors). The text basically describes how the competent authorities intend to co-operate to make the directive work in practice.
A number of questions have been raised concerning the interpretation of the provisions of the IMD. For example, one problem has been to determine what is the triggering element for the cross-border delivery of services. There is also the relationship between the IMD and MiFID. We need to establish a reasonable relationship at national level so that intermediaries who offer investment services and those who provide insurance services are not subject to an excessive burden of rules and regulation.
What is the state of implementation of the IMD? I am pleased to say that the situation has now improved considerably. Only one Member State (Germany) has still to implement and we hope this will be achieved by the end of the year. The Commission has sent to all the other Member States a letter asking for further information and clarifications. One of these letters was also sent to Ireland and we are closely monitoring compliance with the Directive in this country. We have received information from the Irish authorities that a new revised Regulation on insurance mediation is just about to be signed and enter into force.
Let us now look at the future. I think the implementation of the IMD has brought to light a number of practical problems. Look at the situation in Germany, where potentially some 500,000 intermediaries have to be registered and this is done on a local basis.
In another Member State, eight pages in the Official Journal of the EU were transformed into some hundred pages of local rules. Clearly, there are some issues that need to be looked at. However, the Commission cannot carry out an evaluation that makes any real sense unless all Member States have implemented the IMD and we have allowed some time for practical experience to be acquired. We systematically plan evaluations of all the European legislation that has been adopted. So, this Directive will also be the subject of an evaluation in due course.
CEIOPS has already announced that its Working Party will continue to function and one of the things they will want to look at is how this Directive can possibly be improved in the future. I invite you to do the same on the basis of your experience. We plan to produce a report during the course of next year on the practical implementation of the Directive after having had discussions with the experts in CEIOPS and the Member States. The input of the profession will also be welcomed and, as always, we value the input from our friends in BIPAR. Our evaluation of the Directive could lead to an improvement of the text at a later stage, if this is shown to be necessary.
To conclude, let me emphasize that the Commission always welcomes the input and opinions of the stakeholders most directly concerned by European legislation, even if critical. Don't hold back. Give us the benefit of your experience, views and criticism! Only in this way will we be able to give the industry and the intermediaries the single market that they want and need!
Thank you for your attention.
