Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on insurance mediation

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. General aspects

The Financial Services Action Plan [1], endorsed by the Cologne European Council in June 1999, underlines the urgent need to establish a truly integrated retail market in which the interests of customers and suppliers are properly protected. The document identifies insurance intermediaries as an area where priority action is required. A clear, common approach to the rules on intermediaries is essential in order to guarantee freedom of cross-border insurance services and to maintain protection of insurance customers at a high level.

[1] COM(1999) 232, 11.5.1999.

The Action Plan thus provides for the modernisation of the binding Community rules on insurance intermediaries, which have not been updated since they were adopted in 1976. It announces that by mid-2000 the Commission is to adopt a proposal for a Directive which should be adopted by the European Parliament and the Council by 2002.

The Lisbon European Council of 23 and 24 March 2000 placed strong emphasis on the need to integrate financial services and markets within the Union. A single financial market will be a key factor in promoting the competitiveness of the European economy, the development of the new economy and social cohesion. That is why the Heads of State and Government called for the Financial Services Action Plan to be implemented by 2005.

In its Communication of 3 May 2000 [2], the Commission pledged to take appropriate measures to follow up the conclusions of the Lisbon European Council. The full implementation of the Action Plan by 2005 is a major priority if financial markets are to become more effective and financial undertakings more competitive.

[2] COM (2000) 257 final, 3.5.2000.

1.1. The need for a Community legal framework for insurance intermediaries

Insurance intermediaries are an essential link in the sale of insurance in the Community. As shown in the table below, the market share held by intermediaries in the distribution of insurance is over 50% in many Member States.

Market shares of the various insurance distribution channels in some countries of the European Union (%)

>TABLE POSITION>

Source: BIPAR

Insurance intermediaries also play an important role in protecting the interests of customers, not only through the distribution of insurance sold by different insurance undertakings within the Community but especially through advising and assisting customers with an analysis of their specific needs. Their importance is likely to increase, partly because of the keener competition brought about by the establishment of the internal market and partly because of the greater complexity of insurance policies sold within it. Given the central role of intermediaries in the distribution of often complex financial products, it is vital to prevent as far as possible negligence or professional misconduct which could affect customers.The internal market in insurance has been completed for the most part as far as insurance undertakings are concerned. Since July 1994, thanks to the system set in place by the Third Directives [3], each insurance undertaking is subject to a single regime of official authorisation and prudential supervision by the Member State in which it has its registered office. This "European passport" allows it to carry on business throughout the Community, either by way of establishment or by way of freedom to provide services. This system has led to an increase in business, particularly in transactions relating to large industrial and commercial risks. The impact of this expansion has, however, been less marked in the case of insurance for private individuals, partly because there is no European legal framework for insurance intermediaries allowing them to take full advantage of the fundamental freedoms, i.e. freedom of establishment and freedom to provide services in the internal market. Intermediaries are thus, very often, quite unable to meet the demands of customers who wish to insure a risk in another Member State.

[3] Directive 92/49/EEC (Third Non-Life Directive), OJ L 228, 11.8.1992, p. 1.

The current Community provisions relating to intermediaries (Directive 77/92/EEC [4] and Recommendation 92/48/EEC) [5] have certainly helped to bring national laws closer together. Nevertheless, insurance intermediaries are still subject to different national legal requirements, which isolate national markets and hinder cross-border business.

[4] OJ L 26, 31.1.1977, p. 14.

[5] OJ L 19, 28.1.1992, p. 32.

According to the professional association of insurance intermediaries (BIPAR), several obstacles prevent intermediaries from meeting the demands of customers living in another Member State, especially in the case of private individuals. BIPAR draws particular attention to:

- the uncertainties surrounding the European legislation applicable to insurance intermediaries;

- the need to comply both with the legal requirements of several different countries in cases where transactions have a cross-border element (this may mean having to register in the host country and, in order to do so, having to satisfy a number of national requirements [6] concerning coverage of professional liability, financial capacity, etc.);

[6] In some cases, failure to comply with the requirements is an offence subject to criminal prosecution.

- the lack of clear definition of the obligations of intermediaries when they do business in another Member State (problems are likely to arise in particular where intermediaries have to comply with a number of "general good" requirements which are not clearly defined or where it has to be established at what point an intermediary becomes subject to the laws of the host country).

The number of cross-border activities carried out by insurance intermediaries is consequently still very limited, in particular with regard to business with individual customers. This affects insurance undertakings, which experience difficulties in gaining access to the various national markets by way of freedom to provide services and in acquiring appropriate distribution networks in the various Member States. The isolation of markets deprives insurance customers (firms and individual customers) of access to a broader range of insurance products which would enable them to obtain the best cover for their needs. Customers are also denied the advantages which would derive from greater competition between intermediaries.

The objective of achieving a genuine internal market in this sector is therefore seriously compromised.

1.2. The objectives of the proposal for a Directive

The proposal for a directive establishes a legislative framework designed to ensure a high level of professionalism and competence among insurance intermediaries. A single registration system for intermediaries will facilitate cross-border activities by way of freedom of establishment and freedom to provide services. The proposal also guarantees a high level of protection of customers' interests.

The proposal focuses on the objectives which should be attained in order to reconcile insurance mediation with the internal market while properly protecting insurance customers. It was decided, however, not to attempt to harmonise too closely the methods the national authorities must employ in order to achieve those objectives. Intermediaries supply the products of companies which are already subject to close supervision throughout the Union. Furthermore, those companies must use the services only of those intermediaries who comply with the provisions of the Directive. The Commission considers that, under these circumstances, it is better to rely as much as possible on mutual recognition among the Member States rather than try to harmonise in detail the methods of control actually used.

For some years now, insurance companies, intermediaries themselves, customers and several Member States have been pressing for the establishment of a European legal framework for insurance intermediaries [7]. In its Resolution on the Financial Services Action Plan, the European Parliament took the view that an overhaul of Community rules was of the utmost importance [8].

[7] See Commission Communication entitled "Financial services: enhancing customer confidence" (COM(97) 309 final, 26.6.1997).

[8] Resolution A5-0059/2000, point 11.

At present, only Directive 77/92/EEC [9] contains binding provisions on insurance intermediaries. However, its scope is limited since it does not harmonise the professional qualifications required of persons working as agents or brokers. It simply establishes a number of transitional measures designed to facilitate the free movement of such agents and brokers in the Community. These measures will no longer be necessary once more detailed Community rules have been adopted.

[9] OJ L 26, 31.1.1977, p. 14.

The Directive does not prevent the Member States from laying down specific provisions on access to and pursuit of these activities, or indeed from not doing so, and in fact the Member States have adopted widely differing rules. Such differences isolate national markets, preventing people from pursuing this kind of business by availing themselves of the freedom of establishment and the freedom to provide services. They also make for a lack of transparency with regard to the status and professional qualifications of insurance intermediaries, which does not help to guarantee a high level of customer protection.

A first step towards resolving these problems and bringing national rules closer together was taken with Commission Recommendation 92/48/EEC of 18 December 1991 [10]. It was felt at the time that a recommendation could help to guarantee the equivalence of national rules on insurance mediation, without binding coordination measures having to be adopted. In its Recommendation, the Commission calls on the Member States to ensure that insurance intermediaries established within their territory are subject to professional requirements and registration. Basically, the Recommendation calls on the Member States to adopt national rules requiring that insurance intermediaries have general, commercial and professional knowledge and ability; that they have professional indemnity insurance or an equivalent guarantee; that they be of good repute; that they have not previously been declared bankrupt and, in the case of brokers, that they have sufficient financial capacity. Finally, the Recommendation provides for the registration of insurance intermediaries in their home Member State and the adoption of appropriate sanctions and measures against any person acting as an insurance intermediary without being registered as such. Only registered persons must be allowed to take up and pursue the activity of insurance intermediary and, in order to ensure that the registration requirement is met, appropriate sanctions and measures must be in place.

[10] OJ L 19, 28.1.1992, p. 32.

The measures advocated in the Recommendation aim to improve the protection of customers where they acquire insurance products and services via an intermediary. Professional indemnity insurance means that a customer who is the victim of negligence on the part of an intermediary is able to obtain compensation. Similarly, if brokers are required to have a certain financial capacity, the customer has extra protection against bankruptcy on the part of the broker. If there were no such requirement, premiums paid to the broker but not yet forwarded to the insurer could be lost. It is also clear that a system of registration, effective sanctions and an appropriate programme of professional training can only strengthen customer confidence in the competence and integrity of the intermediary.

Most Member States have adopted measures based on the Recommendation. However, national rules, where they exist [11], are still different. The effect of these disparities is to create needless barriers to market entry, in particular for sales by way of the freedom to provide services, and to fragment the single market. If the single market in insurance is to offer better guarantees of customer protection, customers must enjoy at least some level of protection for each transaction, irrespective of the intermediary and the Member State he is located in. The Commission believes that only measures adopted at Community level will remove the existing differences and establish an internal market for insurance intermediaries.

[11] At present, only Germany has not yet adopted specific provisions concerning the activities of insurance intermediaries.

When it adopted its Recommendation, the Commission also said that it reserved the right to propose a binding Directive in the future if such coordination measures were necessary to remove any remaining obstacles to market access or to introduce new guarantees aimed at protecting customers.

1.3. Content of the proposal for a Directive

The aim of the proposal for a Directive may be summed up as follows: to guarantee that all persons (natural or legal) taking up and pursuing the activity of insurance or reinsurance mediation have been registered on the basis of a minimum set of professional requirements. Registered intermediaries will be able to operate in other Member States by availing themselves of the freedom to provide services or by establishing a branch. Member States may add to the professional requirements laid down in the Directive, but only for the intermediaries that they register. The proposal also sets minimum requirements as regards the arrangements for, and content of, the information which insurance intermediaries must make available to their potential customers (this does not concern reinsurance intermediaries or insurance intermediaries where they are covering industrial and commercial risks).

The proposal for a Directive is based on the approach already put forward by the Commission in Recommendation 92/48/EEC and takes up the principles outlined there. The Commission believes that this approach will make it possible to achieve the objectives pursued by means of measures tailored to those objectives.

The proposal for a Directive is based on the following principles:

(i) All insurance intermediaries operating in the Community must be registered by a competent authority (Article 3). Registration of an insurance intermediary is subject to fulfilment of the following professional requirements:

(a) insurance intermediaries must possess appropriate general, commercial and professional knowledge and ability;

(b) they must have professional indemnity insurance or another comparable guarantee against liability arising from professional negligence;

(c) intermediaries who handle customers' monies must have sufficient financial capacity;

(d) intermediaries must be of good repute and must not have been declared bankrupt.

(ii) Registered intermediaries will be allowed to take up and pursue their activities anywhere in the Community by availing themselves of the freedom of establishment or the freedom to provide services, under the supervision of the authorities of their home Member State.

(iii) Insurance intermediaries must comply with the requirements laid down in the proposal as regards the information to be given to customers.

1.4. Consultations with interested parties

The present proposal was the subject of detailed consultation with experts from the Member States and organisations representing the parties concerned. These included insurers (the European Insurance Committee - EIC - and the Association of European Cooperative Insurers - AECI), intermediaries (the International Association of Insurance and Reinsurance Intermediaries - BIPAR), and the European Bureau of Consumers' Unions (BEUC). These organisations welcome the idea of a proposal for a Directive to regulate insurance intermediaries at European level and they approve of the main principles of the proposal.

2. Comments on the articles

Article 1 - Scope

The proposal covers all insurance intermediaries established in the Community, whether natural or legal persons.

All insurance or reinsurance intermediaries in the Community are subject to the provisions of the proposal for a Directive as regards the rules on registration and professional requirements (Articles 3 and 4). They may thus take advantage of the freedom of establishment and the freedom to provide services.

The provisions on the information to be provided by intermediaries to customers (Chapter III) apply only to insurance intermediaries dealing with customers who do not require cover for large industrial and commercial risks [12]. Nor do they apply to reinsurance intermediaries, who deal only with professionals (insurance and reinsurance undertakings). Less protection would appear to be necessary for transactions between undertakings.

[12] The concept of "large risks" was established by the Second Council Directive 88/357/EEC on non-life insurance. It covers:

The proposal allows Member States not to apply the provisions on professional requirements (Chapter II) or the rules on information to be provided (Chapter III) to persons providing insurance which does not require general or specific knowledge of insurance and which covers risks linked to the products or services they sell or provide as part of their principal commercial activity, provided that it is other than life insurance and does not cover any liability risks, that the amount of the premium does not exceed EUR 1 000 and that the principal activity of the person is not insurance mediation. This is aimed mainly at insurance contracts covering loss or damage to items such as spectacles and certain household electrical appliances and contracts providing guarantees of tourist assistance sold by travel agencies.

During the preparatory work, it was suggested that the scope of the Directive should be limited to insurance intermediaries with a certain level of activity (for example, a certain annual volume of premiums collected). This possibility did not meet with the agreement of the parties concerned. In order effectively to safeguard the interests of customers, it is preferable that the Directive should cover all insurance intermediaries. BIPAR and BEUC are very much opposed to excluding intermediaries who fall below a certain threshold of activity and stress that, very often, it is precisely those "small" intermediaries which can pose problems for the protection of insurance customers.

An alternative possibility of restricting the scope of the Directive to intermediaries who wished to operate in the internal market was also explored. This was also opposed by most Member States and the professional organisations, who felt that the protection offered to customers, particularly with regard to the requirements concerning professional competence, financial capacity and professional indemnity cover, would be different depending on whether the intermediary had his registered office in their Member State or was operating by way of freedom of establishment or freedom to provide services. Such a limitation would also be difficult to square with the idea of a true single market since it would allow national frontiers to be maintained from an economic and legislative point of view.

Article 2 - Definitions

The definitions of "insurance undertaking", "reinsurance undertaking", "large risks", "competent authorities" and "parent undertaking" refer to definitions already used in other insurance Directives, in particular the Third Directives 92/49/EEC and 92/96/EEC, and Directive 98/78/EC.

For the concepts of "insurance mediation", "reinsurance mediation", "insurance intermediary" and "reinsurance intermediary" functional definitions are proposed. This makes it possible to capture the various different categories of intermediary (broker, agent, sub-agent) while encompassing other distribution channels such as "bancassurance" and chain stores.

It does not appear possible to make a clear distinction between agents and brokers in all Member States. Often intermediaries act as agents for certain types of risk and as brokers for other risks. For this reason, the distinction is not drawn in the proposal. The important thing for the customer is to know, for each risk, whether he is dealing with an intermediary who works for a limited number of undertakings or with a person who is able to give advice based on a broad and impartial analysis of the market. Article 10 seeks ensure that the customer has a clear understanding in this respect.

The activities falling within the scope of the Directive are activities performed for remuneration, i.e. in a professional capacity.

The types of insurance advice covered by the proposal are those given in the context of insurance mediation and not those given in the context of another professional activity ancillary to a principal activity other than insurance mediation (e.g. accountant, tax consultant). The advice must be given for the purpose of assisting the customer in concluding an insurance contract or with a view to the management or implementation of an insurance contract.

Article 3 - Registration

Under the provisions of this Article, all insurance and reinsurance intermediaries falling within the scope of the Directive must be registered.

A registration system was preferred to a system of official authorisation of each intermediary because of the practical difficulties this would entail. In some Member States there are tens of thousands of insurance intermediaries. It would therefore be very difficult for those countries to set up an authorisation system without committing considerable financial resources - which would probably be disproportionate to the objectives being pursued. Forms of self-regulation, particularly in relations between insurance undertakings and intermediaries, also help to maintain a high level of security, competence and good repute within the profession.

The intermediary must be entered in the register designated by the competent authorities of his home Member State. Registration takes place in the case of a legal person in the Member State in which the registered office is located and in the case of a natural person in the Member State where he has his central administration. In the case of a legal person, the registered office must be in the same Member State as the central administration. The purpose of this requirement, common to all Community legislation on financial services, is to prevent insurance intermediaries from opting for the legal system of another Member State in order to avoid stricter rules in the Member State in which they are actually established. It also brings the competent authorities closer to the insurance intermediaries and enables them effectively to supervise compliance with professional regulations.

Registration is subject to compliance with the professional requirements laid down in Article 4. If an intermediary no longer fulfils these requirements, he must be removed from the register and may no longer carry on mediation business.

Only intermediaries who have been registered may carry on that business and insurance undertakings may use the services only of registered intermediaries or the persons referred to in Article 1(2) (Article 3(5)). Article 7 instructs Member States to provide for appropriate sanctions in the event of a person carrying on the business of insurance or reinsurance mediation without being registered in a Member State. Sanctions must also apply to insurance undertakings that use the insurance or reinsurance mediation services of persons who are not registered in a Member State.

The proposal does not oblige Member States to establish one central register. It simply provides that registers be under the control of a competent authority, which may be a public authority, a body recognised by national law or by public authorities expressly empowered for that purpose by national law (see Article 6). The proposal takes up the suggestions of Recommendation 92/48/EEC (Article 5), which does not provide for the establishment by Member States of a single register either but allows the possibility of establishing different registers for dependent and independent insurance intermediaries and which stipulates that registers may be administered by the public authorities or by other competent bodies (e.g. professional organisations) recognised by a Member State.

Registration allows the intermediary to take up and pursue the activity of insurance mediation anywhere in the Community, by way of freedom of establishment and freedom to provide services. The requirements of the home Member State are recognised by all the other Member States of the Community. In this way, the intermediary no longer has to meet the professional requirements laid down by host Member States. Article 5 lays down the procedure for opening branches or carrying on business by way of freedom to provide services.

Article 4 - Professional requirements

This Article lays down the conditions which all insurance and reinsurance intermediaries must satisfy in order to be registered:

1. Possession of appropriate general, commercial and professional knowledge and ability

In line with Recommendation 92/48/EEC, the proposal for a Directive requires that insurance and reinsurance intermediaries possess appropriate general, commercial and professional knowledge and ability. Knowledge must be tailored to the functions and activities carried on by the intermediary and to the markets in which he operates. Professional knowledge must also be updated regularly. The Member States must decide and lay down the level and content of such knowledge, which must in any case be sufficiently high to ensure an appropriate level of professional competence.

Where the intermediary is a legal person, the management of the undertaking must include an appropriate number of persons who fulfil this requirement.

The requirement does not apply to all the staff of an insurance or reinsurance mediation undertaking. Only those directly involved in mediation must possess the relevant knowledge.

Member States need not require that natural persons acting as insurance intermediaries on an occasional basis possess the appropriate general, commercial and professional knowledge and ability referred to in the first subparagraph, provided that:

- insurance mediation is not their principal professional activity or the main source of their professional income,

- an insurance intermediary who fulfils the requirements laid down in the Directive or an insurance undertaking takes on full responsibility for the person's actions and also gives him appropriate and relevant basic training.

This covers in some Member States mediation carried out by certain persons on an occasional and ancillary basis. Application of all the provisions of the Directive would have put an end to their activities. This would be disproportionate to the objectives of the proposal. However, the proposal does stipulate that such persons should be given appropriate and relevant basic training by the undertaking which uses their services. Furthermore, they are strictly subject to the supervision of the insurance undertaking or intermediary for whom they operate and who take full responsibility for their actions.

2. Good repute

Intermediaries are required to hold personal and confidential information on the private life of their customers. A relationship of mutual trust is thus essential. In the field of life assurance, for example, they help policyholders to take important financial decisions. For these reasons, insurance intermediaries must be persons of good repute and must not have previously been declared bankrupt.

3. Professional indemnity insurance or comparable guarantee

The purpose of this requirement is to guarantee that any person affected by the professional misconduct or negligence of an insurance intermediary is able to obtain compensation. A minimum level of cover of EUR 1 000 000 per claim is stipulated, in order to guarantee comparable conditions for all intermediaries in the Community.

The intermediary does not have to take out professional indemnity insurance if it is already provided for by an insurance or reinsurance undertaking on behalf of which he is acting or for which he is empowered to act.

4. Financial capacity

In many cases intermediaries are required to handle monies, either on behalf of the customer or on behalf of the insurance undertaking. In order to guarantee protection of customers' financial interests, all intermediaries who handle customers' monies must have sufficient financial capacity. The proposal provides for four possible ways of providing such protection which take account of the systems in place in the Member States:

(i) provisions laid down by law whereby monies paid by the customer to the intermediary are treated as having been paid to the undertaking, whereas monies paid by the undertaking to the intermediary are not treated as having been paid to the customer until the customer actually receives them;

(ii) a requirement for insurance and reinsurance intermediaries to have financial capacity amounting, on a permanent basis, to 8% of their annual net revenue, with a minimum amount of EUR 15 000;

(iii) a requirement that customers' monies be transferred via strictly segregated client accounts and that these accounts must not be used to reimburse other creditors in the event of bankruptcy;

(iv) a requirement that a guarantee fund be set up.

In line with other texts adopted in the field of insurance, in particular the Third Directives on non-life insurance (Directive 92/49/EEC) and life insurance (Directive 92/96/EEC), Member States may adopt stricter rules with regard to their own insurance intermediaries.

Article 5 - Opening of branches and operation under freedom to provide services by insurance and reinsurance intermediaries

This Article establishes the procedure to be followed by a registered intermediary wishing to open a branch or to carry on business by way of freedom to provide services in a Member State other than his own. It consists of prior notification of the competent authorities of the host Member State before starting business and is based on the procedures laid down for insurance undertakings in the Third Directives 92/49/EEC and 92/96/EEC.

The procedure could be modernised: the content of registers and the rules to protect the interest of the general good could be published on the website of each competent authority. Any intermediary wishing to operate in a Member State other than his own would write to the competent authority of that country. He would consult the general good rules on the authority's website. The host-country authority would check that the intermediary was in fact registered by consulting the website of the home-country authority. In the absence of any written objection by the host country, the intermediary could start business one month after sending his written notification.

This procedure will have to be discussed in detail by the Commission together with the Member States.

Article 6 - Competent authorities

The Member States must designate the competent authorities empowered to oversee application of the Directive. They may designate public authorities or bodies recognised by national law or by public authorities expressly empowered for that purpose by national law.

This Article is based essentially on Directive 93/22/EEC on investment services in the securities field [13] (Article 22). At all events, the competent authorities designated must have all the powers necessary for the performance of their functions.

[13] OJ L 141, 11.6.1993, p. 27.

Article 7 - Sanctions

The Member States must be able to adopt appropriate sanctions or measures against insurance or reinsurance intermediaries and insurance or reinsurance undertakings which fail to comply with the provisions of the proposal. Such sanctions are essential in order to guarantee application of the system established by the proposal.

The competent authorities are called on to cooperate and share information. They are bound by the rules of confidentiality and professional secrecy in the same manner as laid down in the Third Directives 92/49/EEC (Article 16) and 92/96/EEC (Article 15).

Article 8 - Complaints

This Article provides that Member States are to establish a facility for consumer complaints in the field of insurance mediation.

Article 9 - Out-of-court redress

The Financial Services Action Plan provides for the adoption of effective judicial and extrajudicial mechanisms for settling disputes between customers and financial institutions. The setting up of such mechanisms is essential to establish confidence in cross-border business and to facilitate the development of the internal market.

The purpose of this Article is to ensure that customers have access to out-of-court procedures in order to settle differences with insurance intermediaries. In accordance with the Action Plan, the proposal stipulates that Member States must encourage the use of such procedures for the settlement of cross-border disputes, which means closer cooperation between the bodies concerned.

Articles 10 and 11 - Information provided by the insurance intermediary

The purpose of this section is to lay down information requirements which will ensure a high level of protection of customers who use insurance services.

Article 10 stipulates the type of information which every insurance intermediary must provide to the customer with whom he comes into contact, prior to the conclusion of a contract. He must disclose his identity and address, his links, whether direct or indirect, with insurance or reinsurance undertakings, any contractual obligation to do business with one or more insurance undertakings, and the names of those undertakings. The intermediary must also state who is liable in the event of negligence, misconduct or inappropriate advice by the intermediary, whether he advises customers on insurance cover from a broad range of insurance undertakings or whether his business is limited to dealing with a fixed number of insurance undertakings.

If the intermediary declares that he gives advice on insurance from a broad range of insurance undertakings, he must base his advice on an impartial and sufficiently broad analysis of insurance contracts available on the market, in order to enable him to recommend the insurance contract appropriate to the customer's needs. If it later emerges that the analysis did not meet these requirements, the customer may take action against the intermediary. Such a mechanism may justify a relatively high level of professional indemnity cover (see Article 4).

Finally, intermediaries must - at least - set down in writing the needs and demands of the customer and clarification of the reasons which underpin their advice.

Article 11 sets out the arrangements for presenting the information. Generally speaking, it should be given on paper or on another durable medium available and accessible to the customer. It should be clear and accurate and in an official language of the Member State of the commitment or in a language agreed upon by the contracting parties. Most of the information may be presented on a standard form, which will limit the costs of these requirements. Finally, where the customer asks for immediate cover, the information may be given orally.

Articles 12 to 15

Article 12 repeals Directive 77/92/EEC. Once the Directive is adopted, there will be only one Community instrument applicable to insurance and reinsurance intermediaries. Community rules will be clearer and more consistent, to the benefit of both operators and customers.

Articles 13, 14 and 15 contain provisions regarding the addressees of the Directive, the date for transposal and implementation by the Member States and the date of entry into force.

2000/0213 (COD)

Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on insurance mediation

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Articles 47(2) and 55 thereof,

Having regard to the proposal from the Commission [14],

[14] OJ C

Having regard to the opinion of the Economic and Social Committee [15],

[15] OJ C

Acting in accordance with the procedure laid down in Article 251 of the Treaty [16],

[16] OJ C

Whereas:

(1) Insurance and reinsurance intermediaries play a central role in the distribution of insurance and reinsurance products in the Community.

(2) A first step was made with Council Directive 77/92/EEC [17] to facilitate the exercise of freedom of establishment and freedom to provide services for insurance agents and brokers.

[17] OJ L 26, 31.1.1977, p. 14; Directive as last amended by the Act of Accession of Austria, Finland and Sweden.

(3) Directive 77/92/EEC was to remain applicable until the entry into force of provisions coordinating national rules concerning the taking-up and pursuit of the activities of insurance agents and brokers.

(4) Commission Recommendation 92/48/EEC of 18 December 1991 on insurance intermediaries [18] was largely followed by Member States and helped to bring closer together national provisions on the professional requirements and registration of insurance intermediaries.

[18] OJ L 19, 28.1.1992, p. 32.

(5) However, there are still substantial differences between national provisions that create barriers to the taking-up and pursuit of the activities of insurance and reinsurance intermediaries in the internal market. It is therefore appropriate to replace Directive 77/92/EEC and Recommendation 92/48/EEC with a new directive.

(6) Insurance and reinsurance intermediaries should be able to avail themselves of the freedom of establishment and the freedom to provide services which are enshrined in the Treaty.

(7) The inability of insurance intermediaries to operate freely throughout the Community hinders the proper functioning of the single market in insurance.

(8) The coordination of national provisions on professional requirements and registration of persons taking up and pursuing the activity of insurance mediation can therefore contribute both to the completion of the single market for financial services and to the enhancement of customer protection in this field.

(9) Various types of persons or institutions, such as agents, brokers and "bancassurance" operators, can distribute insurance products. Equality of treatment between operators and customer protection requires that all these persons or institutions be covered by this Directive.

(10) This Directive should cover persons whose normal business is to provide third parties with insurance mediation services on a professional basis. Its scope should not therefore cover any person with a different professional activity, such as a tax expert or an accountant, who provides advice on insurance cover on an incidental basis in the course of that other professional activity.

(11) Member States should have the option of not applying this Directive to persons practising insurance mediation as an ancillary activity. However, in the interests of customer protection, this option should be strictly limited.

(12) Insurance and reinsurance intermediaries should be registered by the competent authority of the Member State where they have their head office, provided that they meet strict professional requirements in relation to their competence, good repute, professional indemnity cover and financial capacity;

(13) Such registration should allow insurance and reinsurance intermediaries to operate in other Member States under freedom of establishment and freedom to provide services, provided that an appropriate notification procedure has been followed between the competent authorities;

(14) Appropriate sanctions are needed against persons exercising the activity of insurance or reinsurance mediation without being registered against insurance or reinsurance undertakings using the services of unregistered intermediaries, and against intermediaries not complying with national provisions adopted pursuant to this Directive.

(15) Cooperation and exchange of information between competent authorities are essential in order to protect customers and ensure the soundness of insurance and reinsurance business in the single market.

(16) It is essential for the customer to know whether he is dealing with an intermediary who is advising him on products from a broad range of insurance undertakings or on products provided by a specific number of insurance undertakings.

(17) If the intermediary declares that he is giving advice on products from a broad range of insurance undertakings, he should carry out a fair and sufficiently wide-ranging analysis of the products available on the market. In addition, all intermediaries should explain the reasons underpinning their advice.

(18) There is less of a need to require that such information be disclosed when the customer is a company seeking reinsurance or insurance cover for commercial and industrial risks.

(19) There is a need for suitable and effective complaint and redress procedures in the Member States in order to settle disputes between insurance intermediaries and customers, using, where appropriate, existing procedures.

(20) Without prejudice to the right of customers to bring their action before the courts, Member States should encourage public or private bodies established with a view to settling out-of-court disputes to cooperate in resolving cross-border disputes. Such cooperation could for example allow customers to contact extra-judicial bodies in their country of residence about complaints concerning insurance intermediaries established in other Member States,

HAVE ADOPTED THIS DIRECTIVE:

CHAPTER I: SCOPE AND DEFINITIONS

Article 1

Scope

1. This Directive lays down rules for the taking-up and pursuit of the activities of insurance and reinsurance mediation.

2. Member States need not apply the provisions of this Directive to persons providing insurance contracts if all the following conditions are met:

(a) the contracts do not require general or specific knowledge of insurance;

(b) the contracts are not life insurance contracts;

(c) the insurance does not cover any liability risks;

(d) the principal professional activity of the person is other than insurance mediation;

(e) the insurance is ancillary to the good or service supplied, in particular where such insurance covers either the risk of breakdown, loss of or damage to goods supplied by that person or an indemnification of goods linked to the travel booked with that person;

(f) the amount of the premium does not exceed EUR 1 000 and the duration of the insurance contract is less than a year.

Article 2

Definitions

For the purposes of this Directive:

(1) "insurance undertaking" means an undertaking which has received official authorisation in accordance with Article 6 of Council Directive 73/239/EEC [19] or Article 6 of Council Directive 79/267/EEC [20];

[19] OJ L 228, 16.8.1973, p. 3.

[20] OJ L 63, 13.3.1979, p. 1.

(2) "reinsurance undertaking" shall be as defined by Article 1(c) of Directive 98/78/EC of the European Parliament and the Council [21];

[21] OJ L 330, 5.12.1998, p. 1.

(3) "insurance mediation" means the activities of introducing, giving information, proposing or carrying out work preparatory to the conclusion of, or in concluding, contracts of insurance, or assisting in the administration and performance of such contracts, in particular in the event of a claim;

(4) "reinsurance mediation" means the activities of introducing, giving information, proposing or carrying out work preparatory to the conclusion of, or in concluding, contracts of reinsurance, or assisting in the administration and performance of such contracts, in particular in the event of a claim;

(5) "insurance intermediary" means any person who, for remuneration, takes up or pursues insurance mediation and associated advisory services, except an insurance undertaking or an employee of an insurance undertaking when the employee is acting under the responsibility of that insurance undertaking;

(6) "reinsurance intermediary" means any person who, for remuneration, takes up or pursues reinsurance mediation and associated advisory services, except a reinsurance undertaking or an employee of a reinsurance undertaking when the employee is acting under the responsibility of that reinsurance undertaking;

(7) "large risks" shall be as defined by Article 5(d) of Directive 73/239/EEC;

(8) "home Member State" means:

(a) where the intermediary is a natural person, the Member State in which his residence is situated and in which he carries on business;

(b) where the intermediary is a legal person, the Member State in which its registered office is situated or, if under its national law it has no registered office, the Member State in which its head office is situated;

(9) "competent authorities" means the authorities which each Member State designates under Article 6;

(10) "durable medium" means any instrument which enables the customer to store information addressed personally to him in a manner accessible for future reference for a period of time appropriate to the purposes of the information and which allows the unchanged reproduction of the information stored.

CHAPTER II: REGISTRATION REQUIREMENTS

Article 3

Registration

1. Insurance and reinsurance intermediaries shall be registered by a competent authority as defined in Article 6(2), in their home Member State.

2. Without prejudice to the third subparagraph of Article 4(1), Member States shall ensure that registration of insurance and reinsurance intermediaries is made subject to the fulfilment of the professional requirements laid down in Article 4.

3. Registered insurance and reinsurance intermediaries shall be allowed to take up and pursue the activity of insurance and reinsurance mediation in the Community by means of both freedom of establishment and freedom to provide services.

4. Member States shall ensure that there is easy public access to the register or registers referred to in paragraph 1.

5. Insurance undertakings shall use the insurance and reinsurance mediation services only of registered insurance intermediaries and reinsurance intermediaries and of the persons referred to in Article 1(2).

Article 4

Professional requirements

1. Insurance and reinsurance intermediaries shall possess appropriate general, commercial and professional knowledge and ability.

Member States need not apply the requirement referred to in the first subparagraph to all the persons working either in an undertaking or for a natural person exercising the activity of insurance or reinsurance mediation. Member States shall ensure that the management of such undertakings or natural person and any staff directly involved in insurance or reinsurance mediation possess such knowledge and ability.

Member States need not apply the requirement referred to in the first subparagraph to natural persons taking up and pursuing the activity of insurance mediation whose principal professional activity is other than insurance mediation and whose income does not predominantly depend on it. Such a person shall be permitted to mediate only if an insurance intermediary fulfilling the provisions of this Article or an insurance undertaking has taken on full responsibility for his actions and provided him with appropriate and relevant basic training.

2. Insurance and reinsurance intermediaries shall be of good repute. In particular, they shall have a clean police record or any other national equivalent in relation to insurance and reinsurance business and they shall not have previously been declared bankrupt, unless they have been rehabilitated in accordance with national law.

Member States need not apply the requirement referred to in the first subparagraph to all the persons working either in an undertaking or for a natural person exercising the activity of insurance or reinsurance mediation. They shall ensure that the management of such undertakings or natural persons fulfil that requirement. They shall ensure that any staff directly involved in insurance or reinsurance mediation fulfil that requirement.

3. Insurance and reinsurance intermediaries shall hold professional indemnity insurance or some other comparable guarantee against liability arising from professional negligence, for at least EUR 1 000 000 per claim, unless such insurance or comparable guarantee is already provided by an insurance undertaking, reinsurance undertaking or other undertaking on whose behalf the insurance or reinsurance intermediary is acting or for which the insurance or reinsurance intermediary is empowered to act.

4. Member States shall take all necessary action to protect customers against the inability of the insurance or reinsurance intermediary to transfer the premium to the insurance or reinsurance undertaking or to transfer the amount of claim to the insured.

Such action may take any one of the following forms:

(a) provisions laid down by law whereby monies paid by the customer to the intermediary are treated as having been paid to the undertaking, whereas monies paid by the undertaking to the intermediary are not treated as having been paid to the customer until the customer actually receives them;

(b) a requirement for insurance and reinsurance intermediaries to have financial capacity amounting, on a permanent basis, to 8% of the annual net retained revenue of intermediaries, subject to a minimum of EUR 15 000;

(c) a requirement that customer's monies shall be transferred via strictly segregated client accounts and that these accounts shall not be used to reimburse other creditors in the event of bankruptcy;

(d) a requirement that a guarantee fund be set up.

5. Exercising the activities of insurance and reinsurance mediation shall require that the professional requirements set out in this Article be fulfilled on a permanent basis.

6. Member States shall in particular ensure that the requirements laid down in paragraphs (3) and (4) are fulfilled.

7. Member States may reinforce the requirements set out in this Article or add other requirements for the insurance and reinsurance intermediaries registered within their jurisdiction.

Article 5

Notification of establishment and services in other Member States

1. Any insurance or reinsurance intermediary intending to carry on business for the first time in one or more Member States under the freedom to provide services or the freedom of establishment shall first inform the competent authorities of the home Member State. Within one month of this notification, those competent authorities shall communicate to the competent authorities of the Member State or the Member States within the territories of which the insurance or reinsurance intermediary intends to carry on business under the freedom to provide services or the freedom of establishment the insurance or reinsurance intermediary's intention and the fact that he is properly registered.

2. The insurance or reinsurance intermediary may start business one month after the date on which he was informed by the competent authority of the home Member State of the communication referred to in paragraph 1.

3. The authorities of the Member State in which the intermediary wishes to operate under the freedom to provide services or the freedom of establishment shall, within one month of receiving the information referred to in paragraph 1, inform the competent authorities of the home Member State, if appropriate, of the specific conditions under which, in the interest of the general good, the business must be carried on in their territories.

Article 6

Competent authorities

1. Member States shall designate the competent authorities empowered to ensure implementation of this Directive. They shall inform the Commission thereof, indicating any division of those duties.

2. The authorities referred to in paragraph 1 shall be either public authorities, bodies recognised by national law or bodies recognised by public authorities expressly empowered for that purpose by national law.

3. The authorities concerned shall possess all the powers necessary for the performance of their functions.

Article 7

Sanctions

1. Subject to Article 1(2), Member States shall provide appropriate sanctions in the event that a person exercising the activity of insurance or reinsurance mediation is not registered in a Member State.

2. Subject to Article 1(2), Member States shall provide appropriate sanctions against insurance undertakings that use the insurance or reinsurance mediation services of persons not registered in a Member State.

3. Member States shall provide appropriate sanctions in the event of an insurance or reinsurance intermediary's failure to comply with national provisions adopted pursuant to this Directive.

4. Competent authorities shall cooperate and share information on:

(a) insurance and reinsurance intermediaries who have been subject to a sanction referred to in paragraph 3;

(b) any negligence, misconduct or inappropriate advice for which insurance and reinsurance intermediaries have been held liable;

(c) any redress proceedings instigated against insurance and reinsurance intermediaries.

5. All persons required to receive or divulge information in connection with paragraphs 1 to 4 shall be bound by professional secrecy, in the same manner as is laid down in Article 16 of Council Directive 92/49/EEC [22] and Article 15 of Council Directive 92/96/EEC [23].

[22] OJ L 228, 11.8.1992, p.1.

[23] OJ L 360, 9.12.1992, p.1.

Article 8

Complaints

Member States shall ensure the setting-up of a facility allowing customers and other interested parties to register complaints about insurance and reinsurance intermediaries.

Article 9

Out-of-court redress

1. Member States shall encourage the setting-up of appropriate and effective complaints and redress procedures for the out-of-court settlement of disputes between insurance intermediaries and customers, using existing bodies where appropriate.

2. Member States shall encourage these bodies to cooperate in the resolution of cross-border disputes.

CHAPTER III: INFORMATION REQUIREMENTS FOR INTERMEDIARIES

Article 10

Information provided by the insurance intermediary

1. Prior to any initial contract, an insurance intermediary shall provide the customer with at least the following information:

(a) his identity and address;

(b) whether he advises the customer on insurance cover from a broad range of insurance undertakings or not. In the latter case, the insurance intermediary shall also inform the customer of the number and identity of the insurance undertakings with which he may and does conduct business for each class of risk;

(c) any holding, direct or indirect, by the insurance intermediary representing more than 10% of the voting rights and of the capital in an insurance or reinsurance undertaking and of any holding, direct or indirect, by an insurance undertaking, reinsurance undertaking or parent undertaking of an insurance or reinsurance undertaking representing more than 10% of the voting rights and of the capital in the insurance intermediary;

(d) any contractual obligation to conduct the respective business with one or more insurance undertakings as well as the names of those undertakings;

(e) the party to be held liable for any negligence, misconduct or inappropriate advice by the intermediary in relation to the insurance mediation;

(f) the facility referred to in Article 8 allowing customers and other interested parties to register complaints about insurance and reinsurance intermediaries and, if appropriate, about the out-of-court complaint and redress procedures referred to in Article 9;

(g) the register in which they have been included and the means for verifying that they have been registered.

2. If the insurance intermediary declares that he gives advice on insurance from a broad range of insurance undertakings referred to in point (b) of paragraph 1, he shall at least give advice based on a fair analysis of insurance contracts available on the market that is sufficient to enable him to recommend the insurance contract appropriate to meet the customer's needs.

3. Prior to the conclusion of any specific contract, insurance intermediaries shall at least specify the demands and the needs of the customer and clarify the underlying reasons for their advice.

4. The information referred to in paragraphs 1, 2 and 3 need not be given when the insurance intermediary mediates in the insurance of large risks, nor in the case of mediation by reinsurance intermediaries.

Article 11

Information conditions

1. All information to be provided to customers in accordance with Article 10 shall be communicated:

(a) on paper or on other durable medium available and accessible to the customer;

(b) in a clear and accurate manner, comprehensible to the customer;

(c) in an official language of the Member State of the commitment, or any other language agreed upon by the contracting parties.

2. By way of derogation from point (a) of paragraph 1, the information referred to in Article 10 may be provided orally only where immediate cover is necessary or requested by the customer.

CHAPTER IV: FINAL PROVISIONS

Article 12

Repeal of Directive

Directive 77/92/EEC is hereby repealed.

Article 13

Transposition

Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 31 December 2003 at the latest. They shall forthwith inform the Commission thereof.

When Member States adopt those provisions, they shall contain a reference to this Directive or shall be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made.

Article 14

Entry into force

This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Communities.

Article 15

Addressees

This Directive is addressed to the Member States.

Done at Brussels,

For the European Parliament For the Council

The President The President

FINANCIAL STATEMENT

Not applicable as no financial assistance provided by the Commission

10. Administrative expenditure (Section III, Part A of the budget)

10.1 Effect on the number of posts

No additional posts required.

IMPACT ASSESSMENT FORM THE IMPACT OF THE PROPOSAL ON BUSINESS WITH SPECIAL REFERENCE TO SMALL AND MEDIUM-SIZED ENTERPRISES( SMEs)

Title of proposal

Directive of the European Parliament and the Council on insurance mediation

Document reference number

The proposal

1. Taking account of the principle of subsidiarity, why is Community legislation necessary in this area and what are its main aims-

Community legislation is needed in order to enable persons taking up and pursuing the activities of insurance and reinsurance mediation to benefit fully from the Treaty rights of freedom of establishment and freedom to provide services. At the moment, these persons have to comply with various professional requirements when they wish to operate in several Member States. The aim of this proposal is to ensure that an intermediary fulfils the professional requirements of the Member State where he is registered and can, on this basis, operate under freedom of establishment and freedom to provide services without having to comply with the professional requirements of the host Member State(s). A certain degree of harmonisation of professional requirements is thus necessary in order to facilitate the proper functioning of the Single Market.

In the interests of subsidiarity:

- Articles 9 and 10, on information to be provided by intermediaries, do not apply to reinsurance and insurance intermediaries when they mediate in large risks;

- Member States can choose not to apply the proposal to persons offering insurance products that are ancillary to their main professional activity. This exclusion is subject to certain conditions (see Article 2(2));

- Member States can choose not to apply the requirement to have an appropriate level of professional competence to natural persons taking up and exercising the activity of insurance mediation whose principal professional activity is other than insurance mediation and whose income does not predominantly depend on it. This exclusion is also subject to some conditions (see Article 2(3)).

The impact on business

2. Who will be affected by the proposal-

- which sectors of business- all insurance and reinsurance intermediaries, except those excluded as above.

- which sizes of business- (What is the concentration of small and medium-sized enterprises-) the vast majority of intermediaries can be considered SMEs (fewer than 250 employees, turnover of less than EUR 40 million or balance sheet of less than EUR 27 million, holdings by a non-SME representing less than 25% of the voting rights or the shareholdings).

- Are there particular geographical areas of the Community where these businesses are found- no.

3. What will business have to do to comply with the proposal-

- Registration by the competent authorities.

- Fulfilment of fit and proper standards.

- Professional indemnity cover or a comparable guarantee against negligence or misconduct arising from the activities of the intermediary, unless this is provided for by another undertaking as is often the case in this industry.

- A given level of financial capacity in order to protect customers against the risk of bankruptcy of the intermediary. This requirement does not apply in two circumstances: use of segregated accounts and provisions laid down by law whereby monies paid by the customer to the intermediary are treated as having been paid to the undertaking, whereas monies paid by the undertaking to the intermediary are not treated as having been paid to the customer until the customer actually receives them. In such cases, intermediaries do not have to bear any cost. Besides, one way in which the requirement of financial capacity can be met is through keeping an amount that is proportionate to the revenues of the intermediary. This avoids undue constraints on small businesses.

These requirements are not new to intermediaries. Fourteen Member States have already passed legislation on the professional requirements applicable to intermediaries. These laws are largely based on Commission Recommendation 92/48/EEC, from which this proposal takes its lead. However, Member States have transposed the Recommendation in various ways and to differing degrees. Efforts at harmonisation are required in order to facilitate freedom of establishment and cross-border activities.

Discussions held with the Bureau International des Producteurs d'Assurance et de Réassurance (BIPAR, the intermediaries' lobby) tend to indicate that these professional requirements could be met without undue difficulty by the vast majority of intermediaries, including those that ought to be considered as SMEs.

- Information on the nature and reasons underlying intermediaries' advice

This is deemed indispensable in order to establish an appropriate level of customer protection. Much of this information can be provided in a standard form and hence without imposing an excessive burden on businesses. However, an slight increase in administrative expenses due notably to Article 10(3) can be expected.

4. What economic effects is the proposal likely to have-

- on employment- broadly neutral;

- on investment and the creation of new businesses- broadly neutral;

- on the competitiveness of businesses- positive effects can be expected. The proposal will ensure stronger integration of retail financial markets and improved functioning of the single insurance market. Competition between intermediaries and between providers should increase, with positive effects on the quality of products as well as on the level of prices.

5. Does the proposal contain measures to take account of the specific situation of small and medium-sized enterprises (reduced or different requirements, etc.)-

It can be estimated that about 50% of Member States' intermediaries will not have to pay for professional indemnity cover, as this is usually provided by the company or by one of the companies for which they are empowered to act.

The possibility of excluding from the scope of the Directive intermediaries that operate under a certain threshold of income or turnover was explored with all interested parties. A majority of Member States, customer representatives and industry representatives considered that such a de minimis rule should preferably not be incorporated so as to ensure a minimum level of customer protection throughout the Union. In addition, the absence of a de minimis rule ensures improved equality of treatment between market participants.

Consultation

6. List the organisations which have been consulted about the proposal and outline their main views.

The Bureau International des Producteurs d'Assurances et de Réassurance (BIPAR), the EU intermediaries' lobby, very strongly supports the proposal as it currently stands.

The Comité Européen des Assurances (CEA) broadly supports the text as it stands. It would like in particular to ensure that employees of insurance undertakings are not affected by the proposal. This is made clear in the current text.

The Association des Assureurs Coopératifs et Mutualistes Européens (ACME) has no significant objection to the text. It considers that it allows for a proper level of customer protection throughout the EU.

The European Consumer Organisation (BEUC) welcomes the proposal and considers that it would increase customer protection and confidence. However, it would like to see the text applied to employees of insurance undertakings. It also proposes to strengthen the professional requirements that are to be imposed on intermediaries (obligation to give "best advice", disclosure of commissions). These proposals seem difficult to implement: one cannot reasonably expect all intermediaries always to give the best possible advice. Moreover, such a requirement would probably lead to endless out-of-court and judicial litigation. In terms of customer protection, it does not seem to add to what is already provided for in Article 10 of the proposal. Disclosure of commissions is rejected by the vast majority of Member States and by the industry. Knowing the exact structure of the final price is not common practise, regardless of the type of commercial activity carried out. In addition, the level of commission reflects the specific duties carried out by the intermediary for the insurance undertaking (notably in terms of claim settlement). Disclosing the level of commission would imply that nearly all information relating to the relationships between the intermediary and the insurance undertaking should also be given to the customer. All this information is likely to overburden policy-holders without increasing the level of protection afforded.