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Insurance consumer protection Latest developments at EU level

Insurance consumer protection Latest developments at EU level. Budapest, 19 October 2011. William Vidonja, Head of Single Market & Social Affairs, CEA. About the CEA. European insurance and reinsurance federation, founded in 1953

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Insurance consumer protection Latest developments at EU level

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  1. Insurance consumer protectionLatest developments at EU level Budapest, 19 October 2011 William Vidonja, Head of Single Market & Social Affairs, CEA

  2. About the CEA • European insurance and reinsurance federation, founded in 1953 • Represents around 95% of European insurance market by premium income • Committed to creation of favourable regulatory and supervisory framework for insurers at European and international level

  3. CEA members 32 national associations: 26 EU member states 6 non-EU markets Croatia, Switzerland, Iceland, Norway, Turkey, Liechtenstein 2 associate members Serbia, San Marino 3 partners Russia, Ukraine, Kosovo

  4. Contribution to the economy Generating premium income of over €1 100bn Investing almost€7 500bn

  5. Stakeholders in the international environment International institutions European institutions Council of Ministers G-20 IASB IAIS European Parliament IMF FSB OECD European Commission EIOPA ESRB National insurance associations Insurance industry stakeholders Other stakeholders Insurance companies Business Europe BEUC RAB PEIF EFAMA EWL UNI-Europa CFO Forum CRO Forum Age Platform Europe AMICE ICISA

  6. EU consumer protection initiatives related to insurance UCP EU contract law ADR Consumer rights Collective redress Tying & bundling IMD IGS Financial education Age and disability Gender PRIPs SEPA Anti-discrimination MiFID E-commerce Data protection

  7. The need to restore trust (1) Do you remember... before the crisis? • Very high consumer satisfaction and loyalty(2007 IPSOS)

  8. The need to restore consumer trust (2) Do you remember... before the crisis? • Very low consumer dissatisfaction(2007 IPSOS)

  9. The need to restore consumer trust (3) Crisis impact Consumers distrust the industry as a whole (German confidence in financial institutions, GfK Marktforschung, 2009, based on 1,013 individuals surveyed) • 13% (17%) have complete confidence in insurance companies in general (banks) • 40% (60%) trust their own insurer (bank) • Need to rebuild trust in the sector as a whole

  10. The need to restore consumer trust (4) Impact on regulation • Call for further consumer protection (German consumer monitoring, GfK Marktforschung, 2009, based on 700 telephone interviews) • 2007: 65% (extreme) satisfaction with existing measures in insurance • 2009: 45%  Demand for activeimprovementsin consumer/ investor protection • 50% see competent advice as being of primary importance • 39% see trust, seriousness and reliability in 2nd (only 11% in 2007) • 5% place particular value on returns and profit opportunities • 23% want safe investments and lessrisk Top of the list! • Solutions requested from policy-makers: more rights in case of negligent advice, more financial education in schools, accreditation standards for financial advisors etc.

  11. The need to restore consumer trust (5) Impact on regulation • Regulators have to restore trust • in themselves • in financial services and insurance

  12. EU consumer protection initiatives related to insurance UCP EU contract law ADR Consumer rights Collective redress Tying & bundling IMD IGS Financial education Age and disability Gender PRIPs SEPA Anti-discrimination MiFID E-commerce Data protection

  13. EU consumer protection initiatives related to insurance • Distribution: IMD (conduct of business) and PRIPs (disclosures) • Q1 2011: EC retail package • Insurance guarantee schemes (IGS) • Q4 2012: EC legislative proposal • Anti-discrimination issues • Dec 2011: EC guidance on the ECJ Test-Achats ruling (gender) • Draft Directive on age & disability pending in the EU Council • Consumer redress: collective redress & alternative dispute resolution (ADR) • End 2011: EC com on principles on collective redress + legislative proposals on ADR/ ODR + recommendation to strengthen FIN-Net • European contract law • 2012: EC work on an insurance optional instrument • Etc.

  14. Consumer empowerment (1)Information requirements • CEA supports high level of consumer protection and recognises importance of improving information provided to consumers • Information requirements should not create additional burden without providing any benefit to consumers • Not a case of more information, but better information for consumers • CEA has developed a Key Information Checklist (KIC) for unit-linked life insurance  A short list of simple, clear information headings on key product characteristics to help consumers understand and compare products consistently across Europe

  15. Consumer empowerment (2)Conduct of business rules • Enhancingconduct of business rules • Important to recognise the diversity of insurance distribution markets across the EU, reflecting differing consumer needs • EU-wide “one-size-fits-all” legislation will not capture differences between existing national distribution structures Minimum harmonisation approach is necessary • CEA has proposed high-level principles on selling practices for all insurance contracts • Aim: to guarantee consumers an appropriate level of protection, regardless of the distribution channel, while accommodating diversity • Cover fair treatment of the customer, advice, analysis of customer needs etc. • Flexible enough to allow a proportionate approach

  16. Consumer empowerment (3)Financial education • Importance of financial education to ensure European citizens are equipped with the knowledge, confidence and skills necessary to improve their understanding of financial products and concepts, and to make informed choices of financial services to suit their particular needs • CEA publication “Financial education and awareness – European insurance industry initiatives” • Overview of industry initiatives across Europe • Calls for European Day of Financial Education • Welcomes work done at international level (OECD, EIOPA) • EC has suspended its activities on financial education: • Discontinued Expert Group on Financial Education • Discontinued European Database for Financial Education • No longer plans to issue Recommendation on financial education

  17. Insurance guarantee schemes (IGS) • Is there a case for IGS? • Policyholders should be protected against the consequences of an insurer going insolvent • Preference for measures preventing insolvency (Solvency II) • IGS entails side-effects in relation to costs, moral hazard and unfairness, which IGS design options can limit to a certain extent but not eliminate • Open question about IGS effectiveness: Real or fake consumer protection tool? • The risk in concentrated markets • The risk in non-concentrated markets

  18. Gender in insurance pricing (1) • Gender Directive 2004/113/EC • Prohibition of gender-based differentiation in insurance pricing (Art.5§1) • MS option allowing such differentiation (Art.5§2) • ECJTest-Achats ruling, 1 March 2011 • Art.5§2 invalid with effect from 21 Dec 2012 • The ruling addresses the structure of the Gender Directive, but leads to challenge the way private insurance works • Implications for insurers • Technical challenge for insurers to adapt (deadline) • Legal certainty neededasap • EC guidelines expected in Dec 2011 • Ruling only applies to new contracts concluded for the 1st time after 21 Dec 2012

  19. Gender in insurance pricing (2) • General implications for consumers • Reduced competition, innovation and consumer choice • Risk inadequate pricing: risk of premium increase, withdrawal of products (adverse selection and moral hazard)

  20. Gender in insurance pricing (3) • General examples of consequences for consumers • Term life insurance • Women live longer than men & pay less • Expected premium increase eg for a single young mother looking for a term life insurance to secure her mortgage • Motor insurance • (Young) women have less driving offences and claims, and therefore pay lower premiums • Unisex premiums may result in higher premiums for them • Annuities • Men may stop buying annuities and prefer banking/investment products with no biometric risk coverage • Expected social impact on levels of retirement savings in the context of financial pressure on state pension schemes

  21. Gender in insurance pricing (4) • National examples • Belgium • Motor third party liability (MTPL) insurance: the introduction of unisex rates resulted in 2008 in premium reductions of 3–4% for young men and premium increases of 7–15% for young women • The UK • Motor insurance: women aged 25 and under could see the cost of cover rise by up to 25%; men of same age costs could fall by up to 10% (based on an average motor premium of £1,682 for  female aged 17-22 (AA Premium Index), it would mean an extra £420 a year) • Annuities: men (and dependants) could see a 8% reduction in benefits, while those for women could only rise by 6% • Term life insurance: expected rise of up to 35-50% in the cost of cover for women, while men could see a fall of 0-10%

  22. Age and disability in insurance pricing • Draft Directive on age & disability • Risk of spill-over effect • Similar structure as Gender Directive • Need for absolute legal certainty on use of age and disability in risk assessment and insurance pricing • A ban on the use of these factors would lead to the end of the current insurance business model, to the detriment of consumers…

  23. Conclusions • Good intentions behind EU initiatives, but must strive for effective and intelligent consumer protection and consider the wider implications • Enhance level of consumer protection, rather than introduce more regulation - quality vs. quantity • Important to respect the diversity of markets and the differing demands and needs of consumers across the EU • Competition allows for increased choice, lower prices and better access to insurance • Proposals need to avoid “unintended consequences” for the economy, businesses, consumers and taxpayers • Professional, precise and evidence-based IA, testing and consultation

  24. CEA publications Financial education and awareness: European insurance industry initiatives Briefing note: Insurance distribution CEA Annual Report The use of gender in insurance pricing Insurance Distribution Channels in Europe European Insurance in Figures

  25. For more information www.cea.eu CEA aisbl Square de Meeûs 29 B-1000 Brussels

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