BIPAR PRESS No 3 - July 2007

• European Union
  
  
  • Only 3 EU Member States have transposed MiFID into their national law
    
    The European Commission has sent reasoned opinions (second stage of the infringement procedure under Article 226 of the EC Treaty) to 24 Member States for failure to write into their national legislation the Markets in Financial Instruments Directive ("MiFID") and its implementing Directive by 31 January 2007. So far, only Ireland, Romania and the United Kingdom have fully transposed both MiFID and its implementing Directive.
    
    MiFID aims at both making it easier for investment firms to carry out cross-border business and at enhancing consumer protection. It also concerns investment firms providing investment advice only, such as independent financial advisors (IFAs) and insurance intermediaries. The text introduces new requirements for investment intermediaries with regard to firms' conduct of business and internal organisations and will allow them to operate throughout the EU on the basis of authorisation in their home Member State. However, Member States are allowed to exempt small to medium-sized investment intermediaries from the scope of the MiFID who do not hold client money or trade cross-border.
    
    The provisions of MiFID will apply from 1 November 2007. The period of nine months between transposition into national law and application was intended to provide financial market participants with the required time to adapt to the new rules. The delay in transposition considerably shortens that time span in a large majority of Member States. Member States now have two months from receipt of the reasoned opinion to adopt the necessary measures into national law to implement the Directives.
    
    BIPAR is monitoring the implementation of MiFID.
    
    
  • Public procurement: European Parliament agrees on proposal to review EU rules on remedies
    
    In May 2006, the European Commission put forward a proposal for a directive that would review EU rules on remedies in the area of public procurement. The European Parliament has approved at first reading the Commission's proposal. This new directive would improve the national review procedures that businesses can use when they consider that a public authority has awarded a contract unfairly. According to the new rules, contracting authorities would need to wait for at least 10 days after deciding who has won the public contract before the contract can actually be signed. If this standstill period has not been respected, the directive requires national courts to render the contract "ineffective". It also seeks to combat the illegal direct awarding of public contracts, which is the most serious infringement of EU procurement law.
    The directive should now be formally adopted by the Council, and published in the EU's Official Journal later this year. EU Member States will then have 24 months to implement it into their national laws.
    
    
  • Proposed Solvency II Directive adopted
    
    On 10 July 2007, the European Commission adopted a proposal for a framework Directive on Solvency II, which is in fact a ground-breaking revision of EU insurance law designed to improve consumer protection, modernise supervision, deepen market integration and increase the international competitiveness of European insurers. The new system will introduce more sophisticated solvency requirements for insurers, in order to guarantee that they have sufficient capital to withstand adverse events (floods, storms or big car accidents). In future, insurers will be required to hold capital also against market risk (e.g. a fall in the value of an insurer's investments), credit risk (e.g. when debt obligations are not met) and operational risk (e.g. malpractice or system failure). Another important innovation is the strengthening of the role of the group supervisor, with the insurer's home country supervisor taking a lead, with whom the group supervisor, however, will also work in close cooperation.
    
    The Solvency II regime may affect insurance intermediaries indirectly. It is widely anticipated that Solvency II may stimulate consolidation amongst European insurers as only large insurers will be able to manage all combined risks. The most serious concern for intermediaries is that the process of consolidation will significantly reduce the number of active insurers in the market and at the end negatively influence intermediaries as a very important distribution channel for insurers.
    
    This proposal is part of the Commission's Better Regulation strategy and will replace 14 existing directives with a single directive. Solvency II will be adopted using the so-called Lamfalussy process, thus setting out the high-level principles in a framework directive as a first step. Next, after agreement by the Parliament and Council (possibly before the 2009 European elections), the implementing measures will be drafted with the help of the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS). The regime is expected to be fully implemented by 2012.
    
    
  • European Commission's report on motor insurance - Green Paper on retail financial services
    
    On 25 June, the European Commission issued a report addressed to the European Parliament and the Council on two motor insurance issues: the effectiveness of claims representatives in settling claims and insurance cover for legal expenses.
    
    Based upon various consultations carried out in 2006 with Member States, industry and the public, the report concludes that claims representatives are generally able to handle claims within the three-month timescale ("visiting victims" can address their claims to the claims representative of their Member State of residence and do not need to directly contact the insurer of the liable person in the Member State where the accident occurred).
    
    The report says that voluntary legal expenses insurance is available in the large majority of Member States and that an EU-wide extension of the scope of cover for third-party liability insurance to include legal costs would be very unlikely to provide clear benefits. The report also observes that better promotion of voluntary legal expenses contracts is necessary in some Member States in order to ensure a more balanced level of protection for EU citizens.
    The report is available in English, French and German at:
    http://ec.europa.eu/internal_market/insurance/motor_en.htm#20051222
    
    Within the framework of its Green Paper on retail financial services, the European Commission is trying to find out why EU based insurers are not keen on looking for cross-border motor insurance business. According to Internal Market Commissioner McCreevy, "insurers are reluctant to offer cover when they are not familiar with claims policy in the client's country, the legal system, or the quantum of damages that might be awarded, which vary considerably from country to country". However, feedback suggests that insurers are simply not looking for cross-frontier business as a matter of commercial policy.
    
    
  • Towards simplification of EU rules on company law, accounting and auditing
    
    On 12 July, the European Commission put forward in a Communication measures which would simplify a series of administrative requirements that are considered outdated or excessive in the areas of company law, accounting and auditing. Key measures under consideration are: repealing company law directives that deal mainly with domestic situations or removing certain information obligations in the company law directives; simplifying disclosure requirements for companies and for branches: further reducing reporting and auditing requirements for SMEs.
    
    On the basis of discussions with Member States, the European Parliament and stakeholders, the Commission will carry out full and comprehensive impact assessments, which will also take into account administrative costs. All interested parties are invited to comment on the proposals by mid-October 2007.
    
    This Communication should be seen in the context of the Commission's forthcoming review of the Single Market, which is part of the "Citizens' Agenda". The final report on this initiative will be presented in autumn 2007. The Communication is available in all EU languages at:
    http://ec.europa.eu/internal_market/company/simplification/index_en.htm
    
    
  • European Parliament and Council agree on Rome II
    
    After four years of negotiations, on 16 May, the European Parliament and the Council reached an agreement within the Conciliation Committee on a regulation harmonising the rules concerning the law applicable to non contractual obligations ("Rome II"). The aim is to ensure that courts in all Member States apply the same law in the event of cross-border disputes in matters of tort/delict, thus facilitating the mutual recognition of court decisions in the European Union. At the moment, Member States have no common rules to designate the applicable law in non-contractual matters, and each court observes its national rules. Parties might be tempted to refer the dispute to the court which will apply the law that is most favourable to them.
    
    Rome II concerns in particular questions related to civil liability for damage caused to others, particularly in the event of an accident. It applies, for example, to road accidents, defective products and environmental pollution. The new rules establish a general rule that the law of the country in which the damage occurs will apply, unless the parties both have their habitual residence in another country, in which case the law of that country will apply. There are a number of specific rules for the commonest specific torts/delicts such as product liability, environmental damage, anti-competitive practices, etc. Rome II should be applicable in the courts of Member States from the beginning of 2009.
    
    
  • Internal Market Scoreboard
    
    On 2 July, the European Commission published its 16th edition of the Internal Market Scoreboard. The average transposition deficit, i.e. the percentage of Internal Market Directives that have not been implemented into national law in time, for the 25 Member States (i.e. not including Bulgaria and Romania) reaches 1.6% and is therefore above the new interim target of 1% agreed by the Heads of States in March 2007. However, most Member States appear to be on the right track and nine Member States having already reached the new 1% target. With regard to the implementation of Internal Market rules, Member States too often fail to apply them correctly: only four Member States have managed to reduce the number of infringement proceedings against them.
    
    The full text of the latest Internal Market Scoreboard can be downloaded in English at:
    http://ec.europa.eu/internal_market/score/index_en.htm
    
    
• France
  
  
  • French non-life sector's profits expected to fall
    
    According to a new report by the rating agency Moody's, the profitability of the French non-life sector is likely to decrease in the coming years. As a result of increased competition and a drop in the number of road accidents, amongst others, motor rates have fallen. An increasingly competitive environment fuelled by the penetration of large banks in retail lines and the return of many players to large-risks segments since 2005, have driven property rates down. The legal aid insurance, which is more and more popular, is also expected to come under pressure because of new regulations and an expected rise in claims frequency. The report shows that the sector's expense ratio should remain stable in the short term but administrative costs could go up in the medium term due to expenses incurred by preparations for the new solvency system. According to Moody's, French insurers will stop cutting their rates in the most profitable lines of business to protect their margins.
    
    
• Germany
  
  
  • Two agents win the case against Allianz in their dispute on commission
    
    On 25 June 2007, the German Court of First Instance in Munich delivered a judgement in favour of two insurance agents who had taken action against the German insurer, Allianz. The dispute between Allianz and its agents dates back to 2005, when Allianz decided to introduce a new tariff for motor insurance products. Until 2005, Allianz provided motor insurance with a single tariff and agents received a 10% commission. When it introduced a second lower tariff for motor insurance, at the same time Allianz reduced the commission to its agents (6% instead of 10%). Allianz argued that this was a new insurance product and therefore they were allowed to change the percentage of commission. The Court ruled that this was not the case and that the decrease in commission could not be justified by the protection of consumers and did not comply with the provisions on consumers' protection anchored in German insurance law.
    
    Allianz has decided to lodge an appeal because it considers that its discount product is a new product. In this context, it argues that it has the right to set a new commission rate. BVK, the German association of insurance agents and brokers (member of BIPAR), does not as yet want to consider this ruling as a victory as it is waiting for the final judgement. "If the German supreme court decides in the agents' favour, this will set a precedent for the whole of the profession", it said. However, according to the German press, this judgement could be two-edged as it would encourage companies to invest more in direct writing (Internet and bancassurance). But it seems that Allianz considers its network of 11,000 agents as a pillar of its development.
    
    
  • Insurance brokers kick back
    
    In Germany, insurance brokers have to compete with other participants of the motor market (e.g. car manufacturers, leasing companies) who try to offer insurance. In order to face competition, they have to find new ideas and new partners. One year ago, insurance broker Willis decided to outsource the whole administrative management of motor insurance to the professional service company Roland Assistance GmbH so that it could concentrate solely on distribution channels. The whole spectrum of services (assistance in cases of accidents, management of claims, providing a contact person for every client ...) is provided by Roland Assistance. In this case, outsourcing enables the development of customer loyalty. This cooperation is beneficial to clients too. Thanks to a better management of their claims, clients of Willis have already saved up to 30% of their damages' costs. In return, clients are able to pay more to insurers when they negotiate the premiums. Given the success of this partnership, Willis's subsidiary in Austria have also started cooperation with Roland. British brokers might also follow with a similar cooperation.
    
    
• Spain
  
  
  • Underwriting agencies are not intermediaries
    
    The General Directorate of Insurance and Pensions of the Spanish government has brought in a legal opinion on the legal qualification of underwriting agencies in Spain. Answering a question formulated by Lloyds, the General Directorate has set out that underwriting agencies are not intermediaries. They are an instrument of direct distribution of the undertakings they work for. The legal opinion also establishes that an underwriting agency will only be able to offer its services for one insurance or reinsurance undertaking. However, in the case of Lloyds, several of its syndicates will be able to give powers to the same underwriting agency. The legal opinion also defines the limitations of participation in underwriting agencies to which brokers will be subjected, as well as the relationship between the latter, insurance agents and auxiliaries. In a seminar organised by Lloyd's at the offices of the "Consejo General" (Spanish association of insurance brokers and agents, member of BIPAR), Davies Arnold, president, partner of Davies Arnold Cooper, underlined that this interpretation discriminates against Spanish professionals. In the rest of the EU, underwriting agencies are considered as intermediaries.
    
    
• UK
  • Regulatory reform of financial services approved by UK Parliament
    
    On 12 July 2007, the UK Parliament approved the Regulatory Reform Order 2007. This Order reforms the Financial Services Act 2000, which empowered the Financial Services Authority (FSA) and governs the country's financial market regulation. It is intended to reduce the burden of regulation on UK insurers, brokers and other financial institutions. It will, among other things, extend the FSA's powers to modify all of its rules in respect of authorised and unauthorised persons; reduce some of the burdens on the FSA when consulting on guidance; and lighten the authorisation requirements in relation to partnerships whose members change.
    
    
  • Commissions blamed for mis-selling
    
    According to the Chairman of the consumer panel which advises the UK Financial Services Authority, the cause of many past mis-selling scandals can be traced back to commissions. "There is always the temptation for financial advisers to select the product that pays them the most commission but which may not be the best for the customer." He wants the latter to agree on how much the adviser should be paid and add that amount to the cost of the product. However, the British Association of Independent Financial Advisers (AIFA, member of BIPAR) denies that commissions influence sales and insists that advisers have to disclose how much commission they earn and that a lot of them work on a fee basis.
  
  
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