FERMA Calls for ‘Mandatory’ Protocol for Broker/Company Transactions

March 9, 2011

The Federation of European Risk Management Associations (FERMA) has issued a response concerning the revised European Insurance Mediation Directive (IMD), which states that it “should incorporate binding standards of transparency for brokers in their relationship with insurance buyers no matter what size the risks.”

FERMA issued the comment as part of the consultation procedure relating to the revision of the IMD launched by the Internal Market and Services Directorate General of the European Commission. FERMA’s 19 member associations represent over 4,000 corporate buyers of commercial insurance in 17 European countries.

The bulletin explained that in November 2010, “FERMA and the European Federation of Insurance Intermediaries (BIPAR) signed a protocol on the transparency of intermediation in business insurance, which both federations recommend their respective member associations to use as a guiding framework.” FERMA added that the “existence of this protocol shows the need to regulate relationships between corporate buyers of insurance and their intermediaries.”

FERMA pointed out that, while the current proposed protocol “shows that a consensus is possible between corporate buyers and intermediaries,” it is “not binding and its application is left to the goodwill of BIPAR and FERMA’s respective members. There is no guarantee of uniform application.”

FERMA agreed that the “principles of the protocol should form the basis of the conduct of the relationship between brokers and commercial insurance buyers,” but the organization has also taken the position that “they should be made mandatory.” Furthermore, “an integration of the principles of the protocol into a binding instrument would be the appropriate response to the concerns raised by Competition Directorate in its 2007 business insurance inquiry.”

FERMA told the Commission that the “review of the IMD represents, therefore, a unique opportunity to incorporate undisputed standards of transparency into binding European legislation.”.

It has also submitted the following principles for adoption in the final regulations:
• There should be no exemption for large risks under the IMD. Corporate buyers require the same level of transparency as other consumers.
• Intermediaries should identify and manage potential conflicts of interest appropriately and transparently.
• They should provide clear information on the nature of their services and the capacity in which they operate, including any underwriting powers and delegated authorities.
• On request from the client, the intermediary should disclose the amount received for placing and servicing each business insurance contract and any indirect forms of payment from the insurer that take the business insurance contract into account. The disclosure should cover any benefits to the parent company, subsidiaries and affiliates. 

Source: The Federation of European Risk Management Associations

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