EU Insurance Mediation Directive

HC Deb 11 May 2004 vol 421 cc276-8W

Mr. Drew

To ask the Chancellor of the Exchequer (1) what the timetable is for the introduction of the EU Insurance Mediation Directive; and what consultation he has had with the insurance industry on its potential impact; [171417]

(2) what the definition is of the term insurance business as used on page five of the Financial Services Authority booklet entitled High street firms: application pack for mortgage and general insurance businesses, with regard to the introduction of the EU Insurance Mediation Directive; [171418]

(3) what measures he is putting in place to protect (a) smaller companies and (b) individual brokers in the lead up to the introduction of the EU Insurance Mediation Directive, with specific reference to costs; [171428]

(4) what the rationale is for the introduction of the EU Insurance Mediation Directive; and how consumer choice will be guaranteed under its provisions; [171429]

(5) what alternatives for a suitable regulatory body for the monitoring of the EU Insurance Mediation Directive were considered before the Financial Services Authority was appointed to this role. [171430]

Ruth Kelly

The IMD is being implemented across the EU and will come into force in the UK on 14 January 2005. The Government has consulted widely on the regulatory regime, publishing a public consultation document including draft regulations and a draft regulatory impact assessment in October 2002. Officials attended a wide range of meetings, working groups and conferences to consult on implementation. The FSA has carried out extensive public consultation on its rules.

In implementing the Directive the Government and the FSA have worked closely with the industry to design a regulatory regime that takes account of market practice, and does not load the industry and ultimately the consumer with unnecessary costs. Both the Government and the FSA have been concerned to minimise the impact on smaller firms and sole traders. The Government also largely implemented the exclusions permitted in the Directive for travel insurance sold as part of a package, and for extended warranties.

Application fees have been set by the FSA according to the volume of business that a firm undertakes, so are cheapest for the smaller firms. The FSA have developed an approach to authorisation that is as streamlined and straightforward as possible. In terms of the wider costs to firms, the FSA have published detailed cost benefit analyses, based on surveys of firms' costs and asked for comment. Where these have revealed that the costs are thought to be disproportionate and/or under-estimated, the FSA have responded in their final decisions. The UK has the largest insurance industry in Europe. Implementing the IMD is a key step in completing the single market in financial services, and will enhance consumer protection in an important sector of financial business. The UK market for selling insurance is competitive with many players giving customers wide choice, and this will continue in the new regime. Already thousands of firms have applied to the FSA for authorisation for the new regime.

The Financial Services and Markets Act 2000 set up the FSA as the single regulatory body for a range of financial services, including the regulation of insurance. The Government therefore decided the FSA, as the single financial services regulator, was the most appropriate body to regulate insurance mediation. For many firms this will simplify and streamline regulation compared to the alternative of a separate regulator for insurance mediation. Intermediaries selling a range of other financial services products, such as pensions, mortgages, or investments, as well as general insurance, will come under the FSA as a single regulator, minimising compliance costs.

The Directive requires the regulation of a range of insurance mediation activities. The activities to be regulated are introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance; concluding contracts of insurance; and assisting in both the; administration and performance of such contracts, in particular in the event of a claim. The Directive applies to such activities in relation to contracts of insurance, The FSA application pack notes that shortened terms have been used in the pack in four instances. One of them is "insurance business" and refers to "insurance mediation activity in respect of non-investment insurance contracts." Further details of the FSA's regulatory regime can be found on their website at www.fsa.gov.uk