Written Answers. - Life Assurance.
Derek McDowell
Question:
90
Mr. McDowell
asked the
Tánaiste and Minister for Enterprise, Trade and Employment
the reason for her decision to exclude disclosure of commission payments in the latest draft regulations in the selling of life assurance under the Sale of Goods and Supply of Services Act, 1980.
[4095/98]
Pat Rabbitte
Question:
104
Mr. Rabbitte
asked the
Tánaiste and Minister for Enterprise, Trade and Employment
the reason it was decided to drop a requirement for the disclosure of commission payments from regulations on the selling of life assurance; if, in view of the strong criticism of the move expressed by consumer groups and the desirability of providing information in the simplest possible terms to consumers on details of hidden charges or extras, she will reverse the decision; and if she will make a statement on the matter.
[4060/98]
I propose to take Questions Nos. 90 and 104 together.
At a time when my Department is engaged in very sensitive and wide-ranging discussions with representatives of the insurance industry, consumer interests and other relevant experts on life assurance transparency regulations it is a matter of serious concern that confidential discussion documents have been disclosed to the media, the details of which are still the subject of negotiation with relevant parties.
For the information of the House and for the public record I will reiterate the salient points in the reply which I gave to a simialr written question by Deputy Owen on 5 February last. The objective in introducing life assurance transparency regulations will be to provide the consumer, as of legal right, with easy to understand pre-contractual and post-contractual information on essential features and key areas associated with purchasing a life assurance product.
The prime objectives in the formulation of such a regime are an end to over-complication in the presentation of such products; the minimisation of mis-selling and confusion; adoption of realistic investment projections, where relevant; transparency on charges and expenses; a knowledge of with whom the insurance consumer is dealing; and adequate redress through a firm statutory basis.
The proposed introduction of life assurance transparency regulations is necessitated by the failure of the insurance industry to adapt and respond to the growing demand by insurance consumers for reasonable disclosure by suppliers of life assurance of the risks and benefits associated with purchasing life asssurance products.
The insurance ombudsman has consistently referred to the dissatisfaction expressed by complainants over surrender values of policies and to the fact that many complaints occur because of poor communication, lack of understanding of information at the time policy is purchased and misunderstandings in relation to nil-allocation or non-investment in assurance and investment policies in the early years. The insurance ombudsman also pointed out that there was an onus on prospective purchasers of life assurance policies to take care to read and understand the policy documentation themselves.
My Department's discussions with the insurance industry have focused on the effect which charges, including commissions and sales remuneration, can have on reducing the amount of the premium available for investment, especially in the early years, and on the surrender value and maturity value of the insurance policy. The Department's objective is to have all charges and deductions from the premium payment disclosed at the outset in a way that will enable the policyholder to readily establish, taking all charges into account, the real return on the gross premium investment. With regard to the separate identification of commission within the statement of total charges, my Department has been seeking to devise, in consultation with the insurance industry, a workable formula for calculating the "equivalent of commission" in sales remuneration in direct sales of life policies. This is a very complex process.
The draft regulations are aimed at informing any person who proposes, directly to an insurer or directly through an insurance intermediary, to purchase a life assurance product. It is proposed that all suppliers of life assurance must supply to the customer before he or she signs a proposal or application form, information, in writing, in a clear, prominent and accurate manner as prescribed in the draft regulations. The information will include full details of the supplier of life assurance, including the legal form of the insurer's name, the regulatory authority granted to the insurer or intermediary, and details of the nature of the relationship between the insurer and the intermediary.
Information shall be provided in respect of the terms and conditions of the proposed insurance policy, including information on the benefits and options, available to the proposer and the laws applicable to the contract; the circumstances under which the contract may be cancelled by either party and the arrangements for application of the cooling-off period — the existing cooling-off period of 15 days will continue to apply; the means of calculation and distribution of bonuses and a statement of the units to which the benefits are linked and the assets underlying unit-linked policies; the arrangements for handling disputes about the life assurance policy including the option of recourse to the insurance ombudsman service; the purpose and intention of the policy, i.e. whether it is a protection or savings policy, or a combination of both; the type of policy, for example, regular premium savings or single premium investment, regular or single premium pension, critical illness cover or permanent health insurance and whether policies are index-linked; the long-term nature of the policy; a statement outlining the cost of the insurance policy and the means and duration of payment of premiums; a prominent statement indicating whether the policy acquires a surrender or early encashment value and the consequences of cessation of payment of premiums; and a prominent statement indicating that early surrender of the policy, whether through non-payment of premiums or voluntarily, may result in a surrender value which is less than the aggregate of the premiums paid up to the date of surrender.
The draft regulations also provide that information shall be made available to the policyholder during the term of the insurance contract related to any change in the name, legal form, address, branch name or address of the insurer.
Widespread support has been received from all parties concerned, including the Consumers Association of Ireland, for the provision to the policyholder of a tabular statement showing, for each of the years one to five and every five years thereafter up to maturity, the premium payment, the total deductions in respect of all charges and expenses, including commissions, the cumulative value of the investment and the surrender value for early encashment. The tabular statement will be the key element of the new disclosure regime and will provide the policyholder with clear and comprehensive information from the outset and throughout the policy term. Allied to the table will be a number of prominent health warnings indicating essential features and some of the risks associated with the policy, notably the effects of early surrender, the illustrative — non-guaranteed — nature of the rates of return, premium reviews where premium is not guaranteed to provide benefits-returns illustrated, taxation arrangements, long-term nature of the policy and service fees.
It is intended to make it an offence for any supplier of insurance who knowingly or recklessly makes a false or deceptive statement or dishonestly conceals material facts to induce a customer to take out a policy or insurance or who gives a false or misleading impression as to the value of a policy of insurance in terms of its investment performance and — or surrender value.
It should be stressed that the proposals as outlined not only supplement minimum life assurance policyholder disclosure requirements under EU law but also greatly exeed them in terms of effectiveness, clarity and overall content. The regulations should also bring about a level of consistency across the insurance industry in so far as consumer protection is concerned and indeed act as a catalyst to encourage other competing financial service providers to institute comparable transparency measures. It is a matter for other financial services' regulators to decide whether a need exists for greater transparency across the range of comparable investment products including disclosure of intermediaries' remuneration. The present proposals are in respect of life insurance products only. They do not address non-insurance investment products marketed and sold by other financial services institutions.
To date, I have taken no decision on these matters and will finally do so, only when the various discussions are concluded.
