Written Answers. - Life Assurance.
John V. Farrelly
Question:
108
Mr. Farrelly
asked the
Tánaiste and Minister for Enterprise, Trade and Employment
the plans, if any, she has to disclose regulations on the sale of life assurance products; if this will be done in a fair and equitable way; if she will take into consideration the Irish Brokers Association's concerns that this should not apply to pure insurance contracts where it has no relevance and, when applied, it should include not only brokers' commission but also insurer's costs and costs throughout all distribution channels; and if she will make a statement on the matter.
[7258/99]
Nora Owen
Question:
109
Mrs. Owen
asked the
Tánaiste and Minister for Enterprise, Trade and Employment
the status of regulations relating to disclosure in the sale of life assurance products; when the regulations will be signed into law; if her attention has been drawn to the concern expressed that disclosure of commissions on non-payout policies appears to be irrelevant and might cause confusion; the reason there will be no disclosure obligation on direct sales companies and banks to indicate their costs which may not be called commission but are added to the customers' costs nonetheless; and if she will make a statement on the matter.
[6663/99]
I propose to take Questions Nos. 108 and 109 together.
Formal consultations in relation to the pro posed life assurance disclosure regulations have taken place between my Department and all interested parties, including the Irish Insurance Federation, Irish Brokers Association, Professional Insurance Brokers Association, Consumers Association of Ireland, the Director of Consumer Affairs and the Pensions Board. Despite the fact that the formal consultation process has almost concluded, submissions continue to be received and considered by my Department. The draft regulations are currently undergoing examination and legal drafting in the parliamentary draftsman's office. My objective is that the regulations will be in operation from 1 September next and I have been exhorting all in the insurance industry and all those affected to plan on that basis. The House will be aware that I have been signalling the proposed introduction of these important regulations since assuming office.
Both Deputies have raised concerns about the possible discriminatory impact of the proposed regulations. In that regard, my Department has sought the expert assistance of the Society of Actuaries to frame the regulations in such a way that will avoid unfairly discriminating between commission disclosure by brokers and other insurance intermediaries, on the one hand, and disclosure of remuneration for salesforces employed directly by the insurers themselves or through tied agents such as banks and building societies, on the other. We have devised a formula, with the co-operation of the Society of Actuaries, which I believe will achieve equivalence of disclosure, as far as is practicable, between the different distribution channels.
There appears to be a misconception that the charges and expenses, including sales remuneration, associated with the selling of all life assurance products by insurance companies directly or by tied agents, such as banks and building societies, will not be disclosed to the consumer. I assure the Deputies and the House that this is not the case. I referred to this matter in a recent interview with the official journal of the Irish Brokers Association in which I emphasised that the whole thrust of the draft regulations and the supporting actuarial guidance notes is to ensure a level playing field in disclosure requirements as between different methods of distribution.
As recent events will testify, it has become evident that there is a consumer information deficit in regard to the purchasing of life assurance products resulting in consumers making uninformed and sometimes ill-informed decisions which may impact only in the long-term. To remedy that market failure, the life assurance transparency regulations which I propose to introduce will provide the consumer, as of legal right, with easy to understand pre-contractual and post-contractual information on the essential features of life assurance products, including all charges and surrender values.
The prime objectives in the formulation of this new regulatory regime will be to: simplify the presentation of such products to the consumer; minimise the scope for mis-selling, including churning of policies; ensure complete transparency of all charges and expenses; identify the principal with whom the insurance consumer is dealing and provide adequate redress through a firm statutory basis.
I will now address in some detail the specific issues raised by the Deputies, regarding the proposed disclosure of commissions in relation to protection-only insurance products and the question of equivalence as between the different sales and distribution channels. First, in relation to non-investment insurance products, I am concerned about the possibility inherent in the commission payments system of creating a disclosure lacuna, effectively a loophole, which could be open to manipulation and create competitive distortions. I also believe that there are sound consumer information requirement reasons for enabling commission levels, and I use the term in its broadest sense, for all products to be monitored, particularly in the light of statutory powers available to the Minister under section 37 of the Insurance Act, 1989, to control commission levels. The Deputies should also be aware of the existence of enabling provisions in the Consumer Credit Act which provide for disclosure of commissions and fees on insurance products sold in connection with purchasing a house, as, for example, mortgage protection policies. For these specific reasons, and in the general interest of transparency and consumer information I do not see how protection-only insurance products could justifiably be excluded from the commission payments-sales remuneration disclosure requirements of the proposed regulations.
For the record, and for the benefit of the House, I would like to emphasise that commission and sales remuneration disclosure is but one element of these very comprehensive and consumer-friendly proposals and I include an appendix to this reply which gives a short outline of the other all-inclusive provisions. A core element in the draft regulations will be the provision to the prospective policyholder of an illustrative tabular statement containing two distinct parts. Part I of that table will analyse the total deductions from the premium, including specific life insurance company expenses, charges and loadings, and will indicate the ultimate value of the product over the lifetime of the policy. Part II of the table will state intermediary commissions or, on an equivalent basis, direct sales remuneration as well as assisting consumers to identify possible product or provider bias. As stated previously, the main elements of commission equivalent have been identified in the supporting actuarial guidance notes.
The proposals as outlined not only supplement the minimum life assurance policyholder disclosure requirements under EU directives but also greatly exceed them in terms of effectiveness and overall content. The regulations will also bring about a level of consistency across the insurance industry in so far as consumer protection measures are concerned and indeed will act as a catalyst to encourage other competing financial services providers to institute comparable transparency measures.
APPENDIX
Life Disclosure RegulationsThe draft regulations are aimed at informing any person who proposes, directly to an insurer or indirectly 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-she signs a proposal or application form, information, in writing, in a clear, prominent and accurate manner, as prescribed in the draft regulations. Full details must be provided of the supplier of life assurance, including the legal form of the insurance name, the regulatory authority responsible, the level of delegated authority granted by the insurer to the intermediary, and details of the nature of the relationship between the insurer and the intermediary.
Information must 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 which will remain at 15 days, as heretofore; 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, that is, 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, whether critical illness cover or permanent health insurance is included and whether policies are index-linked; the long-term nature of the policy and level of monetary commitment given in that regard; 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; 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; annual statements to be provided to policyholders indicating as a minimum current premium payable and current surrender values and anti-churning provisions.
The draft regulations also provide that information shall be made available to the policy holder, during the term of the insurance contract, related to any change in the name, legal form or address of the insurer.
