Written Answers. - Insurance Regulations.
Nora Owen
Ceist:
42
Mrs. Owen
asked the
Tánaiste and Minister for Enterprise, Trade and Employment
the reason she is proposing to remove the need for full commission disclosure by insurance companies in new regulations being prepared in her Department; and if she will make a statement on the matter.
[2930/98]
The proposed introduction by my colleague, the Minister for Science, Technology and Commerce, Deputy Treacy, of life assurance transparency regulations is the result of a failure by the insurance industry to adapt and respond to the growing demand by insurance consumers for fair and honest disclosure of the risks and benefits associated with purchasing life assurance products. The Insurance Ombudsman has indicated that a quarter of complaints received in 1995 arose out of dissatisfaction over surrender values of policies and that many complaints occur because of poor communication, lack of understanding of information at the time a policy is purchased and misunderstandings in relation to "nil-allocation" or "noninvestment" in assurance and investment policies in the early years. The Ombudsman also realised that it was also incumbent upon prospective purchasers of life assurance policies to take care to read and understand the policy documentation themselves. The proposals to introduce a transparency regime will greatly assist in that regard. My Department has been and is engaged in a wide-ranging consultative process with representatives of the insurance industry, consumer interests and other relevant experts in regard to the drafting of the regulations which will provide, as of legal right, for understandable information on essential features and key areas connected with purchasing a life assurance product. The prime objectives in the formulation of such a regime are: (i) an end to over-complication in the presentation of such products; (ii) the minimisation of mis-selling and confusion; (iii) adoption of realistic investment projections, where relevant; (iv) transparency on charges and expenses; (v) a knowledge of with whom the insurance consumer is dealing and (vi) adequate redress through a firm statutory basis.
If these objectives can be achieved, it will represent a major advance in consumer protection and will act as a stimulant towards greater competition not only amongst individual life assurers but also as between the various products on offer by other financial services institutions.
The recent public hype concerning parts of a particular draft of a confidential discussion document and, in particular, the matter of commission disclosure by brokers, has not helped the consultation process. The Minister, Deputy Treacy, has found it necessary, in that regard, to issue a press statement expressing disappointment that confidential discussion documents had been disclosed to the media, the details of which are still the matter of consultation with relevant parties. Nevertheless, as the Minister pointed out, a level of consensus has emerged in relation to the apparant lack of disclosure on the comparative charges of life assurance companies and the effect which those charges, including commissions, can have on the amount available for investment, especially in the early years, and the projected surrender and-or maturity values of the insurance policy .
Submissions from various parties on the merits or demerits of the necessity and usefulness of separate commisson disclosure and devising workable formula for an "equivalent sales remuneration" disclosure regime are under ongoing consideration by my Department.
I do not wish to pre-empt or prejudice the Minister's continuing negotiations. However, it would be useful to put on record the general thrust of the Minister's proposals and to draw attention to some of the salient points, particularly in view of the fact that he is still considering the issues.
The proposals are aimed at any person who proposes for insurance directly to an insurer or through an insurance intermediary to purchase a life assurance product. All suppliers of life assurance, that is the companies themselves or acting through an intermediary, 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. Certain information shall be provided relating to full details of the supplier of life assurance including the legal form of insurer's name and regulatory or supervisory authority of insurer or intermediary, including details of the nature of the business relationship between the insurer and the intermediary.
Information shall be provided concerning the commitment and the actual insurance policy including: (i) information on the benefits and options, the term of and the laws applicable to the contract; (ii) the proposer shall also be notified of 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; (iii) the means of calculation and distribution of bonuses and a statement of the units to which the benefits are linked and, also, the assets underlying unit linked policies shall be provided; (iv) the arrangements for handling complaints about the life assurance policy including independent options such as the Insurance Ombudsman's Office; (v) purpose and intention of the policy, whether it is protection or savings or a combination of these; (vi) type of policy, for example regular premium savings or single premium investment, regular or single premuim pension, critical illness cover or permanent health insurance and whether policies are indexlinked; (vii) the long-term nature of the policy; (viii) a statement related to the cost of the insurance policy and the means and duration of payment of premiums shall be clearly stated; (ix) a prominent statement shall indicate whether the policy acquires a surrender or early encashment value and the consequences of cessation of payment of premiums; (x) a prominent statement shall indicate that early surrender of the policy, whether through non-payment or premiums or voluntarily, may result in returns which are less than the premiums paid over the same period.
The draft regulations also provide that information shall be 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 in each of the years one to five and quinquennially thereafter up to maturity the amount of premiums paid, projected total deductions for expenses including commissions, projected investment growth and finally projected encashment-maturity value. A statement will also be included as to the effect of the deductions on the assumed percentage rate of return per annum. The tabular statement will be the essential element of the disclosure package. 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 dishonstly conceals material facts in order to induce a customer to take out a policy of 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 heretofore not only supplement minimum life assurance policyholder disclosure requirements under EU law but also greatly exceed them in terms of effectiveness, clarity and overall content. They 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 services providers to institute comparative transparency measures.
