The European Parliament voted last week to tighten EU rules on advice brokers can offer, as well as to make brokers take out their own insurance policies for professional indemnity.
Parliament voted to force insurance intermediaries to take out insurance contracts to provide cover of at least €1.25m against professional negligence claims applying to each claim and in aggregate €1.85m per year for all claims.
However, a spokeswoman for the British Insurance Brokers Association (BIBA) told Insurance Business that this latest move is really just an update to legislation introduced five years ago, and that in the UK brokers are already required to have personal indemnity insurance. “This raises the minimum cover a little,” she said, “but most brokers will already have that amount of cover anyway.”
In keeping with regulatory changes sweeping the finance industry, such as Solvency II in the EU and CRM2 in Canada, the European Parliament also said that to boost transparency, buyers must be informed of the nature of the distributor's remuneration and, for certain complex life insurance products, of the overall cost of the insurance contract including advice and service charges. Insurance distributors will have to disclose any conflict of interest to the customer. Moreover, their remuneration arrangements should not provide incentives to recommend a particular insurance product when a different one would better meet the customer's needs.
But there are exemptions. The rules will not apply, for example, when the insurance is complementary to the supply of goods or services and covers the risk of damage or theft, or when the amount of the premium paid for the insurance product does not exceed €600 per year.
The new rules still need to be officially endorsed by the member states, which will have 24 months to put them into effect.