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AILO voices concerns over PRIPS Regulation draft


The Association of Life Offices has expressed deep concerns in relation to the EU Commission’s proposal to ban commission payments for independent advice.

On 3 July 2012 the EU Commission released provisional drafts of the Regulation on Packaged Retail Investment Products (PRIPS) and the revision to the Insurance Mediation Directive (IMD2). 
In relation to IMD2, AILO says the latest draft clarifies a number of points of concern to its members on which representations have been made. These include extending the scope to cover all distribution channels and clarifying the responsibilities of host state regulators and networks operating across borders.  The creation by EIOPA of a central registry of intermediaries who passport on either a Freedom of Services or Establishment basis is also to be welcomed, as this will enhance the development of the Single Market.  
The IMD2 draft also amends the definition of a tied intermediary by including ties to insurers and to other insurance intermediaries, i.e. networks. AILO further welcomes the proposal that tied intermediaries may in future offer competing products from other insurers. It says this may contribute to product competition and thus benefit the consumer. 
However, AILO has deep concerns in relation to the Commission’s proposal to ban commission payments for independent advice. AILO presumes this is to maintain consistency with the MiFID proposals, although MiFID will not be voted on until later in 2012. Research undertaken by AILO has revealed that a commission ban can practically eliminate the independent intermediary channel and thus lead to market concentration in tied channels. It says this is clearly to the detriment of consumers, as they lose access to independent advice and cannot benefit from the product competition that results from a strong independent channel. Given the negative competitive impact of such a ban AILO will urge policy makers to reconsider whether other measures, such as high qualification standards and appropriate suitability and disclosure rules, present a better alternative to address conflict of interest concerns in relation to commission. 
The PRIPS draft contains the long awaited basis for the structure and content of a new disclosure regime through the Key Investor Information document (KID). AILO welcomes the inclusion of all life assurance products with an investment content or surrender value in the new regime. AILO has supported such an inclusive approach in the interests of a level playing field.  
In AILO’s view it is important that the detailed information rules to be developed under PRIPS properly reflect the unique value of an insurance promise.  Insurers provide benefits such as the security of a lifelong annuity and they back such promises by significant capital. AILO plans to engage in the relevant consultation process on the detailed information rules to ensure that these advantages, as well as the products’ costs, will be clearly understood by the consumer.
The draft also deals with the complicated issue of so called portfolio products where the value of the insurance policy is linked to a number of internal or external investment funds selected by the policyholder or their adviser. AILO also intends to contribute to the discussion on how disclosure can most efficiently be achieved where there is a wide investment choice and there is a risk that unnecessary information could confuse the consumer.

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