AIDA-HILA SUMMIT, ATHENS MAY 2014 WP DISTRIBUTION OF INSURANCE PRODUCTS 8 TH MAY 11:30-13:30 HOURS TOPIC: “ PRICING TRANSPARENCY IN BUNDLING INSURANCE ”. DR. KYRIAKI NOUSSIA ATTORNEY AT LAW

1. INTRODUCTION  Pure U/L product  allocation of premium in M/F  fully transparent  Fully transparent  way of such an allocation i.e. - what is being allocated per year - to which exact M/F - with which price per invested unit.  Such an allocation  no insurance risk.  U/L or I/L products bundled with insurance  product - entails insurance risk - may additionally cover various occurrences & give additional coverage  (insurance riders added to pure U/L,I/L)

1. INTRODUCTION  IMD II  these will also need to be NOT ONLY transparent BUT ALSO fully detailed  Greek law  promotes transparency in pricing Insurance offer (not only insurance contract per se ) - include detailed analysis of all financial features Reason  augment chances of insurance buyer Insurance buyer  have wide choice between various insurance products available and offered in market

2. PRICING TRANSPARENCY FEATURES  Pricing transparency should include: - exact amount invested in M/F - investments (analytically)  per year - commissions & various fees  (of ins. company) - analysis of insurance premium > what part of it exactly covers what risks > what part of it exactly relates to which benefits This analysis  NOT ONLY in ins. contract per se BUT ALSO in the ins. offer document  ALSO  detailed exact time frame from premium due date on which date  insurance company invests premium

3. IMD II CHANGES – THE REASON BEHIND THE CHANGES  Problems relating to Packaged Retail Investment Products (PRIPs)  Consumer protection standards  for sales of insurance PRIPs - not sufficient at EU level IMD I  NO special rules for sales of life insurance products with investment elements Market evidence  very high number of complaints regarding the sale of unit-linked insurance products in many Member States  deficiencies in sale of products  deficiencies re costs associated with such types of investment

3. IMD II CHANGES – THE REASON BEHIND THE CHANGES Problems relating to Packaged Retail Investment Products (PRIPs)  Example  alleged mis-selling of U/L ins. product (Netherlands)  this lead to class action law suit  Complaint  insufficient disclosure of costs associated with U/L policies  lead to significant lower results than those expected by customers RESULT SOUGHT Fully transparent / detailed commissions & Any other bonuses of intermediary (ins. agent–tied & broker) > declared

4. KEY IMD II PROVISIONS – RENUMERATION DISCLOSURE  IMD II  new requirements for insurance intermediaries - to disclose the nature (i.e. fee and/or commission) basis and amount of remuneration received Requirement  - in lieu of disclosure on request – mandatory prior disclosure of amount of commission retained by intermediary/paid by the insurer Very controversial  in the general insurance sector across many countries Transitional 5 year period  mandatory disclosure regime only to life ins. products Remuneration disclosure for non-life ins. products  “on-request” BUT customers  to be notified of right to request disclosure

4. KEY IMD II PROVISIONS – RENUMERATION DISCLOSURE  European Commission  able to specify further detail re requirements under delegated acts Remuneration disclosure requirements  mitigate conflicts of interest (sellers & buyers of ins. products)  particularly significant new development Disclosure required  BOTH BY intermediaries and insurers BOTH nature and basis of calculation (also employee remuneration structures)

4. KEY IMD II PROVISIONS – RENUMERATION DISCLOSURE  IMD II  new requirements ‘bundling’ products  New requirements BOTH > insurance undertakings carrying out direct sales & intermediaries  - Insurance undertakings/intermediaries > offering bundled products  NEED inform customers - possible to buy package components separately  PROVIDE INFO - costs and charges of each package component may be bought from/through them separately

4. KEY IMD II PROVISIONS – LIFE INSURANCE INVESTMENT PRODUCTS  Additional requirements  for sale of insurance investment products > apply to BOTH - insurance undertakings carrying out direct sales & intermediaries Requirements :  Identifying conflicts of interest  Disclosing them to customers  Providing appropriate information on > services, advice, risks of investment strategies, costs, associated charges  Obtaining information from customers > assess suitability and appropriateness of insurance products  Preparing reports for customers > on services provided to customers

4. KEY IMD II PROVISIONS – LIFE INSURANCE INVESTMENT PRODUCTS Remuneration disclosure  also include :  - Nature of intermediaries’ remuneration  - How it is calculated  - Amount

5. PROBLEM  IMD II :  will extend ambit of disclosure obligation - by increasing - amount of information required to be disclosed to insured (not only intermediaries’ remuneration figures but also their employees’) Disclosure requirement in IMD II:  will likely be difficult to implement  will probably cause confusion for insurers - given different types of remuneration that can be agreed by intermediaries.

5. PROBLEM  IMD II  intends to cover BOTH case of the tied ins. agent & broker  intends impose on both obligation to declare & detail commissions  Tied ins. agent  agent  accessing the potential insured Customer (i.e. the potential insured)  does not employ agent Agent  offers services (no express direct mandate)

5. PROBLEM  Broker  not tied to specific insurance company Clear mandate from customer to broker exists Customer approaches broker  seeking services & prof. advise in order to choose right insurance scheme & company. Customer (i.e. the potential insured)  employs broker Broker  has direct mandate of customer  chooses from the market the right insurance for him In this second case  declaration of commission  understandable and logical (customer need know what exact commission the broker will get  BECAUSE broker negotiates this commission)

5. PROBLEM  In the case of tied ins. agent  agent (i.e. the ins. company via the agent) accessing the potential insured  no need to pose an extra duty to the tied ins.agent to declare commission Here  commission is invariable & set by the company in terms of is prof. relation with the ties ins.agent.  IMD II  NOT intended to make distinction between ins. agent and broker > drawback  In addition  practically impossible to expect the ties ins. agent to have to disclose in details to the customer commission for one more reason, i.e. the case of selling of insurance via telemarketing

6. EMPIRICAL RESULTS - CONCLUSION  Study on the impact of the revision of the Insurance Mediation Directive (PWC, )  Summary – ‘On request’ disclosure of amount or percentage of remuneration  Summary Rating: Neutral/Negative Response for Clients:  Market studies (UK)  effects of remuneration disclosure  Results  NO evidence of significant benefit for customer  Majority of respondents  an “on request’’ regime little or no effect Remuneration information  may allow clients deal with potential conflicts of interest BUT  this  dependent on context and comparability of information and products

6. EMPIRICAL RESULTS - CONCLUSION  Study on the impact of the revision of the Insurance Mediation Directive (PWC, )  Summary – ‘On request’ disclosure of nature and source of remuneration  Summary Rating: Positive for clients and market players  Response of Clients: - higher transparency  re nature of intermediary‘s remuneration - clarity  re principal-agent relationship & how this may impact on advice - discussion of distribution costs > superfluous to transaction & confuses clients  Response of Market Players: - Implementation of policy  NOT onerous for any distribution channel - Distribution channels  generally wish promote their market differentiation (e.g. market independence regarding advice, or sales without intermediaries)

7. GENERAL CONSLUSIVE REMARK  Disclosure of remuneration  helps pricing transparency  positive with certain restrictions

AIDA-HILA SUMMIT, ATHENS MAY 2014 WP DISTRIBUTION OF INSURANCE PRODUCTS 8 TH MAY 11:00-13:00 HOURS TOPIC: “ PRICING TRANSPARENCY IN BUNDLING INSURANCE ”. THANK YOU FOR YOUR ATTENTION ! DR. KYRIAKI NOUSSIA ATTORNEY AT LAW