1. Impact of the Finnish Insurance Intermediation Act LIMRA 22 June 2011 Mari Pekonen-Ranta Federation of Finnish Financial Services

2. Federation of Finnish Financial Services >The Federation represents banks, insurers, finance houses, securities dealers and financial employers operating in Finland. >The Federation was founded in early 2007, when the Finnish Bankers' Association, the Federation of Finnish Insurance Companies, the Finnish Finance Houses Association and the Employers' Association of Finnish Financial Institutions joined forces. >The Association of Securities Dealers and the Association of Mutual Funds joined us in 2009. >The Federation's membership comprises of about 470 financial companies, who employ a total of 43,000 people. Finanssialan Keskusliitto | Finansbranschens Centralförbund 2

3. The renewal of the Finnish Act on Insurance Intermediation >The Act on Insurance Intermediation entered into force in 2005: -Renewal of the previous Act on intermediation dated from 1993 -Implementation of the IMD1 >The aim was to clarify the roles of agents and brokers and to enhance consumer protection >Insurance agent: -Works for and on the responsibility of the insurance company -Insurance company is responsible for the information given and actions taken by its´ agent >Insurance broker: -Fully independent and impartial from insurers -Representative of the customer Finanssialan Keskusliitto | Finansbranschens Centralförbund 3

4. Reasons for the change in regulation >The former Act (1993) stipulated that brokers need to disclose to the client if they receive commission from the insurance company, and, on client´s request, the amount of the commission. >In this case, the commission was charged non-transparently as part of the insurance premium >The client was, in most cases, not aware of the commission and the risks it brought >The client was not able to negotiate the fee -> confusion on the roles of brokers and agents, especially in life insurance Finanssialan Keskusliitto | Finansbranschens Centralförbund 4

5. Commission ban >Already earlier, the so-called net-quoting was used by insurance companies in non-life insurance: -Insurer takes into account that part of the broker´s work benefits the insurer (work relating to administration, advertising etc) – lower price for the insurance offered to the broker >After a transitional period of 3 years, the commission ban entered into force in September 2008: -Insurance broker is not allowed to receive commission from third parties (insurance companies) any more. Only the client can pay the fee to the broker. -Life and non-life insurance -Retail and corporate clients ->Transparency of conflicts of interest and of fees Finanssialan Keskusliitto | Finansbranschens Centralförbund 5

6. Brokers in the Finnish market >A young market for brokers >Amount of brokers: at the end of 2009, there were 62 registered brokerage companies, employing 211 brokers. The number of total sales staff has been varying from year to year. >The share of broker mediated insurance premiums in 2009: -In total: 8 % -In non-life: appr. 6 % -In statutory accident at work insurance: 16% -In life appr.: 2 % -In statutory pension insurance: 10% >Brokers` activity is concentrated on corporate clients Finanssialan Keskusliitto | Finansbranschens Centralförbund 6

7. Effects of the commission ban on brokers 1. >Brokers´ activity has centred on the non-life insurance of corporate clients, and this volume has grown during the past years: Finanssialan Keskusliitto | Finansbranschens Centralförbund 7

8. Share of premium income mediated by brokers / Välitettyjen vakuutusten osuus Suomen maksutulosta 1996-2009 Source: Ministry of Social Affairs and Health, Insurance Supervisory Authority, Financial Supervisory Authority / Lähde: STM, VVV, Fiva; Vakuutuksenvälittäjät ja Vakuutusmeklarit -tilastot

9. Effects of the commission ban on brokers 2. >In life and statutory pension insurance, the volume of brokers´ premiums written has decreased since 2004. >Reasons in life insurance: -Before the new Act, brokers were often practically tied to insurance companies as agents, although they operated under the status of a broker. The new Act has contributed to the change of status of the service providers to match their true nature (agents) -> no more confusion in the roles. >Statutory pension insurance: reasons in the regulatory structure: product pricing in the pension insurance companies.

10. Total amount of commissions and fees received by brokers/ Vakuutusmeklarien saamat palkkiot yhteensä 1996-2009 Source: Ministry of Social Affairs and Health, Insurance Supervisory Authority, Financial Supervisory Authority / Lähde: STM, VVV, Fiva; Vakuutuksenvälittäjät ja Vakuutusmeklarit -tilastot

11. Effects of the commission ban on premiums >Doubts on the effects on insurance premium level: -the net-quoting used helps the insurance company to keep its´ premiums at a lower level when it sells the product to the broker than when it sells the product through it´s own sales channels. -No taxation of insurance premiums (23%) when sold through brokers. -No evidence of higher prices due to the commission ban.

12. Effects of the commission ban on customers >Previous confusion on the roles of brokers and agents has been clarified – transparency of the status and roles of the players and of the possible conflicts of interest >Possibility for the client to negotiate the fee >More competition between brokers, as they need to compete with the quality of their services. The client will pay the fee, if she/he considers the service necessary and of good quality.

13. Finnish views on the IMD review >Finnish authorities and the representatives of consumers and customers hold the view that the Finnish commission ban works well. >Insurance industry views: in general, IMD review should increase the clarity and transparency of the products’ sales. Administrative burden of service providers should not be added without good reason. >IMD2 should not introduce identical rules for all market players. There are important differences between e.g. the risks related to conflicts of interest in different distribution channels. >Disclosure of remuneration is not sufficient to handle conflicts of interest in the broker market. >There are major differences in the distribution structures in different Member States.

14. Thank you ! Mari Pekonen-Ranta Special adviser, Insurance affairs Federation of Finnish Financial Services mari.pekonen-ranta@fkl.fi +358 20 793 4213