Europe to demand commission disclosure on protection sales

Advisers that distribute protection products could soon be forced to comply with a new disclosure regime that will require them to state any commissions they are receiving to customers, under new proposals from the European Commission.

Under proposals for a revised version of the Insurance Mediation Directive, first adopted in 2002, a ‘full disclosure’ regime would be implemented for all products that fall under the ‘life insurance’ umbrella, including investment-linked products and protection policies.

Protection products are excluded from the Financial Services Authority’s ban on commission under the Retail Distribution Review, meaning that advisers will not need to apply adviser charging principles to protection sales.

The commission proposals state that anyone selling insurance products could be required to supply greater detail to customers about the nature, structure and amount of the intermediary’s pay and commission under newly-proposed EU legislation.

The new directive, unlike its predecessor, is not limited to insurance intermediaries such as brokers and applies equally to sales staff of insurers themselves.

While a mandatory full-disclosure regime would apply to sellers of life insurance products, an on-request disclosure regime would apply to those selling non-life products, such as motor or home insurance, for a period of five years.

After the completion of this five-year term, a mandatory disclosure regime would come into effect for non-life products as well.

Revisions to the IMD follow European research which suggested 70 per cent of insurance products are sold without proper advice.