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Editorial

EC Insurance Mediation Directive

The EC Insurance Mediation Directive must be implemented by Member States by 15th January 2005. The Directive applies to insurance and reinsurance intermediaries providing mediation services for insurance contracts. "Insurance mediation" means "introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim." The Directive requires Member States to introduce minimum authorisation requirements for these entities and introduces a passporting system for those authorised insurance intermediaries which will allow the intermediaries to operate cross-border under freedom of services or freedom of establishment arrangements.

As a result, IFSRA published a consultation paper in April on Mandatory Competency Requirements for sales and advisory staff of all authorised financial services providers. Persons involved in insurance or reinsurance mediation will be required to demonstrate the knowledge and ability necessary for the performance of their duties. The Directive also allows the good repute of insurance intermediaries to be checked to ensure that staff have a clean police record and have not been declared bankrupt. Insurance intermediaries who were already registered before 1st September 2000 and who had a level of training and experience similar to that required by the Directive will be automatically grandfathered into the new regime (provided they meet certain requirements with respect to professional indemnity insurance and premium transfers).

The Directive specifies a mandatory level of professional indemnity insurance cover of at least EUR1m applying to each claim and in aggregate EUR1.5m per year for all claims (unless a comparable guarantee is already provided by an insurance undertaking for which the intermediary is empowered to act). Member States must choose one or more of the measures provided in the Directive for protecting customers against failure by the intermediary to transfer a premium to the insurance undertaking. These include a requirement for the intermediary to have a financial capacity amounting to 4% of the sum of annual premiums received subject to a minimum of EUR15,000, strict segregation of client accounts so that they cannot be used to reimburse creditors in the event of bankruptcy and the establishment of a guarantee fund. It remains to be seen which option is chosen for implementation in Ireland. There will be a requirement to set up a register of complaints about insurance intermediaries and redress procedures.

Finally, there are detailed requirements in respect of information to be provided to the customer by the insurance intermediary prior to the conclusion of an insurance contract. Insurance intermediaries will be required to give advice on the basis of a fair analysis of the market place. Prior to concluding a contract the intermediary will be required to provide a letter setting out the reasons for any advice given on the basis of information provided by the customer.

For further information, please contact any member of our Financial Services Team.

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