Issue link: https://maltatoday.uberflip.com/i/1008890
BUSINESS & FINANCE P2 maltatoday | SUNDAY • 29 JULY 2018 The new EU insurance regulation and how it affects us ALMOST 10 years ago today, just as the global financial cri- sis was reaching its peak, stock markets across the globe ca- pitulated, sending several eq- uity indices spiralling down by more than 50% in October 2008. Triggered by exuberant risk taking and the mis-selling of financial products to those who either could not afford or need them, the effects of the crisis still resonate in societies today. This has paved the way for significant regulatory changes in the finance world not least in the European Union. The objective of these new rules, like MIFID 2, is primar- ily aimed at protecting inves- tors from the damaging prac- tices that were exercised in the build-up to the financial crisis. The latest is the Insurance Distribution Directive (IDD), which updates the 2002 In- surance Mediation Directive (IMD) and whose application date is set for 1 October 2018. How does the IDD affect consumers? In a nutshell, the IDD's pur- pose is to enhance transpar- ency and regulate insurance distribution behaviour to en- sure that the right products are distributed to the right cus- tomers. Additionally, the IDD seeks to harmonise insurance dis- tribution practices throughout the Union for life insurance, Insurance-Based Investment Products (IBIPs) and general insurance. It also tightens policyholder protection, ensuring that cus- tomers are not duped into buying insurance products they do not need. Therefore, this prohibits fi- nancial advisors from making larger commissions by sell- ing unsuitable products to prospective clients. Similar to MIFID 2, it adds significant requirements on financial in- stitutions to ensure that the 'suitability' of an IBIP for a cus- tomer, such as a Unit Linked Insurance Plan, is thoroughly analysed prior to sale. Furthermore, insurance in- termediaries are now required to adequately disclose all rel- evant fees prior to the sale and must provide customers with a detailed breakdown of fees paid afterwards. Such measures aim to im- prove transparency and boost customer trust. How does IDD affect financial institutions? It is a common sentiment that the regular flow of new and in- creasingly stringent financial regulation is overwhelming, at times requiring unchartered interpretation of several sub- jective requirements. As compliance costs soar, profitability and staff morale take their toll. Firms are ex- pending significant resources into regulatory compliance implementation projects and unsurprisingly, the complexity of the regulation is being ques- tioned. However, the IDD's aim is not only to protect consum- ers' interest for its own sake but to raise insurance distri- bution standards, facilitate cross-border trade and have a 'minimum' set of harmonised practices throughout the Un- ion. With this, the customers' needs are better met and their interests safeguarded, result- ing in higher consumer trust in insurance entities. Therefore, more sustainable insurance practices should result in a potentially larger, more robust and more profit- able insurance market, boost- ing long-term benefits for all. How does EY help? Our role at EY is to support firms with implementing the necessary wwpolicies and pro- cedures to comply with new regulation. We help bridge the gap between short-term com- pliance costs and developing long-term sustainable prac- tices which will support the firm's core activities. Reinforced by our global net- work, our support runs from start to finish, assisting with project managing the regula- tory change projects to guiding the business on technical mat- ters. To be successful, insurance entities must leverage the new regulation to upgrade their service offering and strengthen practices to accurately meet customer needs. Managed effectively, this will enable better customer service, drive product innovation and builds stronger client relation- ships. Subsequently, detrimental practices, similar to the ones that lead to the global finan- cial crisis, are minimised, lead- ing to long-term sustainable growth to the benefit of all. Steve Gruppetta is a senior consultant in EY's advisory practice. steve.gruppetta@mt.ey.com The objective of these new rules, like MIFID 2, is primarily aimed at protecting investors from the damaging practices that were exercised in the build- up to the financial crisis Steve Gruppetta