16th March 2012

AILO expresses concern over impact of commission prohibition on consumers

The Association of International Life Offices (AILO) has written to Sharon Bowles, MEP for South East England and Chair of the European Parliament's Economic and Monetary Affairs Committee, to raise its concerns over the effect on consumers and policyholders of the potential interaction between MiFID provisions and other EU financial services legislation, which it believes could have unintended consequences.

AILO is principally concerned with the provisions in MiFID2 relating to investor protection and the prohibition of commission and believes that it would not be appropriate to include similar provisions in other EU retail financial services legislation, notably PRIPs and IMD2. AILO believes such provisions would have unintended negative consequences for consumers and policyholders, because they would result in a narrower choice of investment products and less opportunity to obtain independent financial advice.

Another factor of major concern to AILO is the impact that a "cut and paste" of the MiFID proposals into the IMD2 proposals would have on the Single Market. Insurers would no longer have access to independent distribution channels and would be prevented from competing in local markets because of the prohibitive costs of developing a tied sales force in each Member State. Commission prohibition would thus result in a significant barrier to market entry. This restriction of the fundamental EU freedom to provide cross-border services would in turn reduce competition and consumers' choice of innovative products.

Chairman of AILO, Dr Claudia Lang, said: "We believe that a prohibition on commission for insurance PRIPs would jeopardise consumers' access to independent advice. Surveys show that consumers are generally not able or willing to pay for financial advice up front. There is a significant risk that only the affluent would continue to benefit from professional guidance and that there would be a substantial reduction in the numbers of independent advisers across the EU. We have already seen the effect of the commission ban introduced in Finland in 2005, which radically reduced the independent advice market."

In its letter to Sharon Bowles, AILO acknowledges the importance of avoiding conflicts of interest arising in connection with commission and suggests this could be managed satisfactorily through an appropriate disclosure regime. Furthermore, AILO emphasises the need for any such disclosure to be consistent, comprehensive and intelligible, irrespective of distribution channel, to enable consumers to make an informed decision.

AILO, which will celebrate its 25th anniversary later this year, exists to support the international life industry and today represents the interests of over 50 EU/EEA and other life insurance companies.

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