RECOMMENDATIONS FOR CHANGE

In this part of the Review, the Group focussed on whether or not the appointment system operates to the advantage of the consumer. In considering this issue, the Group took into account the outcome of market research undertaken as part of the Review which indicates that consumers do not understand the appointment system.

While the appointment system has a number of advantages and works well, it can restrict an intermediary's access to a particular market and therefore can restrict a consumer's choice. The intermediary that a consumer selects may hold a small number of appointments, which might not include the most competitive provider of a particular type of policy. There are elements of the system that may impact negatively on an intermediary's obligation to act in the best interests of consumers and that have the potential to create conflicts of interest for intermediaries.

The Group believes that improvements could be made to the current arrangements and are making recommendations in relation to:

• access to the market,

• minimum business thresholds, and

• information for consumers.

These recommendations are explained in detail below.

Access to the market

Market research indicates that consumers believe the intermediary is free to search the entire market for the product they require and they are generally not aware that the appointment system limits an intermediary's access to the market.

Insurance intermediaries are subject to the IIA and the Insurance Mediation Regulations. The appointment system is a legal requirement under the IIA but there is no specific requirement in the Insurance Mediation Regulations that an intermediary must hold an appointment from an insurance provider. The Working Group is aware that the Insurance Mediation Regulations are currently being amended. When the revised Regulations come into effect, it is anticipated that insurance mediation will no longer be subject to the IIA and that, therefore, the requirement that an intermediary hold an appointment from a product provider will no longer apply. The Group considers that this would be a positive development for consumers as it would mean that insurance intermediaries would be free to direct proposals for insurance on behalf of consumers to any insurance provider and insurance providers would be free to consider those proposals.

The removal of insurance mediation from the IIA would not eliminate the appointment system. Insurance providers could continue to enter into arrangements with intermediaries setting out terms and conditions governing their relationship but, without prejudice to their legitimate commercial aims, they could also consider the possibility of engaging with potential customers through intermediaries without a letter of appointment.

The Group recommends that the Department of Finance should complete its review of the current Insurance Mediation Regulations and introduce amended Regulations that will remove insurance mediation from the IIA.

The Group also recommends that, following the removal of insurance mediation from the IIA, the participants in the market should consider the implications of this development from their customers' perspective. In particular, they should consider any processes and procedures that relate to access to the market in the context of the requirement in the Code to act in the best interests of their customers².

Minimum business thresholds

Many insurance providers require intermediaries to produce a minimum level of new business in order to retain an appointment. This practice has been justified on the grounds that insurance providers incur expense in providing intermediaries with ongoing support services and in monitoring the intermediaries they appoint.

The power to cancel an appointment if certain levels of new business are not achieved has the potential to create a conflict of interest for the intermediary. On the one hand, the intermediary must recommend the most suitable product for the consumer, while on the other hand, it will be mindful of meeting the required new business volumes in order to retain an appointment.

The anticipated removal of insurance mediation from the IIA will mean that an intermediary will no longer need an appointment in order to transact business with an insurance provider. This may result in less importance being placed on the retention of an appointment by an intermediary. Nonetheless, some intermediaries may wish to retain appointments with particular insurance providers for their own reasons.

The Group recommends that an insurance provider should not terminate an appointment solely based on the volume of new business introduced by the intermediary. This recommendation does not preclude insurance providers from terminating appointments for other legitimate business reasons. In addition, there is no specific requirement for insurance providers to provide support services to their appointed intermediaries and insurance providers may wish to vary the level of support based on the level of business introduced.

Information for consumers

Market research indicates that consumers assume an intermediary can search the whole market for the product they require. It is particularly important if an intermediary is not searching the whole market that it makes the consumer aware of the extent of the search it will conduct. The Group recommends that intermediaries should clearly inform consumers about the extent of the market they intend to search.

Where they do not provide services on the basis of a fair analysis of the market, they should clearly disclose to the consumer the names of those providers whose products or services they distribute.