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European Commissioner for Internal Market and
Irish Insurance Federation Annual Lunch
Good afternoon Ladies & Gentlemen,
I am delighted to have been invited to speak here today and thanks to Brendan for your kind remarks. Insurance is a key topic on our agenda at the moment, and I recognise that the insurance industry is, as you have said, facing challenging times. Clearly more can be done to deepen the Internal Market in this area. Today I want to talk about three important issues. First, Solvency II. Second, the review of the Insurance Mediation Directive (IMD), and finally I want to say a few words about the upcoming referendum on the Treaty of Lisbon.
Let me start with Solvency II. The benefits brought by Solvency II will be far reaching for both industry and consumers. But the key feature really is improved risk-sensitivity. Regulatory capital requirements must reflect the risks that are actually being taken by undertakings.
The Solvency II Proposal puts forward an innovative new regime, reflecting the latest practices in risk management. There are many more phases ahead after the adoption, most importantly the development of implementing measures. The commitment and hard work of all stakeholders will therefore be needed for many years to come. I want to particularly emphasize the role that industry needs to play, and to endorse the remarks Brendan made about participation. I encourage all insurance companies to take part in the Fourth Quantitative Impact Study which is currently running. This is your opportunity to have your voice heard.
Our current regulatory regime is over thirty years old. The Commission remains committed to a fundamental reform. In particular, I draw your attention to the importance of improving the supervision of groups. The operations of insurers are becoming increasingly international – we need to respond to this by both recognizing the economic reality of how groups operate and by giving supervisors the tools and powers to supervise groups. Improvements to group supervision and the new group support regime are key parts of the Solvency II Proposal. Changing these would jeopardize the benefits that Solvency II is expected to bring.
Let me also underline the importance of thorough preparation for Solvency II. While the anticipated entry into force date of 2012 may seem far away now, an immense amount of work must take place before that. Do not underestimate the changes that Solvency II will bring and the resources that will be needed to implement it.
Let me now turn to the Insurance Mediation Directive (the IMD). I am pleased to note that the IMD has now (finally) been transposed by all the Member States.
While conscious of the belated transposition process, I am at the same time aware of the calls for its amendment coming from various quarters. I am not deaf to those calls although I do think it may be a little soon to begin the process of modification of a Directive which has been implemented in the majority of Member States for only a short period of time. Before any changes are made, I will be asking my services to carry out a very thorough evaluation of all the issues and problems raised by Member States and other stakeholders. We also need to assess thoroughly exactly how the Directive has been transposed in each case. Indeed, are some of the complaints we are hearing due to incorrect national implementation? In reviewing this we will pursue our Better Regulation agenda. It is important that it is respected before any further regulatory action is taken. This will mean adequate prior consultation and an impact assessment of any proposed changes.
Three issues in relation to the consumer protection aspects remain particularly sensitive: the scope of the Directive (secondary intermediaries), the fit and proper requirements for sub-agents, and the cost of professional indemnity insurance. These issues still need to be further examined.
As regards insurance intermediaries, the report of the Business Insurance Sector Inquiry identified potential conflicts of interest and a certain lack of transparency in the way that insurance intermediaries are typically remunerated. There is a growing awareness in the market that such potential conflicts of interest may need to be more effectively managed. The Commission is committed to following up these findings and I hope that national authorities will also take an interest and be closely involved.
The IMD has also become a topic in the discussion on retail investment products, especially from the perspective of the disclosure and distribution rules for unit-linked life assurance undertakings and insurance intermediaries. By way of example, consumers and some regulators have pointed to potential conflicts of interest linked to the remuneration of insurance intermediaries by the managers of the underlying funds in unit-linked policies. In order to have a better understanding of this and other issues, an Industry Workshop on Retail Investment Products was organized by the Internal Market Directorate General just yesterday (22 May 2008).
Finally, on the IMD, I would urge Member States themselves to take a close look at the way they have transposed the Directive to see if some of the gold-plating that they have inserted is not adding to the burdens of market operators – burdens which might be lightened by the application of a more light touch approach. And my call to review the elements that have been gold-plated extends to Ireland as well as to other Member States.
Ladies and Gentlemen, we are now heading into the critical final few weeks of the referendum campaign on the Lisbon Treaty. Many people regard referenda as something of a nuisance and would prefer to railroad reforms such as this through the usual parliamentary process. I am not among them. I believe that it is a healthy thing in a democracy that people get consulted on important, long term institutional issues. It helps to keep politicians on their toes, imposes on us the discipline necessary to explain what we are doing and why we are doing it, reduces the risk that we become too remote from the people or proceed on a path for Europe that is contrary to the fundamental wishes of the people of Europe.
But, of course, the issues involved in a referendum such as this present presentational and engagement challenges for us as politicians. That's because so much of what is involved in the Treaty involves institutional reforms which do not immediately set the pulses racing of most citizens who are inevitably concerned with day to day, bread and butter issues of inflation, employment, and security. What is often overlooked is that by being full and active members of the EU we have the means to fight inflation through the discipline and strength the euro brings. We need the EU to stimulate employment and economic security.
But in an expanding Europe we need to update our institutional and decision making framework to ensure that it is fit for purpose: To ensure that decision making on the key challenges that we face in our dealings with the rest of the world is not so constrained that it is possible to move only at a snails pace. We need to be able to adapt a Europe of 27 Member States to the compelling need to make decisions that facilitate European business to adapt to the challenges of an increasingly competitive world. Only in that way will we able to cope with the threats that globalization presents. And only in an enlarged Europe can we capitalize on the full benefits that an internal market of 500 million people can bring for Europe's businesses – the benefits of scale economies, a single rule book, and in our capital markets dialogues with other continents a powerful platform from which to strongly negotiate.
As to other issues the strengthened institutional structures that the treaty will deliver provides a much better foundation from which Europe can negotiate with other world powers on tackling climate change, energy security, border controls, and dealing with international terrorism. It is towards these goals that the new Treaty is directed.
Categorically this Treaty has nothing whatever to do with abortion or neutrality or membership of NATO and while I readily acknowledge that there are many aspects of European politics that can be frustrating and seem burdensome I do believe that this Treaty represents a worthwhile step forward to streamline decision making and to put in place the framework for more effective interaction with the rest of the world in the years and decades ahead.
That is why, Ladies and Gentlemen, I encourage you to make sure you vote next month and to ensure that you vote "Yes".
Thank you for your attention!