EU Might Regulate Insurance Buyers, Broker Warns

EU Might Regulate Insurance Buyers, Broker Warns

By Sam Friedman

NU Online News Service, April 26, 4:20 p.m. EST?Jardine Lloyd Thompson today warned that the European Union's forthcoming regulation of the insurance market may extend far beyond professional brokers and insurers--to commercial insurance buyers.

The London-based brokerage said that some risk professionals working in businesses outside the insurance sector, but who are involved in the insurance purchasing and advisory chain, might also come under the scope of the legislation.

A U.K. risk managers group, said they have asked an attorney to look into the issue.

JLT said that it has written to certain of its U.K. client insurance purchasers, including risk managers and finance directors, to draw their attention to the matter.

The EU's Insurance Mediation Directive to harmonize the selling of insurance throughout Europe is due to go into effect on Jan. 14, 2005. It will become a criminal offense to carry on regulated activities without permission after that date.

The deadline for authorization applications is July 13. The directive, according to JLT, requires that the U.K. Financial Services Authority "regulate the activities of 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."

"Overall we believe that regulation is good for our industry as it is a key component of a successful marketplace, but we have some concerns which we thought it only right to draw to the attention of our clients to enable them to manage the impact of this regulation on their businesses where it is relevant," said JLT's group director of compliance, Bobby Deegan.

"This a particularly complex area of the regulation, but we believe it is essential for our clients to be able to clearly identify at the earliest juncture their activities which could?be regulated and the alternative approaches available to them where they can operate their normal commercial activities without inadvertently breaching the act," he added in a statement released by JLT.

JLT drew particular attention to the following categories "who may well be affected," including:

? Risk managers and insurance buyers acting for other companies in their own group.

? Partners in joint ventures arranging insurance contracts that also cover other named interests.

? U.K. property managers.

David Gamble, executive director of the London-based Association of Insurance and Risk Managers, said AIRMIC is "working with the London Market Brokers Committee to clarify the situation. We are urging the FSA to state clearly that risk managers will be exempt from the proposed regulation of intermediaries."

However, he added, "in the meantime, we have taken legal opinion on behalf of our members and advised them to prepare for either possibility. Since the FSA agrees with us that there would be no public interest served in regulating risk managers, we remain hopeful of a positive outcome."

JLT, in its statement, said the new directive may also have an impact on the construction sector, where public-private partnerships and public finance initiative deals "require complex insurance arrangements in order to proceed. It also complicates the position of contractors and sub-contractors over insurance."

Firms outside broking and insurance that carry on a regulated activity have two main choices--either to become directly authorized by the FSA or become an appointed representative of an authorized firm, known as a principal, according to JLT.

The principal, who can be either a broker or an insurer, must be authorized by the FSA and will have full responsibility for ensuring that the appointed representative complies with the FSA requirements, said JLT, which noted that there will need to be a written contract between the appointed representative and the principal.

JLT has decided, "except in exceptional circumstances," not to appoint representatives, the firm announced. "We believe that firms who carry on these activities are likely to be better off being regulated directly by the FSA," said Mr. Deegan. "Authorized firms and potential appointed representatives will need to carefully consider the effects of AR supervision arrangements and the impact they have on client relationships."