A new Conduct of Business Code, which will set out how Isle of Man insurance companies are to handle business they receive from intermediaries, is on the cards, in the wake of the publication of responses to a consultation carried out last year by the jurisdiction’s regulator.
The responses were published on the Isle of Man Financial Services Authority’s website yesterday, along with a draft version of what the regulator is proposing as the basis for its new Conduct of Business Code.
Major life company hub
The Isle of Man is home to a number of major life company insurance businesses, including RL360°, Hansard, Canada Life International, Friends Provident International, AXA, Old Mutual International and Zurich International Life. Of these, Canada Life and AXA sell their products into the UK market only, while the others sell internationally as well, or instead.
Not into all overseas markets, though: because the Isle of Man isn’t considered to be in Europe, companies located there aren’t officially permitted to “passport” financial services and products across borders into the EU, the way that companies based in, for example, Dublin or Luxembourg are able to, although they are able to sell into the UK market.
Separately, the IoM FSA yesterday issued a fresh consultation on proposals to require the disclosure of all commission payments and other remuneration provided by insurers to the intermediaries who supply them with business, citing the importance of such disclosure for consumers, particularly “where insurers operate on a cross border basis”.
The results of this latest consultation, entitled Managing Conflicts of Interest in the Insurance Sales Process (Long-term business), or CP16-03, will be included in the draft version of the Conduct of Business Code, on which there will be a final consultation before it is implemented. The deadline for comments is 2 September.
Yesterday’s publication of the draft Conduct of Business Code for Isle of Man insurers, and responses to last year’s consultation on the way IoM insurance companies market their products, came two days after the European Insurance and Occupational Pensions Authority (EIOPA) announced it is launching “an EU-wide thematic review of market conduct among insurance companies operating in the unit-linked life insurance market”.
In a statement outlining its proposed review, EIOPA describes many of the same concerns that the IoM FSA is seeking to address with its new Conduct of Business Code, such as possible and potentially detrimental conflicts of interest that may exist in the way investment-based insurance products are currently sold.
Evolution of views
According to the IoM FSA, the Conduct of Business Code consultation was carried out initially in conjunction with the Isle of Man’s Insurance & Pensions Authority (IPA), which was responsible for the supervision of the IoM’s insurance and pensions industries before it merged with the Isle of Man’s Financial Supervision Commission, which became the Financial Services Authority from 1 November last year. The consultation evolved out of a 2014 IPA discussion paper that, the FSA said, set out the organisation’s evolving views “in respect of developments” having to do with the way insurance companies carried out their business.
The various consultations coincided with efforts in other jurisdictions, such as the UK, Australia and Singapore, to consult on, and ultimately increase the regulation of, the way insurance and other financial products are sold.
The International Association of Insurance Supervisors, a voluntary membership organisation of industry regulators who have been said to oversee businesses that account for 97% of the world’s insurance premiums, has also been promoting the adoption of a consistent set of global standards, such as its own Insurance Core Principles.
Key concerns of the IoM FSA, based on the documents published yesterday, seemed to be that insurers needed to be taking greater care in choosing which intermediaries they choose to do business with; more involved in ensuring that the investment products – such as investment funds – that are carried in their bonds are appropriate for the individual policyholder in question, and intended for retail investors like them; and that the end clients for their products know exactly how much they paid, and to whom, in terms of commission and other inducements.
Among the specific proposed measures included in the draft Conduct of Business Code published yesterday, as part of the 50-page Summary of Responses to Consultation Paper CP15-02:
* IoM regulated entities will be expected to “establish and implement product development oversight and governance arrangements designed to treat policyholders fairly…[including the monitoring of] its products on an on-going basis to ensure that [they continue] to meet the interests, objectives and characteristics of the identified target market”
* “Where the regulated entity identifies a risk of policyholder detriment after designing and bringing products to the market, or after carrying out product monitoring, the regulated entity should take timely, appropriate and proportionate action to mitigate the situation”
* IoM regulated entities will be responsible for ensuring that those distributing its products “have the appropriate skills, knowledge and experience to properly distribute each product to the market and, where considered necessary for the product and characteristics of the target market, to provide appropriate advice to policyholders”; these product distributors would also be expected to “hold the necessary regulatory permissions, authorisations, licences or other forms of consent required” in those jurisdictions that require them, for the specific “distribution activity concerned”
* IoM regulated entities “must establish procedures to regularly monitor brokers with which [it] has established terms of business, to ensure that it remains an appropriate distribution channel for its products and target markets”
* “Subject to the provisions and definitions set out within this guidance, policyholders have the rights to cancel a cancellable contract within the cancellation period and obtain a refund of premiums paid”
* Policyholders must receive, “on an ongoing basis, adequate and appropriate information on the product and services provided by the regulated entity”
If you are an insurance industry executive, financial adviser, regulator, or other stakeholder in the insurance product pipeline, and you would like to share your views on the Isle of Man’s proposed Conduct of Business Code, please email them to [email protected]