The proposed remuneration disclosures must include all payments made by the insurer to the intermediary attributable to the sale of the policy “including commissions, bonuses and other financial incentives”.
The new rules include trail commission, and mean the Key Information Document (KID) supplied to a prospective policyholder by a life company will have to be client specific.
The proposals are contained in a consultation paper launched by the IoM Financial Services Authority (FSA) in July entitled: ‘Managing conflicts of interest in the insurance sales process.’
Stronger international impact
The planned disclosures do not represent a big change for life companies on the Isle of Man that do business in the UK, which is already covered by the RDR rules.
“It demonstrates how the international financial advice market is changing, and how regulatory pressure for transparency is supporting better outcomes for clients."
However, it will be a big change for firms that focus more on international markets where regulations are looser. The plans also go further than current requirements by regulators in Jersey and Guernsey.
“It’s the direction of regulatory travel globally,” said Gill Marples, chair of the Manx Insurance Association (MIA). “The implementation will be key, especially for people who have to develop systems to meet it, and education of intermediaries is needed.”
As yet there is no implementation timetable for the proposals as the consultation period is set to run until 2 September this year.
In its paper, the FSA said: “It is the authority’s view that its disclosure rules for ongoing remuneration should be clear so a customer is made aware of the level of remuneration being paid, while not being overly complex in derivation to be at odds with practice in individual jurisdictions where policies are being sold.”
In an example of how new rules will be implemented the FSA gave an illustration of the wording of the KID disclosure for a policyholder looking at investing $4,500 (£3,427) a year in regular premiums where the intermediary is paid a 3% of the first annual premium and a 1% renewal commission for subsequent years.
The KID would state: “Although the intermediary who has advised you may not charge directly for the advice received, if you take up this policy they will receive a payment from ABC Insurance Company of $135.00 on the commencement of your policy.
“In addition, if you take up this policy, the intermediary who has advised you will receive ongoing remuneration from us of 1.00% of future premiums paid into your policy. The costs of these payments will be met by the charges you pay for your policy.”
Conduct of Business Code
The FSA has also indicated these new requirements will ultimately form part of a planned new Conduct of Business Code for all insurance companies operating on the island, which is part of an overarching plan to bring its insurance regime into line with the code of conduct issued by the International Association of Insurance Supervisors.
The FSA’s plans have been largely welcomed by the life companies which see them as bringing the island’s rules more into line with other highly regulated centres.
Marcel Bradshaw, sales director at Old Mutual International, said: “It demonstrates how the international financial advice market is changing, and how regulatory pressure for transparency is supporting better outcomes for clients, and should help clients better understand what they are paying.”