FECIF - The European Federation of Financial Advisers and Financial Intermediaries

Editorial - August 2022

Johannes MuschikJohannes Muschik
FECIF Board Member

Less insurance, more security
[German version below]

The Member States of the European Union require insurance intermediaries to have professional liability insurance of at least EUR 1,250,000 for each individual claim and EUR 1,850,000 for all claims in a year. This is what the EU Insurance Distribution Directive (IDD) requires. The aim of the European legislator is to protect consumers against the consequences of possible incorrect advice from insurance intermediaries. In practice, however, it has been shown that this regulation is excessive and also has errors that can even have a disadvantageous effect on consumers. FECIF is therefore taking the current revision of the IDD as an opportunity to propose changes.

AFPA, the Austrian partner association of FECIF, recently presented exact figures on the situation relating to professional liability insurance in Austria. In just 0.08% of all business cases involving insurance intermediaries, there are complaints from customers which lead to a court case. The value in dispute before Austrian courts is between EUR 40,000 and 60,000 on average. The comparison within the European partner associations of FECIF shows that the situation is similar in many EU countries. Against this background, the EU-wide minimum sum insured of EUR 1.25 million per claim and EUR 1.85 million for all claims in one year is oversized and unnecessary. In practice, insurance intermediaries in the EU pay too much in premiums for unnecessary insurance cover.

On the other hand, the limitation of insurance coverage to a maximum of EUR 1,850,000 for all claims in a year can have a negative effect on consumers! In the event of a (theoretical) major loss, after the maximum amount has been paid out, no further claims by injured parties would be settled. If you as a consumer were late in such a case, you would get nothing. In addition, terms for professional liability insurance are not harmonized across the EU. For example, an insurance intermediary from a member state with less strict terms can work into another EU country where the market participants registered there have better and therefore more expensive insurance. All of this is neither in the interests of consumers, who supposedly need to be protected, nor does it inspire the single EU internal market for financial services that the EU Commission so longs for.

FECIF suggests orienting oneself towards the compulsory insurance of notaries and lawyers in the future. In Austria (and in many other EU countries), for example, both professionals must have professional liability insurance. However, they need much lower contract sums which are provided for each case of damage. The liability amount is not capped within one year. This increases security for consumers because the maximum sum insured is available for each party with a claim. At the same time, the financial expenses of the insured entrepreneurs are reduced.

n the case of group contracts, such as for intermediary pools, the focus should be on the individual risk per company and no longer on the overall risk to be insured. In this way, in the event of a claim, the entire sum insured is available to each insurance intermediary. However, the claimant's direct right of access to the liability insurer is rejected. FECIF also does not want to change the system of unlimited subsequent liability.

Improving the framework for professional liability insurance has the potential to relieve a financial burden for hundreds of thousands of insurance intermediaries in the EU and at the same time increase security for their nearly hundred million of customers.

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