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Consultation of the EU Commission on: Green Paper on Retail Financial Services – Better products, more choice, and greater opportunities for consumers and businesses (COM(2015)630)

Brussels 15 March 2016


1.     For which financial products could improved cross-border supply increase competition on national markets in terms of better choice and price?

Cross-border supply of any product has the potential to contribute to greater diversity within domestic markets since consumers would benefit from more choices, provided that they can objectively compare products and prices. However, this is not necessarily true for legal protection insurance because importing a legal protection product from other markets is only feasible to a very limited extent due to substantial differences in regulatory provisions and diverging restrictions for the provision of legal services in each Member State.

2.       What are the barriers which prevent firms from directly providing financial services cross-border and consumers from directly purchasing products cross-border?

Legal protection insurance is more than just the transfer of a financial risk but one of its main objectives is to provide directly access to law and justice and, therefore, supply legal services as insurance in-kind. Therefore, it does not only have to comply with insurance regulations but with various other areas of law such as regulations of legal professions and legal services in general. Moreover, other nationally specific provisions (e.g. in regard of the remuneration of legal experts or rules for the recuperation of litigation costs from opponents) determine the services offered as well as prices at national levels. As a result of the manifest fragmentation of the EU market as such, legal protection insurance is a very different product in each Member State which cannot automatically respond to demands and expectations of consumers in another EU country and is therefore also difficult to sell cross-border.

Another issue for legal protection insurers is disproportional restrictions which prohibit sufficient flexibility to develop tailor made insurance products and prevent insurers from exploring the full potential of legal protection insurance. Some of these restrictions are inherent in EU legislation and lead to unnecessarily high insurance premiums and a substantially limited choice of products and services for consumers.

To illustrate the consequences, RIAD is presently undertaking an investigation of the differences of the legal and factual environments in which legal protection insurers operate and how these factors influence the product, its price, customers, consumer protection and the availability of legal protection. Once finalized, we will be happy to share our findings and conclusions with the Commission.

Other important barriers for the cross-border purchase of insurance are lingual differences and legal divergences. The impact of these two elements is particularly significant since insurance is an abstract product which is purchased on the basis of a written contract and which only materializes in the unforeseen future. If consumers are neither able to understand the policy conditions nor to communicate in their own language in case of a problem they are reluctant to purchase this product, in particular if they have to understand and respond to a legal issue.

3.       Can any of these barriers be overcome in the future by digitalisation and innovation in the FinTech sector?

For legal protection insurance the most important task is to help insured persons to solve their legal issues and we see many promising digital innovations in the legal area (LegalTech): some new online solutions simply respond to legal questions, help drafting contracts or wills, while others try to settle disputes online (ODR), i.e. either between the insurer and the insured or between the insured and a third party. In order to explore and evaluate the potential of online dispute resolution RIAD held a conference in October 2015. The main results of this event are summarised in a brochure which you find on our website: www.riad-online.eu In any case, the bottom line is that ODR can be an important tool to enhance consumer trust in insurance products from other countries and, furthermore, can substantially assist legal protection insurers to offer customers solutions in case they have a dispute with an opponent in another country. Another aspect is that online solutions seem to be able to overcome the language barrier to a certain extent by using standard forms and templates in different languages or translation programmes.

In this respect we kindly ask you to note that RIAD organizes a congress (www.riadcongress2016.com) on 6th and 7th October 2016 in Montreal which will scrutinize the potential of digitalization for legal protection insurance and how new forms of the shared economy can facilitate the provision of legal protection insurance and, along with it, access to law. Presently, it is difficult for us to make an assumption in this respect but we invite all interested parties to join us in Montreal to discuss this issue further and, possibly, identify solutions.

4.       What can be done to ensure that digitalisation of financial services does not result in increased financial exclusion, in particular of those digitally illiterate?

Please note that our congress on 6th and 7th October 2016 in Montreal might provide solutions.

5.       What should be our approach if the opportunities presented by the growth and spread of digital technologies give rise to new consumer protection risks?

Please note that our congress on 6th and 7th October 2016 in Montreal might provide solutions.

6.       Do customers have access to safe, simple and understandable financial products throughout the European Union? If not, what could be done to allow this access?

Today insurers do not offer many products cross-border to consumers by means of freedom of provision of services. One reason certainly is that consumers neither understand nor appreciate the technicalities and services of a product if they do not know the environment in which it is embedded, i.e. national law. Consequently, they do not feel protected, do not know their recourses and, in case a problem arises, do not have the necessary reassurance that the system works. In order to meet these problems, education and enlightenment is necessary which must use simple language, provide basic information and employ easily accessible means like brochures and the internet.

7.       Is the quality of enforcement of EU retail financial services legislation across the EU a problem for consumer trust and market integration?

An identical level and equal quality of enforcement of financial services legislation within the EU is crucial to ensure trust and confidence in the products available to consumers and it is also essential to create a level playing field for suppliers when it comes to developing and offering their products. However, financial services legislation is not the only area of law that plays a role for consumer trust and market integration. In particular for legal protection insurance there are other decisive legal fields which determine the product as such and have an impact on consumer perception (please see also answer to question 2).

8.       Is there other evidence to be considered or are there other developments that need to be taken into account in relation to cross-border competition and choice in retail financial services?

In 2012, the UK introduced so-called Alternative Business Structures (ABS) for law firms, i.e. allowing non-lawyers to own and manage law firms. Since legal protection insurers are unique in the respect that they provide legal services as part of their insurance cover, some legal protection insurance companies in the UK have acquired law firms to be able to provide better, a more complete set and less-pricey services to their customers. Meanwhile, regulation remains restrictive in the rest of the EU, basically excluding legal protection insurance companies from ownership and management of law firms in continental Europe which can be regarded as a competitive disadvantage.

9.       What would be the most appropriate channel to raise consumer awareness about the different retail financial services and insurance products available throughout the Union?

Digital technologies and innovations may contribute significantly to increasing access and overcoming geographical barriers, i.e. integrated digital platforms could allow consumers to compare different cross-border insurance products and could even help to overcome language barriers. Furthermore, digitalised distribution channels could raise consumer awareness, provided they give transparent information about prices, insurance cover, and the profile of insurance companies. However, it should be noted that the growth, use, and acceptance of online channels varies from country to country, depending on national prerequisites and traditions such as policy renewal conditions, consumer behaviour, distribution costs and structure, price levels etc. Accordingly, besides reinforcing the use of ITC, it is necessary to maintain traditional communication methods such as brochures, letters, newspapers etc.

10.   What more can be done to facilitate cross-border distribution of financial products through intermediaries?

In order to facilitate cross-border distribution the well-functioning of the Single Market for insurance services must be assured, e.g. by creating positive repercussions of Solvency II requirements on intermediaries through increased transparency regarding the financial stability of insurance companies. Additionally, Solvency II should be used to consolidate a level playing field for competitors and guarantee the same level of protection for consumers throughout the EU.

Moreover, the development and improvement of e-commerce and electronic distribution should be encouraged to make it a vector for cross-border sales in Europe and perk up the international competitiveness of the EU.

11.   Is further action necessary to encourage comparability and / or facilitate switching to retail financial services from providers located either in the same or another Member State? If yes, what action and for which product segments?

As mentioned before, to a certain extent it is often difficult if not impossible to compare domestic legal protection products with products from another country because the impact of different tax systems, varying financial charges, the scope of services offered etc. prohibits a comparison. However, it could be envisaged to develop independent, pan-European comparison websites which include all the relevant information mentioned before and therefore allow to actually compare the different products.

12.   What more can be done at EU level to tackle the problem of excessive fees charged for cross-border payments (e.g. credit transfers) involving different currencies in the EU?

No comment.

13.   In addition to existing disclosure requirements, are there any further actions needed to ensure that consumers know what currency conversion fees they are being charged when they make cross-border transactions?

No comment.

14.   What can be done to limit unjustified discrimination on the grounds of residence in the retail financial sector including insurance?

Lifting limitations of the freedom to chose the law applicable to insurance contracts would allow more flexibility and give consumers a broader choice of products, provided this would also exclude the application of the rules on ‘general good’.

15.   What can be done at EU level to facilitate the portability of retail financial products – for example, life insurance and private health insurance?

No comment.

16.   What can be done at the EU level to facilitate access for service providers to mandatory professional indemnity insurance and its cross-border recognition?

No comment.

17.   Is further EU-level action needed to improve the transparency and comparability of financial products (particularly by means of digital solutions) to strengthen consumer trust?

Transparency and comparability could definitely contribute to consumer trust. However, differentiation in the domestic institutional framework still makes it more difficult for both insurers and consumers to enter a foreign market or buy a foreign product.

18.   Should any measures be taken to increase consumer awareness of FIN-NET and its effectiveness in the context of the Alternative Dispute Resolution Directive's implementation?

FIN-NET facilitates the resolution of cross-border disputes in financial services but it isn’t widely known and consumers lack awareness. Therefore, it is necessary to promote FIN-NET and increase trust in cross-border activities by bundling more activities and making redress available at EU level. Both, consumers and insurers, could rely on cross-border activities and have greater trust in foreign markets if remedies were more transparent and more easily available, either through national contact points or directly at a one-stop-shop at EU level.

19.   Do consumers have adequate access to financial compensation in the case of miss-selling of retail financial products and insurance? If not, what could be done to ensure this is the case?

No comment.

20.   Is action needed to ensure that victims of car accidents are covered by guarantee funds from other Member States in case the insurance company becomes insolvent?

No comment.

21.   What further measures could be taken to enhance transparency about ancillary insurance products and to ensure that consumers can make well-informed decisions to purchase these products? With respect to the car rental sector, are specific measures needed with regard to add-on products?

Article 24 of Directive (EU) 2016/97 on Insurance Distribution establishes specific rules for cross-selling, i.e. in case an insurance product is offered with another product which is not insurance, and Article 199 of Directive 2009/138/EC (Solvency II) determines that a separate part of an insurance contract must deal with legal protection insurance cover in case it is ancillary to another insurance. We consider that these are sufficient measures to safeguard the interests of consumers.

22.   What can be done at the EU level to support firms in creating and providing innovative digital financial services across Europe, with appropriate levels of security and consumer protection?

Safeguards for guaranteeing privacy and confidentiality of data must be strengthened.

23.   Is further action needed to improve the application of EU-level AML legislation, particularly to ensure that service providers can identify customers at a distance, whilst maintaining the standards of the current framework?

No comment.

24.   Is further action necessary to promote the uptake and use of e-ID and e-signatures in retail financial services, including as regards security standards?

No comment.

25.   In your opinion, what kind of data is necessary for credit-worthiness assessments?

No comment.

26.   Does the increased use of personal financial and non-financial data by firms (including traditionally non-financial firms) require further action to facilitate provision of services or ensure consumer protection?

No comment.

27.   Should requirements about the form, content or accessibility of insurance claims histories be strengthened (for instance in relation to period covered or content) to ensure that firms are able to provide services cross-border?

No comment.

28.   Is further action required to support firms in providing post-contractual services in another Member State without a subsidiary or branch office?

No comment.

29.   Is further action necessary to encourage lenders to provide mortgage or loans cross-border?

No comment.

30.   Is action necessary at EU level to make practical assistance available from Member State governments or national competent authorities (e.g. through 'one-stop-shops') in order to facilitate cross-border sales of financial services, particularly for innovative firms or products?

No comment.

31.   What steps would be most helpful to make it easy for businesses to take advantage of the freedom of establishment or the freedom of provision of services for innovative products (such as streamlined cooperation between home and host supervisors)?

Allow more flexibility to develop products by abolishing unnecessary restrictions.

32.   For which retail financial services products might standardisation or opt-in regimes be most effective in overcoming differences in the legislation of Member States?

No comment.

33.   Is further action necessary at EU level in relation to the 'location of risk' principle in insurance legislation and to clarify rules on 'general good' in the insurance sector?

Yes, see answer to question no 14. As long as national rules on ‘general good’ are applied and have precedence, there will always be a barrier to the free cross-border movement of goods and services in the EU.