How can consumers be effectively protected from insurance sellers?

European Parliament. Plenary session, week 9, 2014 in Strasbourg. Discussion and vote of amendments on insurance mediation. Commissioner Michel Barnier in charge of Internal Market and Services, has the floor. (EP Audiovisual Services, 26/2/2014).

European Parliament. Plenary session, week 9, 2014 in Strasbourg. Discussion and vote of amendments on insurance mediation. EU Commissioner Michel Barnier in charge of Internal Market and Services, has the floor. (EP Audiovisual Services, 26/2/2014).

Yesterday, the European Parliament voted a series of amendments on a draft update of EU rules on the information and advice offered by insurance salesmen. The Press release issued afterwards by the legislative asserts that “MEPs amended the draft rules on sales of life and non-life insurance products and services to introduce similar information requirements and level the playing field between insurance companies and insurance “distributors” (sellers)”. Is it possible though, to effectively fence off distributors/sellers from serving the interests of the insurer they work with or for and protect the interests of consumers? Let’s see how the market works.

Buying insurance is a consumer decision binding entire families for many years, some times for a life time. Be it life or non-life insurance the contracts come down in volumes and reading it, let alone understand it, is a task comparable to studying for a degree. As for commissions and omissions, insurance companies and distributors are usually on the same side trying to keep consumers in the dark. Usually distributors/sellers try to convince buyers that they are not related to one insurance company. They insist that their job is to choose the right contract out of many in the market offered by various insurance companies.

Companies and distributors

However, given that distributors usually get hefty commission for their sales, the allegation that they act as an honest advisor to consumer is usually false. This is the crucial point in the entire insurance market, and only the very big buyers of insurance can effectively protect their interests. As things stand now, insurance companies are usually closely related to large banking conglomerates, enjoying in this way a dominant position in the market. On the other side of the fence, distributors are usually small and medium size operations, without a strong financial and market position to counter the demands of the big insurance companies. Yesterday, Legislators voted amendments which will make sure that ” EU member states would require insurance sellers to disclose remuneration, fees, commissions and non-monetary benefits”.

Theoretically, in this way the consumer will be able to understand if the seller is protecting him of the insurance company. How possible is it though to effectively apply such a measure? Who will control all those insurance sellers? Of course, if the member states were to introduce effective legislation, imposing heavy penalties on conflicting interests the market could have been a bit more honest.

Conflict of interest

But again, how possible is it for the authorities to establish conflict of interest? In the UK insurance companies and banks are still compensating thousands of consumers for having over-exploited them for many years. The usual cheat was that home buyers’ mortgages, most of the times, were charged by the bank with insurance costs without the customer knowing he/she could buy it cheaper from another seller. The trick is that the insurance/bank/seller ring is not prosecuted under the criminal law but instead they are just forced to return the excess profits they pocketed.

This said, very few sellers can honestly argue that they act for the interest of the consumer. As for the real insurance advisors, who can effectively protect the interests of buyers, they charge so expensive fees that up to a point they exclude individual consumers from this services market.

Take your time

This leaves consumers almost unprotected. It takes much more than what the Parliament voted yesterday to effectively protect buyers from the insurance company/seller ring. It is recommended then that consumers at all costs avoid  signing an insurance contract under pressure. The small office boxes that usually the seller uses to host customers create an atmosphere of urgency and the buyers have a feeling of pressure to end it. Consumers should step out immediately from such a frame and take the contract home to read it carefully. Urgency is the worst counsellor in signing an insurance contract that may bind for a life-time.

 

 

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