Starting with 2015, insurance brokers will have to comply with some of the harshest regulations in Europe. This is what the Romanian Financial Surveillance Authority suggests when launching two sets of norms to public consultation. Four of the newly imposed requirements will probably lead to the disappearance of several medium- and small-sized brokerage companies, as the representatives of the market claim. The ‘most painful’ of the new requirements, in a ‘classification’ made by Bogdan Andriescu, President of The Representative Association of Brokers (UNSICAR), is the obligation the intermediaries have to build reserves amounting to 4% of the gross intermediary bonus. “There is no such regulation in Europe. We are not banks or insurance companies to need reserves, we are simply service providers. Moreover, I don’t know if this was malevolence or some major error but this regulation derives from a mistranslated European Directive. The Directive speaks about the ‘received gross bonuses’, while the translation refers to ’intermediary gross bonuses’, which are two different things.”, Andriescu says.
Meanwhile, brokers will have to increase their social capital by 10 times, up to at least 250,000 lei, while in France, for instance, brokers need only 8,000 euros to fit within legal framework. Last, but not least, brokers are also powerfully hit by two older proposals: the limitation of the commission to 15% and total transparency by mentioning it on the insurance policy.
The advantage of overseas registration
A certain segment of the brokerage market
can benefit from the situation. ’In Romania there are a number of brokers registered in other countries. In Insurance brokerage, at least, most of the foreign players work based on free practice rights, being registered directly in London. Thus they are not forced to comply with local policies which are tougher than in the U.K. The disappearance of the brokers registered in Romania will certainly favor them’, says the representative of a Romanian reinsurance broker.
UNSICAR President goes even further. ‘There are overseas registered brokers that also work in other domains. Even for those registered here, when we refer to multinational companies, it is very easy for them to change their residence country. There is the risk of an exodus of brokers to friendlier countries. ASF will lose because they will no longer get taxes.’ Bogdan Andriescu claims. Another category of brokers that could benefit from the situation is that of the newly created companies, which are not under the obligation of ‘paying’ for their affairs. This is the situation of Romanian Post Insurance Broker, recently created, which targets to become the market leader next year.
How are customers affected
At this moment, the insurance brokerage market has reached a peak. Brokers actually dominate the insurance market with 58% of the total gross bonuses. Why will customers be affected if the brokerage market gets restrained? ‘Unlike the insurance company, the broker is everywhere, even pays visits to customers to offer them an insurance policy. If we want people to queue even for an insurance policy, then we destroy brokerage. Moreover, if this market, the only one to generate competition in the insurance domain, is restrained or dies, a rise in prices will occur, especially for the RCA’. Bogdan Andriescu further adds. According to UNSICAR calculations based on ASF report, the costs of brokers are smaller than the costs of the administration of the insurers’ own agents departments.
What ASF says
To answer the brokers’ complaints, ASF explained in a statement that, through the new regulations, they aim to have the non-bank financial institutions comply with the minimum of social capital requirements and seek a correlation between their own funds with the dimension of the volume of intermediary bonuses, along a rising trend. ASF also comments the reasons of the introduction of a unique European regulation, that of building brokers’ own funds out of 4% of the gross intermediary bonuses.
‘This last step (the brokers’ own funds) is also an instrument of intervention in case insurance brokers risk factors emerge, such as a poor quality of services, mis-selling or operational risks linked to the selling process, the administration of the insurance portfolio and of the customers’ money.’
