The Ministerial Order that will require the disclosure of charges, including commissions, at the point of sale of life assurance and related products has been signed by Ms Harney, Tanaiste and the Minister for Enterprise, Trade and Employment.
Under the Sale of Goods and Supply of Services Act 1980, consumers will now be able to determine exactly how much of their premium contributions are being absorbed in charges. This issue has been on the boil for nearly three years after the Consumer Association of Ireland first challenged the insurance industry's commissions agreement. Under that agreement, the members of the Irish Insurance Federation all agreed to pay a maximum commission rate for various products.
The CAI challenged the agreement (which dated back to 1989 but had been amended a number of times) under competition laws, on the grounds that it violated various EU directives regarding cartels and because it prevented full disclosure of all charges, including the company's own, at point of sale.
The Competition Authority agreed with the CAI and abolished the commissions agreement, which in turn led the way to last week's signing of the Order which set out the manner in which charges must now be disclosed.
The total cost of the policy will appear in a tabular format which breaks down the premium into charges, expenses, commission payments and sale remuneration. This table will set out the charges for each of the first five years as well as at year 10, 15 or 20, depending on the length of the contract.
The projected rate of investment return will also have to be stated and this must make clear how long the benefits can be sustained by the size of the premium being paid. This should go some way, says the Consumer Association to avoiding any "bombing out" of policy values, as often happens with certain so-called "whole-of-life" policies.
Other statutory declarations will have to be made such as:
the purpose and intention of the policy, whether it is for savings or protection purposes or a combination of both;
the type of policy, whether a recurring premium (paid, for example, monthly), a single payment policy, term insurance, etc;
the long-term nature of the policy and the premium being committed;
a prominent notice to explain the impact of encashing the policy early and stopping payments;
stating clearly what are the guarantees attached to the policy, if any.
The Consumer Association, which has lobbied hard for this Order, has given it an enthusiastic welcome. However, it says it is still concerned that company pension policies - "a huge market" - are not covered by the proposals. As well, it claims the proposals (which should be enacted six months from date of signing) "contain a potential escape clause whereby crucial disclosures, specific to the policy sold, may be moved to the `cooling off' period - 15 days after the contract is purchased - rather than at point of sale." The CAI believes similar disclosure may have to be introduced to non-life assurance investment products not covered by the proposals, which include tracker bonds not manufactured by life companies.
The disclosure of charges is a huge step in the right direction for the life assurance industry, especially in re-establishing confidence and credibility with the public. Rounding off the exercise properly, however, will require the appointment of an independent regulator who will be there specifically to protect consumer interests, set standards of good practice, police those standards and, if need be, sanction companies and named individuals found violating them.
