Response to consultation on Professional Indemnity Insurance (PII) for mortgage credit intermediaries
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With respect to this, we consider option 3 (i.e. setting the minimum amount at the lowest amount used in those Member States that already require PII for mortgage credit intermediaries) much more suitable, as it affords minimum amounts appropriate for the eastern EU countries (EUR 0.1 million) while at the same time enabling higher mortgage-distressed countries to set higher limits.
Regarding tangible data, in its 2012 supervisory report the Czech national bank comments that as a matter of fact a very small number of complaints (i.e. none) originated from the mortgage market. On the other hand, the insurance market accounted for more than 46 % of total number (543 out of 1177 total complaints).
Again, the “lowered setting” could come out of option 3, i.e. minimum amount in Member States that already require PII for mortgage credit intermediaries (EUR 0.1 million).
Do you agree that, of the four options presented, option 4 (i.e. setting the minimum amount at the average of the amounts used in Member States) is the option the EBA should pursue, resulting in a minimum amount of EUR 584 000 per claim, and EUR 886 000 per year?
We do not consider this approach suitable for the whole European market. While for Western-Europe countries the proposed amounts might be reasonable, for Eastern-Europe mortgage intermediaries (MI) they are far higher than common professional standards (as documented by Slovakia, the only representative of eastern EU countries participating in the survey). Such a disproportionate setting would have two effects: (i) the insurance would be either ineffective, i.e. insurers would be reluctant to pay the claims in order to keep the premium low, or (ii) the premium would be sky-high, putting unnecessary financial burden on small and medium-sized enterprises firms (SMEs). It also needs to be noted that the amount of complaints MI generate in eastern EU is significantly lower than that of e.g. insurance intermediaries (see for example Czech National Bank supervisory report for 2012: http://www.cnb.cz/en/supervision_financial_market/aggregate_information_financial_sector/financial_market_supervision_reports/).With respect to this, we consider option 3 (i.e. setting the minimum amount at the lowest amount used in those Member States that already require PII for mortgage credit intermediaries) much more suitable, as it affords minimum amounts appropriate for the eastern EU countries (EUR 0.1 million) while at the same time enabling higher mortgage-distressed countries to set higher limits.
Do you consider the number and the compensatable loss of compensation claims arising from the activity of mortgage intermediation to be lower than, the same as, or higher than those arising from insurance intermediation? Please explain your reasoning.
The number of claims from mortgage intermediation is significantly lower than e.g. from insurance intermediation, owing in particular to different sales technique since mortgages tend to be pull product (passive sale) while insurance, investments etc. are more of a push product (active sale).Regarding tangible data, in its 2012 supervisory report the Czech national bank comments that as a matter of fact a very small number of complaints (i.e. none) originated from the mortgage market. On the other hand, the insurance market accounted for more than 46 % of total number (543 out of 1177 total complaints).
Do you know of options other than those listed in this consultation paper that the EBA should consider when deciding on the minimum amount of coverage?
There are different possible options but, as mentioned in the first answer, option 3 is the most suitable.Do you consider threshold(s) that distinguish between more than one minimum amount of PII coverage to be a desirable feature? If so, please explain how such a threshold should be devised.
In case the EBA decided in favour of (globally) unsuitable, too high limits for the whole EU market (option 4), different settings for smaller and medium firms would be definitively viable. It would be considered an “emergency brake” for most eastern EU regulators to keep their market structure intact without burdening smaller firms (which do not cause any supervisory trouble, as stated above).Again, the “lowered setting” could come out of option 3, i.e. minimum amount in Member States that already require PII for mortgage credit intermediaries (EUR 0.1 million).