Britons living in Spain are becoming more and more wary of the effectiveness of the country's new insurance regulation system, but Chris Barkell insists that the situation is changing for the better
The number of British people now living, or owning, a property in Spain is close to one million. Enticed by a healthier, less expensive and relaxed lifestyle, this number is bound to grow further in the years to come. Retiring, seeking employment or just taking regular extended holidays in a country where the sun is purported to shine for most of the year has proved to be very attractive.
However, while many are happily dreaming of their new stress-free lives in foreign climes, few take the time to plan for the potential pitfalls. Insurance - home, motor and health - is somewhat taken for granted in the UK, with people having a reasonable degree of confidence in UK insurers and trusting their local broker, with the understanding that there are regulations and certain bodies in place to protect consumers - such as the Financial Services Authority (FSA), the Financial Ombudsman Service and the Financial Services Compensation Scheme.
Insurance can often be a forgotten after-thought for those moving abroad, and assumptions are made that, as part of the EU, consumers can enjoy the same protection for their insurance purchases as in the UK.
However, this is not the case. There is a regulatory system in place in Spain, but it is not as robust as that of the UK. There are insurance agents selling policies, purporting to be brokers, without the protection of being registered with a regulator and with no professional indemnity insurance cover. Therefore, consumers have little or no redress when facing problems with a policy.
Set to change
From 17 July 2007, this is all set to change, as Spain introduces the Insurance Mediation Directive (IMD) - European-wide legislation that was implemented in the UK in January 2005. The imminent changes will rectify the current unregulated insurance market, and the way in which products are sold will become much more aligned with the UK market. The directive has been designed to make the way intermediaries sell insurance policies more transparent for consumers.
Spain's general insurance market has implemented the forthcoming changes in regulation due to it being a directive.
The IMD is regarded as a more detailed and extensive regulation in contrast to the existing one - the reason being that it is generally considered that existing Spanish legislation does not reflect current practices within this market. One of the key aspects for introducing the law is to increase consumer protection. It is intended that this will be done by:
n Establishing the creation of a single registry that is updated and easily accessible for consumers and will include only those intermediaries that have met certain professional requirements - for example, demonstrating the necessary professional knowledge and requisite financial capacity to fulfil certain civil liabilities;
n Ensuring clients have been given information before signing an insurance agreement, including the type of intermediary that is advising them and whether or not it is independent of other insurance companies, as well as reasons for the intermediary proposing a given insurance agreement to a consumer;
n Introducing legislation to create a customer services ombudsman.
The change will also mean all insurance intermediaries transacting business in Spain will have to be fully compliant with the new legislation by July. There have been reports that some insurance companies are giving bogus reports to intermediaries on the impact of these changes. These include statements that intermediaries must sign-up with the first company that business had originally been conducted with, and that relationships with no other businesses can be formed. It has been recommended that if intermediaries are unsure, then independent and impartial advice should be sought before any contracts are signed.
Under the new legislation, insurance intermediaries will be broken down into four classes:
n Insurance broker - as an independent intermediary, it will be necessary to register with the Dirección de Seguros y Fondos de Pensiones (DGSFP) as an insurance broker. There are legal requirements that have to be included, such as the amount of capital in the business, professional indemnity insurance and the requirement to keep all premiums in designated client accounts. The broker will be able to transact business with any number of insurance companies. Finally, as a registered entity, the broker has a legal duty to submit annual fiscal accounts to the DGSFP.
n An external auxiliary - described as an appointed representative in the UK. As an external auxiliary, intermediaries will market the insurances of one provider and are not allowed to deal with any other insurer or insurance intermediary. If an intermediary elects to go down this route, then they do not have to be registered with, or submit annual fiscal accounts to, the DGSFP, however the insurer will have to assume responsibility for their activities as an intermediary, including ensuring professional indemnity insurance cover is in place.
n An exclusive insurance agent - where an intermediary is allowed to enter into an agency agreement with only one insurer, or exceptionally, and always with prior written approval of the said insurer, with a second insurance company provided that the insurance classes, risk or contracts written by the second insurer are different. In practice, it is not assumed that many insurers will be flexible on this point. An exclusive agent will have to be registered with the DGSFP and provided with copies of agency agreements and other legal and training aspects to the DGSFP.
n A tied insurance agent - by contrast, a tied agent is allowed to enter into agency agreements with various insurance companies. To all intents and purposes, a tied agent is similar to a broker. A tied agent has to be a company, registered with the Mercantile General and has to make a formal application to the DGSFP. Technical ability, knowledge and sufficient insurance training must be proved, a technical manager must be appointed, as well as provide details on procedures on how to deal with complaints, have financial capacity, guarantee of 4% of premium income and provide details of professional indemnity insurance.
The changes will certainly provide consumers with greater protection and, through the DGSFP's training requirements for intermediaries, they should receive more thorough advice.
There will also continue to be other EU brokers that can sell in Spain under passporting rights from their resident country. These intermediaries will be registered with their own regulator - for example, the FSA in the UK as well as the DGSFP - so consumers have appropriate protection.
Although the changes in regulation should make things clearer for those selling insurance policies, there will remain a certain amount of confusion surrounding the suitability of individual policies, and what in fact expats are entitled to if they decide not to take out insurance, especially when it comes to health.
For example, the Spanish healthcare system - entitlements available in particular - can be confusing. Anyone working and paying taxes in Spain will be covered by the Spanish social security system - the Instituto de Salud (INSALUD) - and most expats who have become full residents of Spain and are working, are also expected to pay into and benefit from INSALUD. However, INSALUD will only pay around 75% of treatment costs, with patients responsible for the remainder of the costs.
Treatment that is completely free of charge is only available in certain hospitals, and waiting lists for these tend to be long. Pensioners with an E121 who are applying for Spanish residency are also able to apply for a medical card entitling them to treatment under the Spanish social security system. However, it is commonly expected that family members will be able to meet a patient's domestic needs - washing and feeding - while in hospital, which can be something of a culture shock for British expats.
Post-hospital support is also regarded as poor. Standards across the country can vary considerably and medical facilities are scant in some inland regions.
However, an increasing number of UK migrants who retire to Spain are not yet of pension age and are not working, and they find that they are unable to access free healthcare through the Spanish social security system. For these Brits, they may be entitled to access free healthcare through their E106, but, even if this is the case, this cover is only temporary - for up to two years.
This is why private medical insurance (PMI) is often viewed as a 'must have' rather than a 'nice to have'. However, there is enormous diversity in the quality as well as the price of PMI policies on offer in Spain.
Choosing the lowest premium may seem attractive, but they will not offer the flexibility that other policies will provide, such as the freedom to decide upon which doctor carries out treatment and which clinics or hospitals can be used. This is particularly desirable if an English-speaking doctor is required, or a specialist in a certain medical field. Selecting the right PMI policy to suit specific requirements is not easy, as no two providers offer exactly the same, making comparisons difficult.
Looking forward, the introduction of the IMD will have a massive impact on how brokers in Spain conduct their business - directly as well as through other insurance intermediaries. For example, insurance intermediaries will no longer be able to conduct business through other insurance intermediaries, but instead only directly with insurance companies.
However, increased consumer protection can only be a good thing if greater transparency means that people understand that the product they are buying will meet their likely medical needs.
Chris Barkell is sales director at Exeter Friendly Society
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