Viernes, 15 Febrero 2019

The new legal framework concerning insurance and reinsurance distribution

VolverThis month, the Insurance Law Department of Belzuz Abogados S.L.P. – Sucursal em Portugal addresses the new legal framework of the insurance and reinsurance distribution, approved by the Law 7/2019, of 16 January.

Law 7/2019 transposes into the Portuguese jurisdiction the Directive (EU) 2016/97 of the European Parliament and of the Council, of 20 January 2016, on the insurance distribution (Insurance Distribution Directive or IDD). The IDD’s major purpose is the harmonisation of national provisions for each Member State concerning insurance and reinsurance distribution.

Among the changes introduced by the new law, we must underline the following:

Application scope

The Law 7/2019 regulates the conditions for the access to the activity, in the European Union, of insurance and reinsurance distribution by individuals or companies with registered office in Portugal, as well as the exercise of the activity of insurance and reinsurance distribution, in the Portuguese territory, by an insurance or reinsurance distributor registered in other member states of the European Union.

Activities covered by the new regime

The activities to which the new regime is applicable are mostly the same as the ones regulated in the previous legal regime on insurance and reinsurance intermediary law.

Notwithstanding the above, the law now regulates those activities when carried out directly by the insurance or reinsurance companies in order to ensure the same level of protection of the policyholder, regardless of the distribution channel. There is not however full extension of the scope of application as, for instance, it is not applicable to these entities the registry regime and the cross border activities regime, which shall continue to be regulated by the insurance and reinsurance legal framework.

On the other hand, the internet pages that compare the contractual conditions or insurance policy must be expressly subjected to the insurance distribution regime.

Insurance distributors categories

The category of tied insurance intermediary disappears, as it largely coincides with the ancillary insurance intermediary category, determined in the new law.

The modification of the categories of insurance distributors is made without prejudice of the acquired rights of the tied insurance intermediaries that were registered up to the date of effect of the new law.

Actually, entities that were registered in the category of tied insurance intermediary are automatically registered into the category of insurance agent or ancillary insurance intermediary.

The credit institutions and the investment companies registered as tied insurance intermediaries are, as of the date of effect of the law, automatically registered as insurance agents.

The insurance distributors are, therefore, divided in three categories:

- insurance Intermediary, which in its turn is subdivided into:

(i) insurance agent and (ii) insurance broker;

- ancillary insurance intermediary; and

- insurance company.

Organizational and professional requirements

The insurance and reinsurance distributors as well as employees of insurance and reinsurance undertakings carrying out direct insurance distribution must possess appropriate knowledge and ability in order to complete their tasks and perform their duties adequately. For example, they are obligated to comply with the requirement of appropriate qualification to the characteristics of the activity of distribution that they want to pursue, reputation and incompatibilities.

On the other hand, the insurance agents, insurance brokers and tied insurance intermediaries will be obliged to comply with the requisites of technical, commercial, administrative and accountant organization as well as financial and economic structure, fitted to the dimension and nature of its activity, which shall be determined by the Portuguese Insurance and Pension Funds Supervisory Authority (hereinafter “ASF”).

Continuing professional training and development requirements

The insurance distributors now have the obligation to maintain or guarantee that the members of their corporate bodies responsible by the activity of distribution, as well as the persons directly involved in the activity of insurance distribution, maintain the adequate level of performance by fulfilling the requisites of continuing professional training and development.

The fulfilment of the obligations regarding continuing professional training and development determines that the distributors must undertake vocational training that comply with the legal requirements indicated even if these have to be regulated by ASF.

Information requisites and activity rules of conduct

One of the main changes introduced by the new law are the information obligations, in particular the new norms regarding the elaboration and presentation of a standardised insurance product information document about the non-life insurance products.

The main concern regarding this matter respects to the prevention of conflicts of interest of the insurance distributor, in particular the matters related to his retribution.

The law aims to guarantee insure that the insurance distributors that are not paid, neither that they pay or evaluate their employees’ performance, in a way that collides with their duty to act in the best interest of their clients, in relation to the recommendation of a specific insurance product. In this regard, the new legal framework now expressly provides an information obligation for the insurance distributor towards the client about the retribution, regardless of the Client’s express request.

Regarding the rules of conduct applicable to this activity we must underline the existence of a specific chapter about the insurance-based investment products, in which it is established the preconditions for the selling of the products, including assessing the suitability and appropriateness of the insurance product, as well as the additional requisites about the matters of the conflict of interests and retribution.

Cross-selling

When an insurance product is offered together with an ancillary product or service which is not insurance, the insurance distributor must inform the customer whether it is possible to buy the different components separately and, if so, shall provide an adequate description of the different components of the agreement or package as well as separate evidence of the costs and charges of each component. This norm does not prevent the distribution of multi-risk insurance policies.

Assessment of the suitability of the product to the insured

The new legal regime reinforces the principle that the insurance distributor has a special duty of assessment of the suitability of the product to the costumer.

The level of demand, common to all insurance distribution, obligates the insurance distributor to transmit to the customer objective information regarding the insurance products, allowing him to make an informed decision.

In addition, the insurance distributor must provide to the customer a personalised recommendation, explaining why a particular product best meets the customer’s insurance demands and needs.

Also the supervision and governance requisites for the insurance products are emphasised. The main purpose of setting up those requisites is to the guarantee that throughout the process of conception and contractualisation of insurances the suitability of the insurance conditions regarding the needs and profile of the policyholder or insurer is verified.

Article 153 of the legal regime to access and exercise the insurance and reinsurance activity is reviewed in order detail the requisites for the policies of product conceptions. On the other hand, it is clarified the non applicability of the requisites of supervision and governance to the covering of large risks insurance products.

Distribution of insurance-based investment products

Investments that include insurance contracts are frequently made available to the consumers as an alternative or substitute for the financial instruments; therefore the new legal regime approaches the norms of commercialization of the insurance products to the rules of commercialization of financial instruments.

There were established additional requirements to the distribution of those investment products, including those regarding to conflict of interests, information duties, remuneration and assessment of the suitability and appropriateness of the insurance product.

Publicity

Another change carried out by the new insurance distribution law is concern with the protection of the consumer through the advertisement of the insurance products distribution.

According to the new regime, and regardless of the means chosen, the presentation and publicity of the information must be carried out in a form that is fair, clear, not misleading and clearly identifiable.

Cross-border activity

Although the new regime does not include structural changes regarding the matters of registration process for the access to the activity of insurance distribution, this diploma determines new norms to the exercise of cross-border activities, and gives more powers of intervention to the competent authority of the host Member State.

Transitional regimes

Law 7/2019 provides some transitional regimes. Until 23rd of February 2019 the following entities must adjust to the requisites of appropriate qualification regarding the distribution of insurance and reinsurance activity: (a) insurance or reinsurance intermediaries (natural person); (b) registered members of corporate bodies that are responsible for the activity of insurance intermediation and (c) natural persons working in an insurance or reinsurance undertaking.

The insurance companies also shall have until the 23rd February 2019 to assure that the members of the board of administration (responsible for the insurance distribution activity) and employees working in an insurance or reinsurance undertaking at their service have appropriate qualification for carrying out such activity.

Regulation that the ASF must adopt

The Portuguese Insurance and Pension Funds Supervisory Authority is entitled to adopt the necessary regulatory norms to:

a) determine the requisites for the insurance themed to be recognized by the ASF, for purposes of the concept of appropriate qualification;

b) determine the minimum content of the contract between the insurance agent and the insurance company or between the ancillary insurance intermediary and the insurance company;

c) determine the requisites that the insurance agent, insurance broker, ancillary insurance intermediary or the reinsurance intermediary must comply in matter of technical, commercial, administrative and accountant organization as well as financial and economic structure fitted to their dimension and to the nature of their activity;

d) Determine the minimum standard of the compulsory civil liability insurance that the insurance agent, insurance broker, ancillary insurance intermediary and the reinsurance intermediary must celebrate;

e) Establish the documents to be submitted for purposes of the process to prove the conditions of registry must have;

f) Establish the general rules that the insurance intermediaries and the ancillary insurance intermediaries must respect towards defining a treatment policy for the policyholders, insured persons, beneficiaries and injured third parties.

g) Establish the general rules that the insurance intermediaries must respect regarding the conception and approval of the insurance product’s policy;

h) Establish the general rules that the insurance distributors must respect regarding the insurance product distribution policy.

Legislative changes

The new law introduces modifications to the legislation governing access to and exercise of insurance and reinsurance activity, as well as to the procedure rules regarding the specific crimes for the insurance activity and pension funds, as well as the administrative offences decided by ASF.

Effective date

The law 7/2019 contains a rule which confers retroactive effectiveness to the application of the new legal framework, establishing that it took effect the 1st October 2018.

The new legal framework of the activity of insurance and reinsurance distribution presupposes a proper analysis by all agents and, therefore, the Insurance Law Department of Belzuz Abogados S.L.P. – Sucursal em Portugal will continue accompanying the developments in this matter and, shortly, will provide detailed information regarding the new legal regime.

 

Belzuz Abogados SLP

La presente publicación contiene información de carácter general sin que constituya opinión profesional ni asesoría jurídica. © Belzuz Abogados, S.L.P., quedan reservados todos los derechos. Se prohíbe la explotación, reproducción, distribución, comunicación pública y transformación total o parcial, de esta obra, sin autorización escrita de Belzuz Abogados, S.L.P.

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