Are insurance brokers and other types of market intermediary subject to regulation?
Insurance & Reinsurance
Various activities undertaken in relation to contracts of insurance (namely, dealing, arranging deals, making arrangements with a view to a contract, assisting in the administration and performance and advising on contracts of insurance) are regulated under FSMA. Accordingly, permission must be sought from the FCA to act as an insurance intermediary (note that the PRA does not regulated mediation). It is possible to become an appointed representative of a regulated firm in order to carry out mediation activities. The regulated principal has full responsibility for the actions of the appointed representative.
All individuals or companies who undertake professional insurance mediation activities in Sweden are subject to regulation, such as the Insurance Mediation Act (SFS 2005:405) and the Insurance Mediation Ordinance (SFS 2005:411). The establishment, operations and supervision of insurance intermediaries' businesses are also governed by several regulations, recommendations and guidelines issued by the Swedish Financial Supervisory Authority (FSA).
Insurance brokers and other types of market intermediaries are subject to the provisions in the German Trade Regulation Code (GewO) rather than in the German Insurance Supervision Act. The local Chambers of Trade and Commerce (Industrie- und Handelskammer) are responsible for licensing and overseeing insurance intermediaries. The activities undertaken by any intermediaries is not subject to the supervision by BaFin.
The German Trade Regulation Code determines in section 34d intermediation activities for which authorisation is mandatory and those which are exempted from this requirement, including product-accessory intermediaries and tied intermediaries for which the insurer has assumed full responsibility. Insurance intermediaries domiciled in either an EU or EEA member state may operate in Germany if they have been registered in their home state in accordance with the statutory regulations.
In a recent publication BaFin maintains that brokers must not undertake any claims handling activities for insurance undertakings. BaFin refers to a decision of the Federal Supreme Court (BGH) dated 14 January 2016 under which any claims handling activities of a broker normally qualify, inter alia, as a breach of the German Legal Services Act (RDG) considering the conflict of interests that arise when undertaking claims handling activities on behalf of the insurer considering that the broker should act solely in the interests of the policyholder. Due to the significance of claims handling by brokers, further developments should be monitored closely.
Insurance mediation in Norway is governed by the Act on Insurance Mediation (2005:41), which is based on Directive 2002/92/EC on insurance mediation. The Insurance Mediation Act governs two kinds of insurance mediators, insurance brokers and insurance agents. Insurance brokers act as true brokers on behalf of the clients (policyholders) whereas insurance agents act for and on behalf of an insurance undertaking.
Insurance broking is subject to a soft licensing requirement in Norway. The main conditions are that:
- The company is established as a public/private limited company, general partnership, limited partnership or sole proprietorship.
- The company is not subject to bankruptcy proceedings or debt negotiations.
- The company has taken out statutory liability insurance.
- The person(s) being in charge for the insurance brokering activities are fit and proper to hold such position(s).
EEA-based and licensed insurance broker undertakings can provide the same activities in Norway through a branch or on a cross-border basis, subject to a notification procedure. There is also a limited possibility for non-EEA based insurance brokers to establish a branch in Norway, although to date this has not been used.
Insurance agent activities are not subject to license requirements but shall be registered in a publicly available register that shall be held by the principal insurance undertaking. Fit and proper requirements apply. The FSAN requires that insurance agents representing EEA-based insurance companies must be registered with the FSAN, not with the foreign insurance company, unless the insurance company's home state legislation itself requires that local insurance companies register their insurance agent with a publicly available register.
The Norwegian legislation regarding insurance intermediaries applies to direct insurance mediation as well as reinsurance mediation, save for certain disclosure requirements which do not apply for reinsurance intermediaries.
Intermediation in insurance contracts is reserved exclusively to insurance brokers as set forth in Article 91 of the LISF.
An insurance broker requires the prior authorisation of the National Insurance and Bonding Commission (“CNSF”) to intermediate. For purpose thereof, an application must be filed with the CNSF.
The CNSF may grant an authorisation to intermediate to either individuals with an employment relationship with the insurance company or individuals that are independent from the insurance company and act through an agency agreement, or to legal entities (insurance brokers), which must be incorporated as limited liability stock companies pursuant to the Regulation of Insurance and Surety Brokers. The authorisation granted by the CNSF to act as an individual insurance broker is valid for three years and may be renewed. Insurance brokers incorporated as entities are authorised to act as such for an indefinite period of time.
Reinsurance intermediaries are the only entities authorised to provide reinsurance intermediation services as set forth in article 106 of the LISF. To incorporate and operate a reinsurance intermediary, the prior authorisation of the CNSF is required and for purposes thereof, an application must be filed with the CNSF. The application must comply with the requirements set forth in the Rules on the Authorisation and Operation of Reinsurance Intermediaries. The reinsurance intermediary must be incorporated as a limited liability stock company and have its corporate domicile in Mexico.
Under Mexican law, insurance claims adjusters require the prior authorisation of the CNSF to perform activities related to the adjustment of insurance claims. The requirements for such authorisation are those set forth in article 111 of the LISF.
Brokers are specially regulated pursuant to IA Resolution No. 15 of 2013 and IA Decision No. 58 of 2013, which collectively set forth the licensing and capital requirements for brokers, as well as restrictions upon their activities. Brokers are not permitted to combine their role as a broker with the role of insurance agent, consultant, loss adjuster, or actuary. Likewise, while brokers may engage in personal insurance and funds accumulation on one hand, and property and liability insurance on the other, they must have separate employees and systems for each business unit.
Third party claims administrators (TPA) of medical insurance claims are also separately regulated pursuant to IA Resolution No. 9 of 2011, as amended by Resolution No. 7 of 2015. This regulation sets forth minimum capital requirements, management requirements, and limitations upon the extent of a TPA business. For example, a TPA is limited in the scope of its activities, and may not sell or market insurance products or have any ownership or managerial interest in a medical provider.
In order to establish a brokerage, TPA, or other insurance industry provider (other than insurer, as discussed below), in “onshore” UAE, a commercial license must also be obtained from the relevant Emirate’s department of economic development. Ownership of such an entity must be held at least 51% by a UAE or GCC national or juristic person, as per the UAE Commercial Companies Law.
The IA has also issued regulations relating to the licensing and conduct of Insurance Agents (Resolution No. 8 of 2011), Actuaries (Resolution No. 22. of 1985, and expanded draft Regulations proposed in 2016) and Surveyors and Loss Adjusters (Resolution No. 6 of 2010).
As noted under Query 1, the UAE has, in addition to those “onshore” entities established pursuant to its Commercial Companies Laws, various “free zones”, where companies engaged in certain insurance industry activities may be established under separate free zone regulatory schemes. These are the Dubai International Financial Centre (DIFC) and the newer Abu Dhabi Global Market (ADGM), which was established in late 2015. An advantage of these free zones is that they allow 100% foreign ownership of corporate entities, unlike an “onshore” UAE set-up which requires a majority of local ownership. The big disadvantage, however, is that a free zone entity is generally prohibited from conducting business outside of the free zone in which it is located, which greatly limits the services that it can provide in the UAE.
Nevertheless, many intermediaries that primarily deal in the reinsurance market have established themselves in the DIFC, where they have gained valuable exposure to the overall UAE market. Additionally, reinsurers may establish themselves directly within the DIFC. Establishment of a primary insurer in the DIFC is more problematic, as unlike reinsurers, primary insurers doing business in the UAE require an IA license (see query 6 below) and the market for primary insurance products within the confines of that permitted by the DIFC is very limited.
All states require agents, brokers and other market intermediaries to be licensed in order to sell, solicit or negotiate insurance and prohibit anyone without a license from performing these activities. An insurance license is generally required for a person to receive commissions or other compensation for the sale of insurance, which may not be shared with unlicensed persons.
State insurance laws refer to licensed persons as agent, broker, producer or combinations of the foregoing. A common difference between agents and brokers is that agents work on behalf of the insurer while brokers represent the insured. Generally, an agent, but not a broker, has to be appointed by an insurer and such appointment has to be filed with the state insurance department.
States generally grant agent or broker licenses to individuals and corporate entities, but an entity license usually requires an individual associated with the entity to be licensed in an individual capacity. Licensing laws may contain narrow exceptions (for example, employees of licensed insurers), but generally anyone who interacts with an insurance consumer or potential insurance consumer has to pass a licensing examination to receive a license from each state in which such person acts as an agent or broker.
States may have separate licensing requirements for life, health and property/casualty agents and brokers and some licensing laws distinguish between personal lines and commercial lines licenses. States may also require license applicants to satisfy pre licensing educational requirements before being eligible to take a licensing examination and many have continuing professional education requirements.
The licensing process requires an applicant to disclose general background information, including detailed information about character, experience and financial responsibility. A criminal background check is often conducted by the state insurance department.
State insurance commissioners regulate insurance market intermediaries through monetary penalties and the ability to suspend or revoke a license. Permissible grounds for such actions are generally set forth in state insurance laws and include violations of any insurance law or order, criminal convictions, being subject to enforcement by another state, engaging in fraudulent or dishonest business practices, or demonstrating incompetence. In most cases, the licensee has a right to a hearing regarding the administrative action before it is taken.
Other insurance market participants, such as reinsurance intermediaries, insurance consultants, adjusters and/or third party administrators are usually subject to state insurance regulation, including licensing requirements in each state where the relevant insurance activities take place.
Insurance broking is a regulated trade pursuant to the Trade Regulation Act (Gewerbeordnung; GewO). Insurance broking can either be carried out by insurance agents or insurance brokers, depending on their relationship to the insurer. In order to sell insurance contracts to customers, brokers and agents first have to be authorised under the GewO. Please revert to Question 4 for further details.
The brokerage of insurance services itself is governed by the Broker Act (Maklergesetz, MaklerG).
Yes. Insurance and reinsurance brokers (whether local or foreign, and acting as legal entities or individuals) are subject to their own special regulations. Other market intermediaries and ancillary parties also have special regulations, i.e., sales agents, loss adjustors and life annuity agents. All such entities are supervised and monitored by the Insurance Regulator.
Intermediaries doing business in Switzerland are subject to regulation in accordance with Art 40 to 45 ISA in combination with Art 182 to 190 ISO.
Brokers (i.e. intermediaries who are not legally or economically tied to an insurance company) have to register themselves in FINMA’s public intermediaries’ register, Art 42, 43 ISA.
The broker has to meet the following prerequisites to get registered in accordance with Art 44 ISA, 184 et seq ISO:
- Professional qualification evidenced by an exam or equivalent proof.
- Personal integrity, i.e. no criminal or debt records.
- PI insurance or equivalent financial security.
Intermediaries are deemed tied intermediaries and exempt from the duty to register if they:
- Realise commission payments in the course of 1 calendar year predominantly from one or two insurance companies
- Receive remuneration from an insurance company that could affect their independence or have a cooperation agreement with an insurance company that could impair their independence
- hold a participation in an insurance company that exceeds 10 per cent, are in the management of an insurance company, or can influence the business of the company by any other means.
The exemption applies accordingly if an insurance company holds more than 10 per cent of the share capital of the intermediary’s operation, or if the company can influence the business of the intermediary by other means.
Intermediaries are subject to certain obligations concerning information towards their customers, Art 45 ISA, 190 ISO.
According to the General Law, the SBS authorizes and regulates the activities of insurance intermediaries and keeps a record of them. The registry specifies the services of the branches of insurance in which each one can operate, as appropriate. The denomination of insurance intermediaries comprises insurance and/or reinsurance brokers.
The SBS previously authorizes the accomplishment of the intermediation and other activities complementary to these in the contracting of insurance.
Yes, all insurance intermediaries (including insurance brokers) are subject to the regulations issued by the IRDAI. Insurance intermediaries are required to be licensed in accordance with the applicable regulations for that form of intermediary and are required to comply with, inter alia, the specific code of conduct prescribed by the IRDAI. Only licensed insurance intermediaries are permitted to distribute insurance products for Indian insurers.
Generally, insurance brokers are subject to regulation under the IA.
Entry into insurance intermediation business in Singapore is fairly regulated and supervised. In Singapore, insurance agents are to be registered with the General Insurance Association of Singapore ('GIA') and insurance brokers are to be registered with MAS.
Insurance brokers are subject to the supervision of SUSEP and also to a self-regulatory body recently created by law (Brazilian Institute for Self-Regulation of the Brokerage Market for Insurance, Reinsurance, Capitalization and Open Complementary Pension Plans – IBRACOR). Moreover, insurance brokers are the only intermediaries entitled to receive commissions on the basis of insurance.
The Control Law and the Contract Law deal also with insurance brokers. According to the Control Law, an insurance broker must be licensed. In addition, the Control Law prohibits brokers from acting as intermediaries in an insurance transaction between an insured and an unlicensed insurer.
The Contract Law deals with the status of the insurance broker in the insurance transaction, and determines that generally the broker will be considered as the agent of the insurer for the purpose of negotiations towards an insurance contract and its conclusion; for the purposes of knowledge of material facts, for the purpose of receiving premium, and for the purpose of receiving notifications.
Yes, they are. The Insurance Act sets out three categories of insurance intermediaries which are all subject to the Act: insurance brokers, insurance agents and insurance subagents (Article 262).
Within the category of insurance agents, the MiFID-legislation introduced the category of “tied agent”. A tied agent is an insurance agent who exercises insurance intermediation activities in the name and on behalf of either one insurer or several insurers, as long as the insurance contracts of those insurers are not in competition with each other (Article 257, 5° of the Insurance Act). Insurers working with tied agents are entirely responsible for the acts and omissions of their tied agents and their compliance with the MiFID-rules of conduct.
Brokers and non-tied agents have to ‘personally’ fulfill all MiFID-rules of conduct.
Finally, it must be noted that insurance agents (tied and not tied) are also subject to Book X of the Belgian Economic Code (‘CEL’), on commercial agency.
Insurance intermediaries are subject to regulation in France. There are several categories of insurance intermediaries, the main ones are (i) brokers, (ii) general agents and (iii) tied agents. Insurance mediation activities may be carried on as a main activity or on an ancillary basis to other professional activities.
The authorisation regime applicable to insurance intermediaries is relatively light touch compared to that applicable to insurers. Indeed, insurance intermediaries are merely required to be registered on a list of insurance intermediaries held by the ORIAS (“Organisme pour le Registre des Intermédiaires en Assurance”) and for that purpose must demonstrate that they comply with professional capacity and fit and proper requirements, professional indemnity insurance and financial guarantee requirements.
Contrary to insurers, intermediaries are not to date subject to prudential and financial/ capital requirements or governance, internal control, accounting and reporting requirements. They are nonetheless supervised by the French Supervisory Authority (“Autorité de Contrôle Prudentiel et de Résolution” – ACPR) as regards the conduct of their business.
Other insurance related services (such as claims management and policy administration) that do not qualify as insurance mediation are not regulated and thus not subject to the abovementioned requirements.
Yes, the regulation, licensing and supervision of insurance agents, brokers, adjusters and other intermediaries in the distribution of insurance products is the responsibility of provinces and territories. In some jurisdictions, this supervision and licensing is delegated to local councils or other self-regulatory organizations which typically issue licenses, oversee proficiency of individuals and administer disciplinary sanctions.
A person (or firm) cannot undertake, or claim to undertake, insurance mediation or reinsurance mediation unless they are registered with the Central Bank pursuant to the European Communities (Insurance Mediation) Regulations 2005 (the “2005 Regulations”) or are passporting into Ireland on a freedom of establishment or freedom of services basis.
Insurance or reinsurance mediation means any activity involving proposing or undertaking preparatory work for entering into insurance contracts, or assisting in the administration and performance of insurance or reinsurance contracts that have been entered into.
On applying to the Central Bank to be registered as an insurance or reinsurance intermediary, the applicant must satisfy a number of criteria for authorisation, which include:
- the good reputation of directors;
- the knowledge and ability of senior management and key personnel;
- the holding of minimum levels of professional indemnity insurance; and
- maintenance and operation of client premium accounts.
The Central Bank maintains a register of authorised insurance and reinsurance intermediaries in Ireland and is responsible for supervising their compliance with regulatory requirements by way of advertising monitoring, themed inspections, general inspections and mystery shopping. Intermediaries are generally ranked as ‘Low Impact’ under the Central Bank’s supervisory framework, the Probability Risk and Impact System (“PRISM”). Therefore, intermediaries are subject to a lower level of supervision than imposed by the Central Bank on insurers and reinsurers.