How are sales of insurance supervised or controlled?
Insurance & Reinsurance
Insurance undertakings are required to comply with the general good requirements, which regulate the manner in which insurance undertakings may sell and market insurance products to consumers in Ireland. These general good requirements for the sale of insurance are set out in the:
(a) Central Bank’s Consumer Protection Code;
(b) Consumer Protection Act 2007;
(c) Sale of Goods and Supply of Services Act 1980;
(d) European Communities (Unfair Terms in Consumer Contracts) Regulations 1995; and
(e) European Communities (Distance Marketing of Consumer Financial Services) Regulations 2004.
Where these requirements are not complied with, entities and their management should expect vigorous investigation and enforcement action by the Central Bank.
FSMA sets out various objectives that both the PRA and FCA must meet. The FCA is obliged to advance certain strategic objectives, including protecting customers. It is with these objectives in mind that the FCA has set out both rules and guidance in relation to sales of insurance policies. The requirements primarily seek to balance information asymmetries between the insurer and the policyholder; particularly where the policyholder is a consumer. Rules for non-investment policies can be found in the Insurance Conduct of Business Sourcebook (ICOBS) while rules for investment products can be found in the Conduct of Business Sourcebook (COBS). These rules will be applied to both insurers and intermediaries and may affect the design, content and means of communicating policy terms and the processing of insurance claims. COBS also introduces additional requirements for investment intermediaries to manage conflicts of interest and prohibits the payment of commission in advised sales.
In addition to the rules and guidance set out in the two sourcebooks, the FCA also requires all regulated firms to meet certain principles for businesses. Principle 6 requires firms to pay due regard to the interests of customers and treat them fairly. In order to meet these requirements, the FCA expects firms to meet six Treating Customers Fairly (or ‘TCF’) objectives. The six objectives seek to ensure that products and services are marketed fairly, meet the needs of customers, are sold with clear and comprehensible information, any advice received is suitable and that customers do not face any post sales barriers.
The primary supervision and control is performed by the FSA. However, there is also an indirect supervision and control performed by different ombudsmen and other competent bodies, such as the Consumer Ombudsman and the National Board for Consumer Disputes, as well as several sectoral bodies, such as, but not limited to, the Board for Insurance of Persons, the Board for Bodily Injury Liability Insurance and the Board for Legal Protection Insurance Issues.
Both the German Insurance Supervision Act and the German Insurance Contract Act (VVG) set out certain objectives on the sale of insurance products, in particular relating to the provision of information and suitable advice by the insurer and/or the insurance intermediary.
The insurer is obliged to provide suitable advice to the customer pursuant to section 6 of the German Insurance Contract Act. Where insurance products are distributed by insurance intermediaries, the insurer has to ensure that the insurance intermediary is a broker, or actually provides suitable advice to the customer to comply with the insurer’s corresponding obligation. The transposition of the European Insurance Distribution Directive into German law in 2017 will extend the advice obligations with regard to insurance-based investment products.
Sale of insurance is regulated in the Insurance Contract Act, which determines relevant requirements in relation to disclosure etc. Cooling-off rights also apply to sales to consumers by telephone or online.
Marketing and sales activities are subject to relevant general legal requirements, such as unfair contract terms legislation under the Marketing Act. A part of the FSAN’s mandate is to ensure compliance with these requirements. The FSAN may issue an order to the effect that sales activities in contravention of the regulations shall cease. The FSAN may also, based on its discretion, impose a coercive fine on the insurer in case the unlawful circumstances have not been corrected within a stipulated deadline.
Pursuant Article 202 of the LISF, Insurance companies may only offer services within the insurance operations they are licensed, through insurance products that comply with the requirements set forth by the LISF.
As a general rule, insurance products must be registered with the CNSF.
As a general rule, intermediation must be made through insurance brokers that must be licensed by the CNSF and are subject to the supervision of the CNSF (See 3 above).
As previously mentioned, IA Resolution No. 3 of 2010, entitled the Code of Conduct and Ethics to be Observed by Insurance Companies Operating in the UAE, sets forth certain standards regarding the conduct of insurers with regard to their customers.
Pricing is controlled by Article 5, which requires the insurer to price in accordance with generally accepted technical rules on a risk based manner and to file these rates with the IA. Article 6 requires that the application for insurance be set forth in a clear manner and request only pertinent information. It is required that the applicant complete the application, and the information may not be inputted by an employee of the company.
Article 7 controls the policy requirement, which must generally be set forth in a clear and accurate manner. One specific requirement is that any provision which invalidates coverage must be printed in a conspicuous manner (i.e. different font or color). Another requires that any Arbitration Clause be contained in a “special agreement, separate from the general terms and conditions incorporated in the Policy.”
As per Article 11, publicity and advertisement of insurance policies is regulated to prohibit dissemination of any inaccurate information or other misleading statements with regard to the contents of any cover that is marketed, including the benefits and pricing thereof. Additionally, it is unlawful to publish any false information concerning the financial position of the company. Article 12 provides some additional requirements as to the advertisement of life policies, which generally prohibit any statement exaggerating the financial benefits that such polices may offer.
Sale of compulsory medical cover is further regulated at the Emirate level by HAAD and DHA, in accordance with their respective regulations, which generally impose a duty upon employers to provide such medical cover for their employees.
The sale of insurance is supervised through the licensing of agents, brokers and others who sell insurance. In addition, most states have developed rules and regulations regarding sales practices and marketing. State laws prohibit fraudulent or misleading sales practices and deceptive or confusing advertising materials. Many states require insurance companies to maintain copies of advertising and sales materials for examination by insurance regulators.
State insurance laws also prohibit insurers and agents/brokers from unfairly discriminating in the underwriting or sale of insurance based on factors such as race, ethnicity, religion, prior travel, credit history or residence.
State insurance regulators periodically perform market conduct examinations of insurers to review their compliance with consumer protection laws, rate and form filing requirements and sales practices regulations.
Insurance brokers and intermediaries have to be authorized in accordance with the GewO (see Question 3). The brokerage of insurance services itself is governed by the MaklerG. The implementation of the Insurance Distribution Directive (Directive 2016/97/EU) will revise both laws in order to harmonise national provisions concerning insurance distribution. It has to be implemented into national law until February 2018 and will inter alia amend the rules regulating conflict of interest, product regulation and the distribution of insurance investment products.
The VAG provides the FMA with a range of powers to supervise and control intermediaries, e.g. to sanction the unauthorised sale of insurance products (cf. Article 329 VAG).
In addition, the Professional Association of Insurance Brokers (Fachverband der Versicherungsmakler), a subsidiary organization of the Austrian Federal Economic Chamber, sets out professional standards mandatory to all Austrian insurance intermediaries. Since January 2017, a disciplinary commission supervises the compliance with said standards.
As stated above, all entities involved in the insurance activity have several reporting duties which include providing the Insurance Regulator information regarding the commercialisation of insurance, the types of insurance being commercialised, their distribution channels, etc.
This information is thoroughly reviewed by the Insurance Regulator, which may request any additional information it deems necessary to analyse an entity’s compliance with all insurance laws and regulations.
Insurance regulations also set forth rules regarding the contracting and commercialisation of insurance by different kinds of entities, and by means of different distribution channels.
The Insurance Regulator also supervises the commercialisation of insurance when receiving complaints from insureds. Upon receiving such complaints, the Insurance Regulator will most likely request the involved parties to provide all documentation evidencing the proper commercialisation of the insurance and, if a violation is detected, it may sanction the relevant insurer or insurance broker.
Sales is one of the key functions of an insurance company and as such subject to the general supervision by FINMA. In particular, FINMA may intervene in case of inappropriate sales techniques based on Art 46 ISA in connection Art 117 ISO.
The sale of insurance is only regulated in respect of mass insurance. The SBS has a Framework Regulation for the Marketing of Insurance Products (approved by SBS Resolution No. 2996-2010) which regulates the marketing modalities that insurance companies can use for purposes of offering mass products; understanding by such those standard insurance that do not require special insurance requirements in relation to insurable persons and/or assets.
Insurers are permitted to place insurance business either though their sales executives or through licensed insurance intermediaries. Insurers are prohibited from engaging unlicensed persons for soliciting and procuring insurance business or providing introductions or leads to insurers.
Payment of commission/remuneration to insurance intermediaries is required to be in accordance with the limits prescribed by the IRDAI. Insurers are now expressly permitted to pay “rewards” to insurance intermediaries in accordance with the limits prescribed under the applicable regulations.
All representatives of insurance companies or financial institutions who advises other and/or arranges for any contract of insurance in respect of life policies must be licensed under the Financial Advisers Act (Cap 110).
General insurance products may only be sold by individuals registered with Agents' Registration Board ('ARB') of the GIA through their principal insurers. These individuals must be equipped with minimum qualifications and fulfill GIA's Fit and Proper Criteria.
In general, the sale of insurance is carried out by brokers, subject to the supervision of SUSEP. Consumer law is applied concurrently to ensure that consumers receive adequate information and a guaranteed range of rights in relation to the reliability of the product purchased. From a Consumer Law point of view, there is a protection scheme headed by the Ministry of Justice, and composed of several bodies linked to state and municipal governments, in charge of supervising the sale of insurance.
The sale of insurance is a major part of an insurer’s activities. As such it is closely supervised by the Commissioner.
There are many different ways in which sales of insurance are supervised. Firstly, the Insurance Act contains several provisions regulating publicity and selling by insurance undertakings (Article 28, §2-§6). The Act also protects the interests of consumers. Also, the Royal Decree of 25 April 2014 specifically deals with information duties in respect of the selling of financial products to consumers.
Secondly, the FSMA also supervises the sale of insurance. Experience has shown that the FSMA is very proactive in this particular field.
Thirdly, the MiFID rules of conduct contain several requirements for the information provided by the insurers or insurance intermediaries, as well as actual requirements as to the content of this information.
Furthermore, the FSMA also exercises an ‘ex post’ control, often per sector or per insurance product, allowing it to review the general terms and conditions of insurance products offered on the Belgian market.
Finally, insurance customers can also have recourse to the Belgian Insurance Ombudsman as well as to the Belgian courts. Class actions are allowed under Belgian law.
Insurance sales are supervised by the ACPR, having a specific supervision department dedicated to “business practices” (“Contrôle des pratiques commerciales”).
The role of this department is to control compliance by insurers and intermediairies with the regulations aiming to protect insurance consumers and policyholders, including the setting-up of adequate procedures and allocation of necessary resources in this respect.
The ACPR has also set up a specific platform dedicated to consumer protection in the field of investment and insurance products (“pôle commun Assurance Banque Epargne”), to which consumers may turn to, with complaints and queries. Note that the ACPR does not issue judgement over the complaint or query but may sanction the insurance company if it considers that it does not comply with the applicable regulations or behaves in a way which is not fair towards the consumer.
The ACPR also issues recommendations which are additions to or clarifications of the applicable regulations, dealing (among others) with (i) sales of insurance and (ii) marketing materials and use of social media.
Recently, the ACPR has sanctioned insurance intermediaries (brokers) for various non-compliance matters in connection with the conduct of business rules, in particular as regards duty to advise consumers.
We anticipate that, as a result of the new Insurance Distribution Directive, the ACPR’s supervision will be increased in the area of consumer protection.
The provincial and territorial laws and regulations pertaining to the licensing of insurance brokers and agents referred to in 3 above also regulate the sale and distribution of insurance products in their jurisdictions. The provincial and territorial laws require intermediaries to follow codes of practice and industry standards in the distribution of insurance products and the disclosure of certain information to customers such as the amount of premiums and commissions. The provincial and territorial laws and regulations also limit the payment of commissions from the sale of insurance products to properly licensed individuals.