This country-specific Q&A provides an overview to insurance and reinsurance laws and regulations that may occur in Belgium.
This Q&A is part of the global guide to Insurance & Reinsurance (3rd edition). For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/insurance-and-reinsurance-3rd-edition
How is the writing of insurance contracts regulated in your jurisdiction?
Belgium is a civil law jurisdiction. The Civil Code includes summary provisions on insurance, as well as general rules on contract and tort. The Code of Economic Law regulates consumer contracts and market practices.
In addition, Belgium has detailed legislation on contracts of insurance. The main sources of insurance law in Belgium are:
• Law of 13 March 2016 on the status and supervision of insurance and reinsurance undertakings (the “2016 Law”);
• the Law of 4 April 2014 on insurance (“the 2014 Law”);
• various Royal Decrees implementing the 2016 Law, such as the Royal Decree of 22 February 1991 on the general regulation on the supervision on insurance (“the 1991 Decree”);
• various Royal Decrees implementing the 2014 Law, such as:
- Royal Decree of 14 November 2003 regarding the activity of life insurance (the “2003 Decree”);
- Royal Decree of 16 April 2018 setting out the conditions for compulsory motor insurance contracts; and
- Royal Decree of 25 March 1996 implementing the Law of 27 March 1995 on insurance and reinsurance mediation and insurance distribution;
Belgium has a “twin-peaks” supervisory model. The National Bank of Belgium (the “NBB”) assumes responsibility for prudential supervision of the financial sector. A separate authority, the Financial Services and Markets Authority (“FSMA”), is responsible for regulation of financial services and markets, including the conduct of business of (re)insurance undertakings in Belgium, and for the registration and regulation of (re)insurance intermediaries.
Both the NBB and the FSMA provide guidance on the interpretation and application of the 2014 and 2016 Laws. Their Regulations are often ratified by a Royal Decree.
Are types of insurers regulated differently (i.e. life companies, reinsurers?)
In general, all insurers are subject to prudential rules, set out in the 2016 Law and implementing the Solvency II Directive. The 2016 Law applies to various categories of (re)insurance undertakings, including the Belgian branches of non-EEA (re)insurers. However, certain categories of insurance undertakings, operations and insurance activities are excluded from the scope of the 2016 Law, for example, as a general rule, insurance undertakings that form part of the statutory system of social security.
Insurers are authorised for specific classes of insurance (grouped under life and non-life headings; for example, in life, unit-linked, and in non-life, accident, sickness, etc.; between groups, classes can be combined or “supplementary”). Each class of insurance may be subject to specific laws and regulations. Examples of key differences include advertising, precontractual disclosures, contractual conditions and solvency requirements.
Reinsurers are treated in the same way as insurers, unless specific rules, reflecting the characteristics of the sector, provide otherwise.
Are insurance brokers and other types of market intermediary subject to regulation?
Chapter 6 of the 2014 Law, implementing the Insurance Distribution Directive, sets out the main requirements. The competent authority for registration and regulation of (re)insurance intermediaries is the FSMA.
The FSMA maintains a register of five categories of insurance intermediaries:
• sub-agents (of agents and brokers);
• ancillary intermediaries (a new category introduced on 6 December 2018); and
• “mandated underwriters” (cf. managing general agents) (a new category introduced on 3 April 2019).
An intermediary cannot combine different registrations and must at all times comply with the conditions for registration in its specific category. Furthermore, in accordance with the 2014 Law, implementing Royal Decrees and FSMA regulations and guidance, intermediaries are subject to extensive conduct of business rules, in particular in the long-term savings sector (similar to MiFID II provisions).
Is authorisation or a licence required and if so how long does it take on average to obtain such permission?
Belgian law prohibits: (i) underwriting by an unauthorised (re)insurer; (ii) insurance mediation/distribution in relation to prohibited underwriting; and (iii) distribution of insurance by intermediaries without FSMA registration or EU passport rights.
The primary legislative text for the authorisation and supervision by the NBB of (re)insurers is the 2016 Law. The 2016 Law applies to various categories of (re)insurance undertakings, including the Belgian branches of foreign, i.e. non-EEA, (re)insurers. Authorisation is granted on fulfilment of statutory and regulatory conditions. The insurer is authorised for specific classes of insurance.
Authorisation must be granted or refused within a period of six months from the date of receipt by the NBB of a complete application. Authorisation is published in the State Gazette.
The NBB issues the authorisation. Authorisation must be used within 12 months and without interruption for a period exceeding six months or it will be forfeited.
The NBB has released a guidance memorandum for applicants seeking authorisation as insurers. These guidelines set out a two-phase procedure for the application (preparatory and approval in principle; and formal filing). The guidelines also comment on the information for the application, for example a business plan, insurance classes, organisation and management of the company, internal supervision, audit and compliance, technical and financial questions, asset liability management, etc.
The quality of the application and the scope of activities contemplated determine the statutory and additional capital and other requirements which the NBB sets in a given case, as well as the timetable to authorisation.
Insurance intermediaries must submit an application for registration to FSMA. Provided the application is complete, registration is possible within weeks.
Are there restrictions or controls over who owns or controls insurers (including restrictions on foreign ownership)?
Shareholders of an (re)insurance undertakings need to be suitable to ensure the prudent and sound management of the undertaking. Persons controlling the undertaking must meet fit and proper requirements.
The NBB also supervises control of undertakings through various mandatory notifications. It can, for example, refuse the appointment of board members, object to transactions, and suspend the exercise of shareholders’ voting rights or order their transfer.
Is it possible to insure risks in your jurisdiction without a licence or authorisation? (i.e. on a non-admitted basis)?
Limited business is possible on a “non-admitted” basis.
Certain categories of insurance undertakings, operations and insurance activities are excluded from the scope of the 2016 Law, for example, as a general rule, insurance undertakings that form part of the statutory system of social security.
As for other examples of exclusions set out in the 2016 Law: (i) for non-life insurance contracts, the 2016 Law does not apply to certain assistance activities, to operations of provident and mutual benefit institutions, export credit insurance operations for the account of, or guaranteed by, the State, on-the-spot car breakdown assistance activities and non-life mutual undertakings that are fully reinsured; and (ii) for life insurance contracts, the 2016 Law does not apply to operations of provident and mutual-benefit institutions, and the activities of organisations which undertake to provide benefits solely in the event of death, where the amount of such benefits does not exceed the average funeral costs for a single death or where the benefits are provided in kind.
Subject to detailed conditions, the 1991 RD also allows limited non-admitted business for risks related to maritime shipping, commercial air transport, aerospace and international customs transit – often referred to as “MAT”.
For reinsurance contracts, the 2016 Law does not apply to reinsurance conducted or fully guaranteed by the government.
What penalty is available for those who operate in your jurisdiction without appropriate permission?
The 2016 Law provides for civil, administrative and criminal sanctions in case of operating on the Belgian market without appropriate permission.
Contracts covering risks situated in Belgium concluded in breach of the prohibitions are null and void. However, in order to protect insureds’ interests, an insurer which has concluded such contracts is bound to perform the contract provided the policyholder has taken out the contract in good faith.
Book V of the 2016 Law provides for administrative fines up to 10% of the revenues of the (re)insurance undertaking and €5,000,000 for a natural person. The amount will be determined taking into account factors such as the gravity and duration of the breach, the financial capacity and the cooperation of the undertaking, the damage to third parties and the potential impact on financial stability.
Furthermore, undertakings and their management risk imprisonment of up to one year.
Insurance intermediaries acting without registration, as well as their directors and managers, risk an administrative fine of €5,000,000 or 5% of total annual revenue, whichever is higher, and, for natural persons, an administrative fine of €700,000. These fines may be increased if the breach has given rise to a profit or avoidance of a loss.
Non-registered insurance intermediaries risk imprisonment up to three months or a fine in lieu.
How rigorous is the supervisory and enforcement environment?
The NBB is no less rigorous than its larger neighbours in its scrutiny of prudential requirements and rules of conduct. Full and frank disclosure when preparing an application or responding to regulatory inquiry is required, but the NBB is also pragmatic, for example in the context of UK firms considering Belgium for their post-Brexit operations.
How is the solvency of insurers (and reinsurers where relevant) supervised?
The NBB describes its supervisory review process as “ a risk-based audit approach which is forward-looking and proportionate to the size, nature and complexity of the risks incurred by the undertakings.” It includes three stages of supervision: risk assessment, supervisory programme and supervisory measures.
The complex supervisory process derives from the 2016 Law and the NBB’s implementing regulations, as well as a summary on its website.
Insurance undertakings must disclose information to the NBB to allow it to review the insurer’s system of governance, its activities, the valuation bases used for solvency purposes, the risks to which it is exposed and its risk management systems, capital structure, needs and management. The insurance undertaking must disclose all relevant information spontaneously, regularly or upon the NBB’s request.
The NBB requires submission of reports, including the Solvency and Financial Condition Report (SFCR), the Regular Supervisory Report (RSR), and the Own Risk and Solvency Assessment (ORSA). Other information to be provided to the NBB includes the report of the management committee regarding the effectiveness of the governance system, various reports on activities of the external control functions, a list of out-sourced critical activities, functions and operational tasks, and various lists (loans, managers and independent control functions). Finally, an insurance undertaking must provide actuarial reports, documents related to its internal model, etc.
The NBB may also carry out inspections on the premises of the insurance undertaking or, in case of out-sourcing, of its service providers; it has power to interview employees and management.
Furthermore, the NBB reviews and evaluates the strategies, processes and reporting procedures adopted to comply with laws, regulations and administrative provisions. It also evaluates the adequacy of the undertaking’s methods and practices to identify possible events and future changes in economic conditions that could have adverse effects on the overall financial standing of the undertaking.
The NBB may subject the insurance undertaking to specific prudential stress tests if it considers that the general stress tests under Solvency II do not provide satisfactory results.
Finally, the NBB may subject insurance undertakings to specific supervisory measures, such as orders to remedy the situation within a certain period, administrative fines or “name-and-shame” measures.
What are the minimum capital requirements?
The minimum capital requirements (MCR) constitute the minimum financial threshold of a (re)insurance undertaking. In Belgium, the MCR of a (re)insurance undertaking is as follows:
• It is subject to an absolute floor (€2.5 million for non-life insurance undertakings, except for classes 10 to 15; €3.7 million for life insurance undertakings; €3.6 million for reinsurance undertakings, and €1.2 million for captive reinsurance undertakings);
• It is calculated taking into account technical provisions, premiums written, capital at risk, deferred taxes and administrative costs;
• It must correspond to 25% to 45% of the solvency capital requirement (SCR);
• It is calibrated to ensure a 85% confidence level over a one year period; and
• It is reported to the NBB on a quarterly basis.
Is there a policyholder protection scheme in your jurisdiction?
Belgium has no general policyholder protection scheme in place. Instead, specific categories of policyholders are protected by special schemes. The following categories of insurance are protected:
• Savings insurance products with capital protection (class 21 life insurance): savings up to €100,000 are covered by the guarantee fund in the event of insolvency of the insurance undertaking.
• Workplace accident and sickness insurance: Fedris, a federal agency, set up in 2017 as a merger between the Fund for Workplace Accidents and the Fund for Workplace Sickness compensates employees or other beneficiaries (e.g. relatives) in the event of:
- Insolvency of the insurance undertaking;
- breach of the employer’s duty to take out compulsory workplace accident insurance;
- Specific situations related to social security (e.g. workplace sickness, combined workplace accident and pension, and workplace accident due to terrorism or war).
• Motor insurance: the motor guarantee fund will assume responsibility for claims if:
- The person causing the damage is unknown;
- The person causing the damage is known, but not insured;
- The person causing the damage is known, but the vehicle is stolen;
- Insolvency of the insurance undertaking;
- The person causing the damage is exempt from the duty to take out motor insurance.
How are groups supervised if at all?
Group supervision is regulated under the 2016 Law and implements the “one roof” approach of Solvency II.
Where a group is made up of several EEA (re)insurers, the group is supervised by a single group supervisor, while the subsidiaries remain subject to national prudential supervision.
Where the ultimate parent undertaking is situated outside the EU, the NBB will check whether the group supervisor applies supervision equivalent to that required within the EU and, if not, will extend the solvency capital requirements to the non-EEA parent undertaking.
Group supervision is complex and comparable to the supervision required for single entities, in that it requires group-level steps and systems in relation to capital requirements, risk concentration, intra-group transactions and governance.
Do senior managers have to meet fit and proper requirements and/or be approved?
Yes. Senior managers must be natural persons meeting fit and proper requirements. These requirements are set out, among others, in NBB’s Circular 2018_25 on the fitness of directors, members of the management committee, persons responsible for independent control functions and senior managers of financial institutions.
Prior to approval of a manager’s appointment, the NBB will review whether the person meets fit and proper requirements. The NBB may decide that a positive decision is subject to recommendations, conditions or obligations. Conditions may include the completion of specialised training, the divestiture of an external directorship or other function or a probationary period at the end of which the NBB may decide whether or not to confirm its initial approval. It may also impose certain obligations, such as regular reports on on-going judicial proceedings, improvements in conflicts of interest policies or in “collective suitability”. The NBB can require continuous monitoring of compliance with such recommendations, conditions or obligations and, if necessary, may assess.
Are there restrictions on outsourcing parts of the business?
Any (re)insurance undertaking that outsources functions, activities or operational tasks, remains responsible for compliance with all prudential requirements.
Outsourcing may not lead to:
• material impairment of the quality of the governance system of the insurance undertaking;
• undue increase of the operational risk;
• impairment of the Bank’s ability to monitor compliance by the insurance undertaking with the obligations laid down by or pursuant to the 2016 Law;
• undermining of continuous and satisfactory service to policyholders, insureds and beneficiaries of insurance policies or the persons with an interest in performance of reinsurance policies.
The (re)insurance undertaking must inform the NBB in due time before outsourcing a function, activity or operational task.
Detailed requirements for outsourcing are set out in Chapter 7 of the NBB’s “Overarching Circular regarding the Governance System”.
How are sales of insurance supervised or controlled?
Insurance contracts are strictly regulated by the Civil Code, the Code of Economic Law and the key text for insurance law, the 2014 Law (see questions 1 and 11 above).
The FSMA supervises conduct of business rules. Under the 2014 Law, it has powers comparable to those of the NBB under the 2016 Law. It requires distributors of insurance products to disclose information spontaneously, regularly or upon specific request. It may carry out inspections at the distributor’s premises and interview its employees and managers.
Finally, the FSMA may subject the distributor to specific supervisory measures, such as an order to remedy a breach within a specified period, an administrative fine or “name-and-shame” measures.
Are consumer policies subject to restrictions? If so briefly describe the range of protections offered to consumer policyholders
Belgium has detailed legislation on consumer contracts of insurance, such as the 2014 Law noted above, and its implementing Royal Decrees. Others (non-exhaustive) provisions restricting freedom of contract (often implementing EU provisions) include:
• Belgium’s laws on use of an official language;
• the 1991 Royal Decree’s rules on pre-contractual disclosures for life and non-life contracts and on use of plain language;
• the Law of 2 August 2002 on the supervision on the financial sector and financial services provides rules on fair, clear and non-misleading information;
• various Royal Decrees on pre-contractual disclosures and mandatory terms, e.g. the Royal Decree of 14 November 2003 regarding the activity of life insurance; and
• restrictions on choice of competent jurisdiction (under the Brussels I bis Regulation and national rules).
Finally, various general texts apply. A key example is the Code of Economic Law, which sets out Belgium’s current implementation of the 1993 Unfair Contract Terms Directive, the 2005 Unfair Commercial Practices Directive and the 2011 Consumer Rights Directive.
Are the courts adept at handling complex commercial claims?
Yes. Insurance claims are usually handled by the Court of First Instance or the Commercial Court (recently re-named as the “Enterprise Tribunal”); both Courts have specialised chambers. Appeals are brought before the Court of Appeal. Appeal on points of law lies to the Court of Cassation (Belgium’s Supreme Court in civil and commercial matters).
Belgian courts decide independently and irrespective of the parties’ backgrounds. Corruption of judges is unknown. Judges have a thorough legal education and a high standard of professionalism. That said, different trends in case law can emerge depending on the regional jurisdiction of the Court in question.
Cases are decided in a cost-efficient manner. Court duties are low in comparison with other EU jurisdictions and awards for costs are reasonable, predictable and determined by law. The Belgian Revenue does, however, levy a duty on the amount awarded in disputes. The rate is 3% (for awards exceeding €12,500).
Belgian justice is often criticised for its lack of resources and insufficient staffing, which results in lengthy litigation.
Is alternative dispute resolution well established in your jurisdictions?
The 2014 Law prohibits the inclusion of arbitration clauses in contracts of insurance. However, the King – through Royal Decree - may provide for numerous exceptions to this rule. In practice, arbitration clauses are valid for numerous classes of insurance business.
Furthermore, Belgium has various out-of-court dispute resolution procedures.
Consumers can submit a complaint with the Insurance Ombudsman service which will usually intervene to mediate between the consumer and the insurance undertaking.
In addition, parties can settle the dispute on their own initiative. If they reach an agreement, the parties can ask the court to record the settlement. The court’s order has the same value as a judgment and is thus enforceable.
The court can order a judicial mediation if the parties so request or on the initiative of the court and with the agreement of the parties. If the parties agree on the choice, the mediator will be appointed. In other cases, the court will appoint an accredited mediator.
In class action procedures, the court will always order negotiation. Once again, the parties must agree on the appointment of a mediator before the court will do so.
What are the primary challenges to new market entrants?
Challenges to new market entrants are comparable with other EU jurisdictions and include the complex legal and regulatory framework and the existence of a mature and highly competitive market.
To what extent is the market being challenged by digital innovation?
Belgian insurance undertakings are innovating in their internal processes (use of big data, automation of business processes, agile working processes, data security, APIs, alternative distribution processes etc.) and products (cyber risk policies, customer service, etc.).
Although interest in cyber insurance is growing, including under pressure from the government and other sources, especially for SMEs, Belgian insurance undertakings face difficulties in understanding the risk. The lack of historical data, the systemic nature of potential events, insufficient information on risks and the lack of specialised underwriters remain challenges for the sector.
The FSMA and NBB consider FinTech as an important focus of their supervisory activities. The supervisors have set up a “FinTech contact point” to encourage new or existing market participants to consult the authorities.
Over the next five years what type of business do you see taking a market lead?
We expect InsurTech and the cyber insurance industry to grow significantly. Traditional insurance offerings will consolidate, but will remain highly relevant. Insurance undertakings that are able to introduce new technologies, such as artificial intelligence, APIs, digital customer service and the analysis of big data, into their classic business activities will enjoy a competitive advantage.