This country-specific Q&A gives a pragmatic overview of the law and practice of insurance & reinsurance law in the Belgium.
It addresses topics such as contract regulation, licensing, penalties, policyholder protection, alternative dispute resolution as well as personal insight and opinion as to the future of the insurance market over the next five years.
This Q&A is part of the global guide to Insurance & Reinsurance. For a full list of jurisdictional Insurance & Reinsurance Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/insurance-reinsurance
How is the writing of insurance contracts regulated in the jurisdiction?
The Act of 13 March 2016 on the statute and the supervision of insurance or reinsurance undertakings (‘Supervision Act’) sets out the legal framework for the writing of (re)insurance contracts by (re)insurers. The Supervision Act distinguishes (i) Belgian (re)insurers, (ii) (re)insurers from another EEA member state, and (iii) (re)insurers from third countries. A licence is necessary for every (re)insurer wishing to be active in Belgium, depending on its home country (see question 4 below).
The Insurance Act of 4 April 2014 (‘Insurance Act’) deals with the mediation and distribution of insurances by insurance intermediaries. The Insurance Act sets out three categories of insurance intermediaries which are subject to the Act: (i) insurance brokers, (ii) insurance agents, and (iii) insurance subagents. A registration is necessary for every insurance intermediary wishing to be active in Belgium, depending on its home country (see question 4 below).
Are types of insurers regulated differently (i.e. life companies, reinsurers)?
Yes, they are. The Supervision Act provides that non- life insurance undertakings are not allowed to simultaneously exercise life insurance activities (article 222). However, and by means of an exception, insurance undertakings which already simultaneously exercised non-life and life insurance activities on 15 March 1979 are allowed to continue such activities (article 223).
Secondly, in respect of reinsurers, Articles 18, 19 and 34 of the Supervision Act authorise a combination of insurance and reinsurance activities, subject to the condition that those activities are exercised by means of the required permissions set out in the said articles. The licence for insurance undertakings may be combined with the licence for reinsurance undertakings within the boundaries set by the National Bank of Belgium (‘NBB’) (Article 18). Each insurance or reinsurance undertaking must ask for an extension of its licence prior to extending its insurance or reinsurance activities respectively (Article 19).
Insurance undertakings must limit their statutory objective to insurance activities, whilst reinsurance undertakings must limit their statutory objective to reinsurance activities (Article 34).
Are insurance brokers and other types of market intermediary subject to regulation?
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.
Is authorisation or a licence required and if so, how long does it take on average to obtain such permission?
With respect to (re)insurers, a licence is necessary for every insurer or reinsurer wishing to be active in Belgium, depending on its home country: (1) Belgian (re)insurers must be licensed in Belgium prior to starting their activity (Article 17 of the Supervision Act ), (2) (re)insurers from another EEA member state may be active in Belgium either through a Belgian branch or through the freedom to provide services (Articles 550 and 556 of the Supervision Act), after having passported in Belgium the licence obtained in their home EEA country, or (3) (re)insurers outside the EEA must be licensed in Belgium (Article 584 of the Supervision Act).
After the completion of a file which complies with the relevant legal provisions, the process of obtaining a licence granted by the NBB may take around 2.5 or 3 months.
With respect to (re)insurance intermediaries, Article 262 of the Insurance Act states that registration is necessary for every insurance intermediary wishing to be active in Belgium, depending on its home country: (1) Belgian insurance intermediaries must be registered on the list of insurance intermediaries kept by the FSMA prior to starting their activity, (2) (re)insurance intermediaries from another EEA member state may be active in Belgium either through a Belgian branch or through the freedom to provide services after having passported in Belgium the registration obtained in their home EEA country, or (3) (re)insurance intermediaries from third countries must be registered with the FSMA prior to starting their activities in Belgium.
The FSMA has a period of 60 days after receipt of the future (re)insurance intermediary’s complete file to decide on the registration.
Are there restrictions over who owns or controls insurers (including restrictions on foreign ownership)?
Yes, the shareholders and partners of insurance companies must be able to ensure that the undertaking has a healthy and prudent policy (Article 39 of the Supervision Act). If they fail to do so, the NBB will not grant a license. The assessment of the capacity to guarantee such a policy is based on the following criteria: (1) the reliability of the shareholders and partners, (2) the professional reliability and expertise of every person that will take the actual lead in the undertaking, (3) the financial soundness of the shareholders and partners in respect of the exercised and intended activities within the undertaking, (4) whether the undertaking will continue to comply with the prudential obligations of the Act, and (5) whether there is good cause to believe that money laundering may take place or that terrorism has been or is currently being financed.
The Insurance Act or the Supervision Act do not contain any restrictions on foreign ownership or shareholding.
Is it possible to insure risks without a licence or authorisation? (i.e. on a non-admitted basis)?
The relevant criterion in answering this question is the criterion of the location of the risk contained in Article 15, 36° of the Supervision Act. The location of the risk will depend on the type of insurance contract concerned. If the risk is considered to be situated in Belgium, both the insurer and the insurance intermediary must be licensed (or have passported their licence) in Belgium. As a consequence, it is not possible to insure Belgian risks on a non-admitted basis.
Insurers active on the Belgian market sometimes make use of the so-called “Financial interest clause” or FIC. Such clause is designed to avoid issues that arise related to losses suffered by a subsidiary of a parent company that does not have the local admitted coverage required by the jurisdiction in which the subsidiary is located. The FIC enables the parent company to be covered for its financial interest in its subsidiaries and affiliates’ loss, where no local policy is issued abroad.
What penalty is available for those who operate without appropriate permission?
(Re)insurance undertakings performing their activities in Belgium without a licence are subject to a prison sentence of one month up to one year and a fine of 50 EUR up to 10,000 EUR or to only one of those penalties (Article 605 of the Supervision Act).
(Re)insurance intermediaries operating in Belgium without being registered and acting with fraudulent intent are, except in the case of more severe penalties included in the Criminal Code, punished by means of a prison sentence of 8 days up to 3 months and with a fine of 200 EUR up to 2,000 EUR or with one of those penalties alone. If an intermediary is convicted because s/he operated without the appropriate registration, the final or temporary closing of part of or the entire premises used for the exercise of the intermediary’s activity may be ordered. In the absence of fraudulent intent, a fine of 1 up to 25 EUR will be imposed (Article 308, §1 of the Insurance Act).
The prosecuting authority must prove the existence of fraudulent intent.
How rigorous is the supervisory and enforcement environment?
Since the introduction of a ‘Twin Peaks’ model in 2011, the supervising authorities are the Belgian National Bank, the NBB (focusing on prudential and financial supervision) and the Financial Services and Market Authority, the FSMA (focusing on contract law and consumer law).
Both authorities perform their supervisory tasks in a very active manner and have recruited additional staff. Both of these supervising authorities are known for being rigorous.
How is the solvency of insurers (and reinsurers where relevant) supervised?
The Supervision Act transposes the Solvency II Directive into Belgian insurance and reinsurance law and also takes into account the principle of proportionality as set out in the Solvency II Directive, meaning that the Belgian system of solvency supervision corresponds to the one in the Directive. The vast majority of the EIOPA guidelines have also been confirmed by the NBB and are transposed into Insurance Circular Letters or internal insurance procedures.
What are the minimum capital requirements?
The minimum capital requirement (‘MQR’) corresponds to the amount of eligible basic own funds below which an insurance undertaking can no longer be considered as viable (Article 189 of the Supervision Act). In that case, there is an unacceptable level of risk were the undertaking to be allowed to continue its operations. The MQR must be calculated in a clear and simple manner. In doing so, the undertaking must use a linear function. This function is to be calibrated to the Value-at-Risk of the basic own funds of the undertaking, subject to a confidence level of 85 % over a one-year period. The MQR also has an absolute floor which varies between 1,200,000 EUR and 3,700,000 EUR, depending on the activities and on the insurance branches. Moreover, the MQR cannot fall below 25 % nor exceed 45 % of the undertaking’s Solvency Capital Requirement. The MQR must be calculated at least quarterly, and the results of that calculation must be reported to the NBB.
Is there a policyholder protection scheme?
Yes, there is. The Guarantee Fund for financial services aims at intervening in the case where an insurance undertaking which is a member of the Fund can no longer comply with its obligations. However, only insurance undertakings under Belgian Law which are recognized as life insurers under class 21 (life insurance not related to investments funds) are protected. The Fund’s compensation is limited to a maximum amount of 100,000 EUR per person and per institution.
How are groups supervised, if at all?
Article 343 of the Supervision Act states that insurance and reinsurance undertakings under Belgian law which are part of a group are subject to supervision at group level, and this in accordance with Chapter II, Title IV of the Act, its implementing Decrees as well as with the implementing acts and measures of the Solvency II Directive.
The supervision at group level relates to group solvency (Articles 358-387), risk concentration and intragroup transactions (Articles 388-391), governance system at the level of the insurance or reinsurance group (Articles 392-398) and disclosure of information, meaning e.g. that a yearly report dealing with the solvency and financial position at the group level must be disclosed (Articles 399-406).
Do senior managers have to meet fit and proper requirements and/or be approved?
Yes, they do, as the “fit and proper” assessment is part of the prudential supervision carried out by the NBB. There are two assessment standards which are the most important: expertise and professional integrity (Article 40 of the Supervision Act). The circular letter of the NBB of 17 June 2013 provides additional details about the way in which the NBB interprets the “fit and proper” legal requirements.
The expertise (fitness) standard covers a number of areas, including appropriate knowledge and experience, skills, and professional behaviour. As far as professional integrity (property) is concerned, a distinction is made between the professional disqualification technique, which is an automatic mechanism (there is no room for appraisal by the NBB) and the wider-ranging assessment of professional integrity (to which, on the other hand, the NBB’s power of appraisal does apply).
Are there restrictions on outsourcing parts of the business?
Yes; Article 92 of the Supervision Act states that every insurance or reinsurance undertaking which outsources jobs, activities or operational functions remains entirely responsible for the fulfilment of its obligations arising from the Supervision Act. Furthermore, the outsourcing of operational functions cannot (1) materially impair the quality of the system of governance of the undertaking concerned, (2) unduly increase the operational risk, (3) impair the ability of the supervisory authorities to monitor compliance of the insurer with its obligations and (4) undermine continuous and satisfactory service to policyholders.
The NBB also requires that an outsourcing policy is drafted and approved by the board of directors of the insurer. An insurer is also obliged to set out a process allowing it to be determined whether a function or an activity is a crucial or important function or activity in respect of the management of the undertaking. Insurance undertakings should also, in a timely manner, notify the supervisory authorities prior to the outsourcing of critical or important functions or activities, as well as of any subsequent material developments with respect to those functions or activities (such as the termination of an outsourcing contract).
How are sales of insurance supervised or controlled?
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.
Are consumer policies subject to restrictions? If so, briefly describe the range of protections offered to consumer policyholders.
Yes, consumer policies are indeed subject to restrictions. Firstly, the MiFID rules of conduct are applicable to both insurers and insurance intermediaries. Secondly, the provisions of the Insurance Act are of a mandatory nature, which must also be regarded as a protection mechanism for consumers. Moreover, the Insurance Act also aims at protecting consumers. Finally, consumer policies must also be in compliance with consumer protection law, which can be found in Book 6 of the CEL. It is important to note that a consumer has a period of at least 14 calendar days to withdraw from a distance contract concerning a financial service, including an insurance policy. The consumer can exercise this right without payment of a fine and without reason (Art. VI.58, § 1 CEL).
Are the courts adept at handling complex commercial claims?
The answer to this question is mainly negative. This is due to the fact that (1) Belgian judges do not always have the required professional knowledge of (complex) insurance law and insurance contracts, and (2) when bringing proceedings before a Belgian Court, one must take into account the fact that most judgments will not be rendered within a short period of time and might be subject to delays. This is probably why in most property, casualty, PI and D&O policies, arbitration is preferred above jurisdiction of the courts.
Is alternative dispute resolution well established in the jurisdiction?
Yes it is. Reference can be made to the Belgian Centre for Arbitration and Mediation (CEPANI), which takes care of the active support of arbitration and mediation proceedings, and which places at the disposal of the parties a set of rules for arbitration, mediation and other forms of ADR. Ad hoc arbitration is also very often chosen in insurance policies. Additionally, many Belgian law firms and Belgian undertakings frequently rely on alternative dispute resolution when it comes to solving insurance law disputes.
What are the primary challenges to new market entrants?
The Belgian insurance market is an overcrowded, mature and competitive market. The sector faces a high pressure on cost. Several insurers active in Belgium announced at the end of 2016 their intention to let go staff, or even to stop their activities in Belgium.
To what extent is the market being challenged by digital innovation?
Digital innovation and InsurTech companies are growing quickly in Belgium. The new technologies and possibilities they offer to the insurance consumer certainly challenge the well-established insurers. Some of those have already invested in InsurTech companies.
InsurTech companies are also challenging well-established legal principles, leading to the conclusion that, at some level, Belgian legislation may no longer be appropriate for the insurance industry of the 21st century and will need further modifications.
Over the next five years what type of business do you see taking a market lead?
As the market is very mature, insurance products tailor-made for the specific customer will become more important and popular.
Insurance products linked to the development of new technologies (such as cyber insurance) will also most probably take a market lead and prove to have a competitive edge.
Finally, with an ageing population and the government social security budget under pressure, it is obvious that life and health insurance will continue to be around and even become more important in the daily lives of policyholders.
Note: the authors wish to thank their colleague, Anne Catteau, senior associate at Lydian, for her help in the preparation of this article.