Are insurance brokers and other types of market intermediary subject to regulation?
Insurance & Reinsurance (3rd edition)
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.
Intermediaries doing business in Switzerland are subject to regulation in accordance with ISA 40 to 45 in combination with ISO 182 to 190.
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, ISA 42, 43.
To get registered the broker has to demonstrate:
- Professional qualification evidenced by an exam or equivalent proof.
- Personal integrity, i.e. no criminal or debt records.
- PI insurance or equivalent financial security (44 ISA, ISO 184 et seq.)
Tied intermediaries are not obliged to register, but they currently have the option to register if they meet the above-mentioned prerequisites. The current ISAISA/ISO does not provide a clear distinction between tied/untied intermediaries and it is possible that an intermediary is untied for intermediation of insurance contracts in one branch of insurance and tied for intermediation in another branch of insurance.
Intermediaries are subject to certain obligations concerning information towards their customers, ISA 45, ISO 190.
Proposed amendments by Pre-Draft ISAISA (not exhaustive):
- The Pre-Draft proposes a clearer distinction between tied and untied intermediaries: i.e. intermediaries will cease to be able to work as a tied intermediary for one branch of insurance and as untied for another branch of insurance; tied intermediaries shall lose the option to register with the FINMA’s intermediary’s register. The register shall become a register for untied intermediaries only (Pre-Draft ISA 42, 42a, 45 para 1 lit b)
- Untied intermediaries will have to disclose to the customer any kind/amount of commission they will receive from the insurer before they are allowed to accept such commission. If being paid by the customer, a waiver of the customer will be required or, alternatively the intermediary must pay the commission received from the insurer (?) completely to the customer (Pre-Draft ISA 45a).
Under the IBA, persons who may solicit insurance include solicitors, brokers, agents and the executives or employees of an insurer either as a corporation or an individual. Registration with the FSC is required with a classification under (1) life insurance, (2) non-life insurance, or (3) accident & health insurance (e.g., personal injury, disease and hospitalisation insurance), but a person may be registered for all three areas if qualified. The general requirements are related to education/training, and work experience. A person who is declared to be incompetent; bankrupt; penalised heavier than under the IBA; imprisoned for criminal acts; had a prior registration revoked as a solicitor, agent or broker; or embezzled funds may be disqualified from registration.
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.
In China, insurance intermediaries include insurance brokerage institutions, insurance agencies and insurance adjusters. China has adopted the Regulatory Provisions on Insurance Brokerages, the Regulatory Provisions on Professional Insurance Agencies and the Regulatory Provisions on Insurance Adjusters to regulate insurance brokerages, insurance agencies and insurance adjusters.
In China, insurance brokerages and insurance agencies have to be in the form of either a limited liability company or a joint-stock limited company. Brokers provide intermediary services to insurance applicants and insurance companies to execute insurance contracts based on the interests of insurance applicants and the insured, while insurance agencies are, based on authorizations by insurance companies, authorized to handle insurance business on their behalf. The two regulations on insurance brokerages and insurance agencies respectively provide the requirements on market access, operation rules, market exit, supervision and inspection, and legal liabilities. Further details are also provided regarding the business establishment, qualifications of personnel, scope of business and prohibited acts.
Insurance brokers, agents and other types of intermediaries are regulated by the new Danish Insurance Mediation Act, which took effect as of 1 October 2018. The new Act is based on the Insurance Distribution Directive (IDD) from January 2016, which regulates the way insurance products are designed and sold both by insurance intermediaries and directly by insurance undertakings.
As the IDD introduces general consumer protection principles for all insurance inter-mediaries to act honestly, fairly and professionally and in accordance with the best in-terests of the customer, the new Act increases the protection of consumers by intro-ducing stricter license and registration requirements (see question 4 below).
The increased focus on consumer protection has also resulted in adjustments of the statutory orders of good business practice and qualification requirements. These re-vised statutory orders also took effect as of 1 October 2018.
In brief, the new Act sets out certain educational requirements, and as a minimum re-quirement, insurance intermediaries have to show necessary knowledge of the terms and conditions of the policies offered, the applicable law, the insurance market, finan-cial competency, and claims and complaints handling.
The authorised supervisory body is the Danish Financial Supervisory Authority (FSA), which is an authority under the auspices of the Minister for Economics and Business Affairs. The primary task of the Danish FSA is supervision of financial businesses in Denmark, including insurance companies and insurance intermediaries doing business in Denmark. The Danish FSA supervises the insurance intermediaries' compliance with the new rules and has a right to withdraw licenses.
Insurance intermediaries must be registered with ORIAS, the French Register of Insurance Intermediaries. They must be of good repute and meet certain minimum requirements regarding their professional qualifications. Insurance intermediaries must also be insured for their professional liability and meet financial guarantee requirements.
Though they are also regulated by the ACPR, like insurers, insurance intermediaries are not subject to capital, governance or accounting requirements, unlike insurers.
The registration at the ORIAS must be renewed each year and it is subject to the payment of a fixed fee.
In a significant 24 October 2018 decision, the Cour de cassation addressed the consequences, for a broker, of being stricken off the obligatory registers (i.e. the ORIAS register and Trade and Companies register). The decision held that, once a broker had been stricken off these registers, it could no longer receive payments from its clients, including payments that were owed in connection with services that had been rendered before the broker was struck off the said registers. This decision is, therefore, quite severe, in that by making a strict application of the principle according to which a broker must be registered to perceive fees, it renders being stricken off the obligatory registers into a much more substantial sanction (Cass. 1st. Civ., 24 Oct. 2018, n° 16-16.743).
The new Insurance Distribution Directive, No. 2016/97 of 20 January 2016, thoroughly reformed the European legal framework regarding insurance distribution.
It has been implemented in France by Order No. 2018-361 of 16 May 2018 and by Decree No. 2018-431 of 1 June 2018. The French provisions entered into force on 1 October 2018 and introduced important changes to the French insurance intermediation market, specifically in relation to:
- intermediaries’ duties to inform potential insureds and provide advice on insurance products, which will now have to meet more exacting standards, and
- transparency, which is further promoted by new rules intended to provide policyholders with a greater degree of information regarding intermediaries’ remunerations and intended to prevent conflicts of interests.
Articles L511-1 et seq and Articles R511-1 et seq of the French Insurance Code, which regulate the distribution of insurance products, have thus been amended to comply with the Directive. These new provisions broaden the definition of distribution of insurance products, so as to include distribution over the phone and the internet. The recast version of Article L511-1 also applies to insurance companies, including the majority of distributors, that carries out this activity on a secondary basis.
Furthermore, the obligation for intermediaries to give precontractual information and advice has been reinforced by a decision rendered by the European Court of Justice, which held that even if precontractual advice is given with no real intention to enter into a contract from the intermediary part, the latter must nonetheless comply with its precontractual obligations, since its actions fall under the scope of intermediation (ECJ, 31 May 2018, C-542/16).
Insurance brokers and intermediaries do not fall within the regulation of the IA nor the LIA in Australia. While this means they do not need to obtain an authorisation or registration to conduct an insurance business, they are still a provider of financial services as they advise on insurance products. This means they are subject to Chapter 7 of the Corporations Act, and in most cases are required to obtain an AFSL from ASIC.
An exception to this general requirement is where an intermediary solely conducts reinsurance activities. As reinsurance is excluded from the definition of “financial products” in the Corporations Act, these intermediaries are exempted from the requirement to obtain an AFSL in respect of provision of financial services for reinsurance.
German law distinguishes between insurance brokers (Versicherungsmakler) acting for and representing the interests of the policyholder and insurance agents (Versicherungsvertreter) acting on behalf of the insurer. Pursuant to Section 34d of the German Commercial Code (Gewerbeordnung, GewO), both brokers and agents in general need to obtain authorisation from the Chamber of Industry and Commerce (Industrie- und Handelskammer, IHK) of the intermediary's registered seat (subject to exemptions, e.g. ancillary intermediaries or intermediaries acting for only one (or more, if not competing) insurer who has taken on full responsibility for the intermediary’s actions. BaFin does not directly supervise brokers and other intermediaries, but, due to certain statutory provisions such as Sections 23, 26 and 48 VAG, BaFin is authorised to monitor insurers' sales activities. This includes, but is not limited to, supervision of contractual agreements between insurers and insurance intermediaries.
The Control Law and the Contract Law acknowledge only one type of insurance intermediary, the insurance agent. According to the Control Law, an insurance agent must be licensed. The insurance agent is an intermediary between an Insured to a Licensed Israeli Insurer. The Control Law prohibits insurance agents 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 agent in the insurance transaction, and determines that generally the agent will be considered as the agent of the Insurer for the purpose of negotiations the insurance contract and its conclusion as well as for the purposes of knowledge of material facts, or receiving premium, and for the purpose of receiving notifications.
Yes insurance intermediaries are regulated in Italy and are subject to the supervision of IVASS in accordance to the ISVAP Regulation of 16 October 2006 n. 5.
To legitimately operate any Italian intermediary must passed the IVASS national exam and consequently be listed on the Sole Register of Insurance and Reinsurance Intermediaries (so called RUI).
A special section of the RUI lists natural persons and companies licensed as (re)insurance and intermediaries in other EU or EEA Member States who have also been authorized by IVASS to pursue insurance mediation in Italy based on the freedom of establishment or freedom of services.
Unless otherwise permitted by any other laws, the Insurance Business Act prohibits any person from acting as an agent or intermediary to solicit insurance contracts, an activity which falls under the definition of “insurance solicitation” under the Act.
In the case of a life insurance company, only registered life insurance agents (ie, officers and employees of a life insurer; or life insurance agencies (agents) as well as their officers, employees and other personnel) may conduct “insurance solicitation.” In principle, in the current legal system, life insurance agents operate within the so-called “one-company exclusive system”, meaning they may deal with the insurance products of only one insurance company. However, by fulfilling the prescribed legal requirements (such as enrolling two or more life insurance agents), it is possible to deal with the insurance products of multiple insurance companies, with quite a number of independent agencies currently doing so.
The situation involving non-life insurance companies (including reinsurance companies) is as follows:
- Officers (other than auditors) and employees of a non-life insurer may engage in “insurance solicitation” without being registered nor any notice thereof.
- Registered non-life insurance agencies as well as their officers (with the exception of auditors) and employees may engage in “insurance solicitation.” No officers or employees of non-life insurance agencies are required to be registered, but they are required to give notice of such a fact.
Registered insurance brokers may also engage in “insurance solicitation” (limited to mediating conclusions of insurance contracts). The Insurance Business Act has assigned special duties to such insurance brokers, including the duty to deposit a security guarantee (JPY20 million at the time of commencement of their business, which payment can be exchanged for an insurance brokers' liability insurance policy), the duty to disclose fees and commissions, the duty to prepare bought and sold notes, the duty of loyalty (the duty of “best advice”), and other special duties that have not been imposed on insurance agents.
Insurance brokers and other insurance intermediaries (insurance agents) are regulated by the Polish Act on Insurance Distribution of 15 December 2017 (the “Insurance Distribution Law”), which implements in Poland Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (the “IDD”).
The Insurance Distribution Law regulates the activity of both insurance brokers and insurance agents. It also introduces a new type of intermediary, i.e. an ancillary insurance agent. Additionally, following the IDD, it also regulates the distribution of insurance products directly by insurance undertakings.
Intermediation activity is subject to supervision by the KNF, which maintains a register of insurance agents and a register of insurance brokers as well as oversees their activity.
An insurance agent and ancillary agent act for and on behalf of an insurance company on the basis of an agency agreements and perform their activity through individuals (persons performing agency activity), who must meet specific regulatory requirements and be entered into the relevant register of insurance agents.
An insurance broker acts for and on behalf of the policyholder and performs its activity through individuals (persons performing agency activity), who must meet specific regulatory requirements.
Insurance brokers or intermediaries in Chile are regulated by articles 57 and following of DFL 251 and Supreme Decree 1055 (DS 1055) which contains the "Regulation of Auxiliaries of Insurance Commerce". In general terms, articles 57 and following of DFL 251 establish the conditions of access that brokers must comply with and the liability regime. For its part, DS 1055 contains specific rules on the information and advice obligations that intermediaries must comply with in the marketing of insurance, in addition to other obligations such as that of delivering the policies of the insurances they have intermediated, the collection of premiums and their commissions.
Once the insurance broker meets the conditions for access to the activity (a detail in Article 58 of DFL 251), they must be entered in a special register which is maintained by the CMF. Exceptionally, and in the case of insurance intermediation for international maritime transport, international commercial aviation and goods in international transit, the intermediary may be foreign people or entities not registered in the national registry, provided that they are nationals of countries that maintain in force an international treaty with Chile on the matter (article 58bis of DFL 251).
Reinsurance brokers, on the other hand, must be included in a special register kept for this purpose by the CMF.
As a general rule, 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. Insurance brokers shall perform the intermediation activities solely through individuals certified by the CNSF to intermediate insurance contracts. The authorisation granted by the CNSF to individuals to intermediation insurance is valid for three years and may be renewed. Insurance brokers incorporated as entities may be authorised to act as such for an indefinite period of time.
As an exception, standard-form insurance contracts may be promoted and distributed by legal entities, without the intervention of an insurance broker or agent, provided that the insurance company and the legal entity enters into a services agreement previously registered with the CNSF, and that the employees, representatives or officers of the legal entities involved in the promotion of insurance products receive the training and/or certifications from the CNSF required under Articles 102 and 103 of the LISF.
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 Chapter 35 of the Sole Insurance and Surety Regulation (the “Circular”). 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.
Various activities undertaken in relation to contracts of insurance (including arranging a contract of insurance or assisting in the administration and performance and advising on contracts of insurance) are regulated under FSMA. Accordingly, authorisation must be sought from the FCA to act as an insurance intermediary (note that the PRA does not regulate insurance mediation).
It is also possible for an entity to become an appointed representative of a regulated firm in order to carry out mediation activities without itself being regulated, on the basis that the regulated principal has full responsibility for the actions of the appointed representative.
In 2018, the IA passed a number of regulations in relation to brokers and insurance intermediaries, the rationale of which was to widen the scope of the IA's powers and provide additional protection to policyholders.
In relation to brokers, the IA introduced the Resolution of the Insurance Authority Board Decision No. 12 of 2018 On the Law of Licensing and Registration of Insurance Consultants ('Registration of Insurance Consultants'). This included the prohibition of persons from practising the profession of an insurance consultant or broker without a licence from the IA (Article 2 of the Registration of Insurance Consultants). A brokerage licence is valid for one year and renewable annually (Article 9 of the Registration of Insurance Consultants) with stipulations governing a broker's professional indemnity.
Article 10.1 of the Registration of Insurance Consultants states that a sole insurance consultant or broker whose application is accepted must submit to the IA a professional indemnity insurance policy providing cover of 1.5million Dirhams. A corporate insurance consultant/broker must submit to the IA a professional indemnity insurance policy providing cover of 3million Dirhams (article 10.2 of the Registration of Insurance Consultants).
In relation to Third Party Administrators (TPAs) handling health insurance claims, Insurance Authority Board Resolution No. 9 of 2011 (as amended by Resolution No. 7 of 2015), is the applicable legislation. As per article 5, companies intending to perform health insurance third party administration must have a paid-up capital of at least 5million Dirhams and must have an insurance policy of no less than 3million Dirhams, covering its professional liability risks. Further, in contrast to brokers, TPAs can neither sell nor market health insurance policies as per article 6.
There are regulations set out also in the Insurance Law in relation to insurance market intermediaries. Actuaries are licensed and regulated in accordance with Administrative Decision No. 9 of 2017 on the Licensing and Registration Regulation of Actuaries and the Organisation of Their Work. Surveyors and Loss Adjusters are licensed and regulated in accordance with Insurance Authority Board of Directors Resolution No. 6 of 2010 Concerning Surveyors and Loss Adjuster's Regulations.
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).
Insurance agents and brokers (often referred to collectively as insurance “producers”) must be licensed by the insurance department of each state in which they operate. Insurance agents are typically representatives of insurance companies whereas insurance brokers generally negotiate and procure insurance coverage on behalf of policyholders.
Typically, there are separate licensing requirements for different lines of business.
Licensing requirements frequently include pre-licensing educational course work, the successful completion of written examinations and continuing education after licensing. Applicants for producer licenses are also often subject to criminal background and credit checks.
Other entities that may be subject to regulation include general managing agents (“MGAs”) assisting in the underwriting of policies and third party claims administrators (“TPAs”). These entities are frequently required to be registered and appointed by an insurer and must have a certificate of registration issued by state regulators. Reinsurance intermediaries are also required to be licensed in many jurisdictions in the U.S.
State regulators may revoke or suspend the licenses and/or certifications of producers, MGAs, TPAs and consultants for violations of insurance and other laws and for fraudulent or other misconduct. Typically, regulators must provide fair notice and a hearing to the producer, MGA, TPA, or consultant accused of wrongdoing before taking action against them.
Although generally regulated in the Insurance Law, insurance brokers, reinsurance brokers, loss adjusters and insurance agents are subject to separate specific regulations that are different to those for insurers and reinsurers. For example, OJK licensing regulations require insurance brokers, reinsurance brokers, loss adjusters and insurance agents to be registered with OJK. In addition, insurance agents must be certified by a relevant insurance industry association.
Yes, all insurance intermediaries (including insurance brokers) are subject to the regulations issued by the IRDAI. Insurance intermediaries are required to be licensed/registered 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/registered insurance intermediaries are permitted to distribute insurance products for Indian insurers.
Insurance agents and brokers are subject to regulatory requirements under the LIA and NLIA. Insurance agents are typically persons delegated by insurance companies to solicit or procure insureds/policyholders to enter into insurance contracts with the insurance companies. Insurance brokers are persons who indicate the opportunities or arrange for insureds/policyholders to enter into insurance contracts with insurance companies, in return for a commission. Insurance agents must be individuals only but insurance brokers may either be individuals or juristic persons.
Insurance broking is a regulated trade pursuant to the Trade Regulation Act (Gewerbeordnung; GewO). Insurance mediation can either be carried out by insurance agents or insurance brokers, depending on their relationship to the insurer. Both insurance brokers and insurance agents have to be authorised under the GewO (cf. Question 4).
The brokerage of insurance services itself is governed by the Broker Act (Maklergesetz, MaklerG).
The Insurance Distribution (Recast) Directive 2016/97 (the “IDD”), which introduced significant changes to the (re)insurance mediation regime across the EEA was transposed in Ireland on 1 October 2018 by the European Union (Insurance Distribution) Regulations 2018 (the “2018 Regulations”). Under the 2018 Regulations, a person or an entity cannot undertake or purport to undertake (re)insurance mediation unless they are registered as a (re)insurance intermediary or are exempt from registration. Currently, an applicant can seek registration as a (re)insurance intermediary and must submit an application to the Central Bank in the prescribed format together with all supporting documents that the Central Bank requires. Similar to an application for authorisation as a (re)insurer, a business plan and a detailed programme of operations is submitted to the Central Bank. The Central Bank aims to assess the application within ninety working days of receiving the complete suite of documents. Similar to (re)insurers, holders of certain key posts in (re)insurance intermediaries are subject to pre-approval by the Central Bank in accordance with its fitness and probity regime. On applying to the Central Bank to be registered as an (re)insurance intermediary, the applicant must satisfy a number of criteria, which includes the holding of minimum levels of professional indemnity insurance and maintenance and operation of client premium accounts.
The Central Bank maintains registers of all registered (re)insurance intermediaries authorised by the Central Bank. Intermediaries are generally ranked as ‘Low Impact’ under PRISM, the Central Bank’s supervisory framework, and are subject to a lower level of supervision than imposed by the Central Bank on (re)insurers.
While the definition of insurance distribution in the 2018 Regulations is broad, there are some notable exceptions. Insurance distribution does not include:
- the provision of information on an incidental basis in conjunction with some other professional activity, as long as the purpose of the activity is not to assist a person to enter into or perform an insurance contract;
- the management of claims of an insurer on a professional basis, or loss adjusting, or expert appraisals of claims for insurers;
- the provision of data and information on potential policyholders to (re)insurance intermediaries and (re)insurers where no additional steps are take to assist in the conclusion of the contract; and
- the provision of information about (re)insurance products from a (re)insurance intermediary or (re)insurer to potential policyholders, provided that no additional steps are taken to assist in the conclusion of a (re)insurance contract.
Ancillary insurance intermediaries are exempt from registration under the 2018 Regulations provided that the insurance distributed is complementary to the good or service provided by the ancillary insurance intermediary and covers:
(a) the risk of breakdown, loss of, or damage to, the good or the non-use of the service supplied by that provider; or
(b) damage to, loss of, baggage or other risks linked to travel booked with that provider, and
the amount of the premium paid for the insurance product does not exceed €600 calculated on a pro-rata annual basis, or does not exceed €200, where the duration of the service is equal to or less than 3 months.
The EU Regulation on Key Information Documents for Packaged Retail and Insurance-Based Investment Products (EU 1286/2014) (the “PRIIPs Regulation”) came into effect in Ireland on 1 January 2018. It mandates that a standardised key information document (“KID”) be provided by those manufacturing or distributing packaged retail and insurance-based investment products (“PRIIPs”) to retail investors before concluding a contract for a PRIIP. To the extent that an intermediary manufactures a PRIIP, they are responsible for producing the KID and ensuring that it is accurate and up to date. Intermediaries that advise on or sell PRIIPs are responsible for ensuring that the KID is provided to the retail investor in good time before the conclusion of the contract. A KID is required for all ‘packaged’ investment products, including insurance-based investment products, investment funds, structured deposits and derivatives. However, intermediaries advising on or selling Undertakings for Collective Investment in Transferable Securities (“UCITS”) funds are exempt from the PRIIPs Regulation until 31 December 2021. In the interim period, such intermediaries are required to continue providing the UCITS Key Investor Information Document (“KIID”) as required under the UCITS Directive to retail investors.