How are sales of insurance supervised or controlled?
Insurance & Reinsurance (3rd edition)
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 sales of insurance are mainly supervised and controlled by CBIRC according to the Insurance Law and other laws and regulations.
Insurance companies and insurance intermediaries shall enforce the management of sales promotion contents to prevent one-sided and false promotions and shall strictly manage and control the activities of insurance marketing and promotion on self-media by itself and its insurance practitioners to eliminate illegalities, irregularities and improper promotions. The insurance institution shall use plain and accurate language on promotion and sales pages to describe the main functions and features of insurance products, highlight contents that are likely to trigger ambiguity or easily overlooked by consumers, and refrain from using misleading words, etc.
An insurance institution who fails to be in compliance with the above requirements could be fined by CBIRC.
Sales of insurances are supervised by the Danish FSA, as per above. In addition, super-vision and control is also performed by different ombudsmen, e.g. the Danish Con-sumer Ombudsman, which is an entity that focuses on consumer protection.
Marketing and sales activities are subject to various general legal requirements under the Danish Marketing Act. Furthermore, private policyholders have a right to complain to the Danish Insurance Complaints Board and the Danish Consumer Complaints Board.
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 ISA 46 in connection ISO 117.
The IBA sets out various requirements and restrictions with respect to the sale of insurance including (1) the duty to explain material and important terms and conditions such as premium, coverage, claims procedures, etc.); (2) prohibition on providing false information and requesting the customer to terminate, non-renew, or cancel an insurance contract as inducement for another insurance product; (3) promise to pay special benefits including discounts, rebates, or other consideration; and (4) engaging in un-registered solicitors with the payment of commissions or other consideration.
Insurers may engage in telemarketing sales of insurance directly or through an agent subject to (1) the consent of the customers; (2) preparation of a standard script with product explanations which telemarketers shall comply with in telemarketing with prospective customers; (3) recording complete telephonic communications and retention of same in accordance with the record retention requirements; and (4) conducting compliance control checks on twenty percent (20%) of all insurance contracts concluded through telemarketing. Solicitation through the television, radio, as well as the internet may be conducted on the condition that insurers provide explanation on material and important terms are provided on the medium similar to that which must be explained in face-to-face solicitation above, but must be readable and presented in a way so that the potential customer may understand such terms and conditions.
Placement of insurance products is only regulated in respect of massive insurance. The SBS has approved a framework regulation for the marketing of insurance products (SBS No. 1121-2017) that governs the modalities available for insurance companies to place massive products. Its key provision is that insurance companies are responsible for any action performed on its behalf by any individual or entity, without regard to the marketing method applied.
Insurance companies who market insurance in France are subject to legal and regulatory requirements that aim to ensure that consumers and potential insureds are provided clear and fair information regarding the insurance products they are offered. For instance:
- the conclusion of insurance contracts is subject to the provision, by the insurer, of specific pre-contractual documents informing the potential insureds of their rights and obligations, as well as the exact extent of the proposed cover, and
- the advertising of insurance products is subject to the control and oversight of the ACPR.
In addition to the above requirements, by which insurers must abide, the ACPR includes several supervisory departments (such as the “Contrôle des pratiques commerciales” and the “Pôle commun assurance banque épargne”), whose missions are to monitor insurers and their business practices, so as to ensure compliance and verify that consumers are treated appropriately. The ACPR also issues “best practice” guidelines and has the power of handing down sanctions against offending insurers.
Finally, since the entry into force of the provisions transposing the Insurance Distribution Directive into French law on 1 October 2018, insurance distribution supervision has been strengthened. The directive and the French Order implementing it introduced new obligations for a new, larger category labelled “Insurance distributors”, which include “any insurance or reinsurance intermediary, any insurance intermediary on an ancillary basis or any insurance or reinsurance company”, as per Article L.511-1.
The most recent applicable rules impose more obligations to these insurance distributors such as:
- a requirement that insurers provide insurance intermediaries with standardized “Insurance Product Information Documents” regarding their non-life products and “Key Information Documents” regarding their insurance-based investment products, or
- the necessity, for insurers, of maintaining, operating and reviewing a specific process for the approval of each and every insurance product, as a result of new product oversight and governance requirements.
Since 23 February 2018, the new rules for insurance sales implementing the Insurance Distribution Directive (IDD) have been applicable in Germany. BaFin has summarises its position on insurance sales in a circular. In the course of the implementation of the IDD, on 11 January 2018, BaFin provided a revised version of the relevant version at that time for consultation. The received suggestions regarding the consultation procedure for a new distribution circular led to some changes in the text of the circular, mirroring the market views and practices. The revised circular (Circular 11/2018 on cooperation with insurance intermediaries and risk management in distribution) was issued on 17 July 2018. The circular provides guidance with respect to of the likely supervisory practice, not least with regard to the supervisory authority's interpretation of statutory provisions. Even though a circular from the supervisory authority does not have binding legal effect, BaFin is thereby establishing a framework in which market participants can find direction and these will generally be followed.
There are also rules providing specification of the IDD at the European level in the form of the directly applicable delegated regulations from the European Commission of September 2017 mentioned at the beginning on the product approval process under Section 23 para. 1(a) (new version) (VO 2017/2358) and on notification requirements and good conduct rules in the sale of insurance investment products (VO 2017/6229).
In addition, the EU Commission has defined standards for a product information sheet (Insurance Product Information Document, IPID) with an implementation regulation of 11 August 2017 (VO 2017/1469). This is implemented in Germany through a change in the regulation on notification duties from the Insurance Contract Act (VVG-InfoV).
On 20 December 2018, the new regulation on insurance intermediation and insurance advice ("Verordnung über die Versicherungsvermittlung und -beratung (Versicherungsvermittlungsverordnung - VersVermV)") has entered into force, which provides regulatory provisions for insurance intermediaries and advisors.
The sale of insurance is a major part of an insurer’s activities as such it is closely supervised by the Commissioner.
Insurance products can only be sold directly by Insurers or through a Licensed Agent.
The said supervision includes: supervision over the tariff of the insurance product, the presentation of the product, i.e. ensuring that there will be no misrepresentation.
Supervision of the activities of the agent.
The sale and advertisement of general and life insurance is regulated by the Corporations Act. The Corporations Act prescribes that any advertisement of an insurance policy must clearly specify the issuer and seller of the product, and the location of the product disclosure statement (PDS) must also be provided. The Corporations Act further requires any advertisement to include a statement that the buyer should consider the PDS in deciding whether to purchase the insurance. General and life insurers must provide ASIC with a copy of the first issue of the PDS for an insurance product offered to retail consumers. At the point of sale, retail customers must also be provided with a copy of the PDS (unless an exception under the Corporations Act applies). The PDS must set out prescribed content such as the fees payable, risks and benefits involved and the significant characteristics of the insurance product.
Beside the controls upon intermediaries, IVASS also performs a supervision upon the distribution of the insurance products in accordance to Article 182 of the Italian Private insurance Code.
In particular, IVASS ensure compliance with the principles of clarity, recognition, transparency and fairness of advertising and information on the conformity of the insurance contract with the advertising and in the pre-contract negotiations (with the information notice) and the execution of the insurance contract (policy conditions).
Solicitation of insurance is subject to a registration as well as various regulations, such as the duty to provide information and the duty to check the customer’s intent. In addition, the Insurance Business Act has introduced other measures, such as the Cooling-off System, or the Financial ADR System.
Apart from those regulations, the Insurance Act – which deals with insurance-related contract law (private law) – contains several mandatory provisions designed for the protection of consumers, which insurers cannot remove by agreement.
The Insurance Law sets out specific requirements to be observed by the sellers of insurance, both in respect of direct sales by insurance undertakings and sales by insurance intermediaries. Particular emphasis is placed on pre-contractual information, which must be provided to policyholders and insured persons. An additional set of rules governs sales of insurance-based investment products.
More specific and complex requirements for sales of insurance are set out in the Insurance Distribution Law. Prior to the conclusion of a contract, including in the case of non-advised sales, the customer should be given the relevant information about the insurance product to allow the customer to make a decision. In addition, in case of non-life insurance products, a standardised information document should be provided to the customer. An insurance intermediary should explain to the customer the key features of the insurance products it sells.
The KNF supervises and controls compliance of insurance distributors with these rules. It may carry out inspections at insurance undertakings in terms of their insurance sales as well as in terms of their cooperation with insurance intermediaries selling their insurance products. Under the Insurance Distribution Law, the KNF is also allowed to directly inspect insurance intermediaries.
There are also other institutions authorised to take action with regard to irregularities in the activity of insurance distribution reported by customers, including: the Office of Competition and Consumer Protection, the Financial Ombudsman, and consumer organisations.
In addition to the judicial control exercised by the courts, in accordance with Article 3(e) of DFL 251, and for the specific case of insurance with consumers, which involves the use of general conditions, the texts of such conditions can only be integrated into an insurance policy and marketed from the sixth day of their incorporation into a special deposit at the expense of the CMF . The approval of these texts by the supervisory authority is not necessary, however, the CMF may subsequently prohibit the texts of general conditions contrary to the law.
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.
Intermediation must be made through insurance brokers licensed by the CNSF or by legal entities in standard-form agreements supervised by the CNSF (see Question 3 above).
The FCA is obliged, under FSMA, 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.
In addition to the rules and guidance set out in its Handbook, 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 (“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.
Insurance products can only be sold in the UAE by insurers and insurance brokers and consultants licensed by the IA (Board of Decision No. 12 of 2018 Concerning the Regulation on Licensing and Registration of Insurance Consultants and Organization of their Operations). In addition, the sale of bancassurance is permitted in the UAE under Board of Directors Decision No. 13 of 2018 whereby there are bancassurance arrangements between a locally licensed insurer and a UAE-based bank.
In relation to policy pricing, article 5 of the Board Decision No. 3 of 2010 states that insurers must not add any excessive surcharges to the net premium or offer prices lower than the technical level, which may (i) put the insurer's financial position at risk; (ii) expose the insured interest to loss; and (iii) constitute uncontrolled competition in the insurance market.
In relation to the incorporation of terms within an insurance policy, an insurance policy must contain all of the terms and conditions that pertain to it (article 7 of the Board Resolution No. 3 of 2010). In addition, article 28 of the Insurance Law stipulates that clauses contained within the policy that exempt the insurer from liability must be written in bold characters, in a different print colour and be initialled by the insured. Failure to comply with this requirement can lead to a fine of 50,000 Dirhams (Cabinet Resolution No. 7 of 2019 Concerning the Administrative Fines Imposed by the Insurance Authority).
Historically, a governing law and jurisdiction clause, which provides for arbitration as the method of dispute resolution, is void unless it is contained within a special agreement, separate from the general printed conditions of the policy (Article 1028(d) of the Civil Code; Article 7(2) of the Insurance Authority’s Board Resolution No. 3 of 2010). This position may have changed following the issuance of the UAE Arbitration Law which relaxes some of the general formalities for arbitration agreements and expressly provides that arbitration agreements can be set out within a contract or incorporated by reference. However, it is not entirely clear how the UAE Courts will interpret the potential conflict between these provisions.
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.
Each state regulates insurance sales practices and marketing within its jurisdiction. State laws often require certain terms and conditions to be included in, or omitted from, insurance policies. The types of terms and conditions vary by state and line of business, but generally they relate to the following:
(1) cancellation and renewal;
(2) notice of loss requirements;
(3) incontestability clauses in life insurance policies; and
(4) appraisal clauses in fire or property policies providing for the right of each party to a loss appraisal.
State insurance laws also prohibit insurers from unfair and discriminatory market practices such as selling, underwriting, or adjusting claims based on impermissible factors, including a policyholder’s race, religion or credit history.
As an additional protection, courts have also interpreted terms to be implied in policies. For instance, courts have implied into policies a duty on the part of insurers to carry out their policy obligations in good faith and deal fairly and honestly with their policyholders. Various states recognize a cause of action against insurers (independent and separate from breach of contract claims) for violations of their duty of good faith and fair dealing, allowing insureds to seek exemplary or punitive damages beyond the limits of a policy.
In selling its insurance products, a company may only use the following channels:
(a) direct marketing;
(b) insurance agents;
(c) bancassurance; and / or
(d) any entity other than a bank.
A company may also market “micro-insurance products”, which are low price, high volume and relatively simple to administer, such as health, life, travel, vehicle, house and personal accident insurance, through channels (a) to (d) above and / or marketers (ie. persons or groups of people who have knowledge of insurance and micro-insurance products, such as agricultural cooperatives).
Cooperation arrangements for the selling of insurance products must be set out in a written agreement that requires OJK’s prior approval.
Insurers are permitted to place insurance business either through 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 also expressly permitted to pay “rewards” to insurance intermediaries in accordance with the limits prescribed under the applicable regulations. Per a recent Circular on “Remuneration to Insurance Intermediaries for Direct Insurance Business – New & Renewal” of 25th January 2019, insurance intermediaries are not entitled to receive any remuneration from insurers in case the insured receives or renews the insurance policy directly from the insurer.
The sales of insurance are regulated under the LIA and NLIA in several aspects including, among others, the form and contents of policies, rates of insurance premiums, advertisements, and sales of insurance through intermediaries.
The forms and contents of policies as well as the rates of insurance premiums must be approved by the OIC in advance. Any policies or premium rates previously approved by the OIC may be amended or repealed by the OIC at its discretion or at the request of insurance companies.
The texts of or pictures in an advertisement are deemed to be a part of the insurance policy. If any text or picture contains a meaning which conflicts with insurance policies, it would be interpreted in a way that is more favourable to the insured or beneficiaries.
Where the sales of insurance are conducted by insurance agents, the agents must not give any false information or conceal any fact which ought to be clarified, and must also comply with other requirements announced by the OIC. Insurance companies will be jointly liable with their insurance agents for any damages caused in relation to such sales and the agent’s conduct.
Insurance intermediaries have to be authorised in accordance with the GewO (cf. Question 3). The implementation of the Insurance Distribution Directive (Directive 2016/97/EU; IDD) has brought about profound changes, inter alia as to the day-to-day practice of all insurance agents and insurance brokers as well as changes as regards the supervision of insurance intermediaries by the FMA.
The IDD itself is broad in scope and not limited to the regulation of insurance mediation by insurance brokers and agents. In fact, it also covers the distribution of insurance investment products by insurers. The Directive’s main regulatory objective is to improve the protection of policyholders. For this purpose, the IDD seeks to avoid any conflicts of interest as regards the intermediary’s remuneration and imposes extensive disclosure and advisory obligations on the intermediary. The IDD also affects the rules on product regulation and was originally supposed to be implemented by February 2018. However, this deadline was subsequently postponed until July 2018 (and finally to October 2018).
Independent of the IDD’s transposition into national law, the VAG already 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 sub-organization of the Austrian Federal Economic Chamber, sets out professional standards mandatory to all Austrian insurance brokers. Since January 2017, a disciplinary commission supervises the compliance with said standards.
Irish authorised insurers and EEA insurers operating in Ireland on an FOS or FOE basis are required to comply with the general good requirements, which regulate the manner in which insurers 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 2012 (published by the Central Bank) (the “CPC”);
(b) The Minimum Competency Code 2017;
(c) Consumer Protection Act 2007;
(d) Sale of Goods and Supply of Services Act 1980;
(e) Equal Status Act 2000;
(f) European Communities (Unfair Terms in Consumer Contracts) Regulations 1995;
(g) European Communities (Misleading and Comparative Communications) Regulations 2007; and
(h) European Communities (Distance Marketing of Consumer Financial Services) Regulations 2004.
As a main rule the NFSA supervises and controls sales of insurance. In addition to this, consumer protection is carried out through the Norwegian Consumer Advisory Council and Consumer Supervision Authority. Consumers also have the possibility to file complaints concerning insurance companies and policies to the Norwegian Financial Services Complaints Board.
Marketing and sale of insurance are subject to a number of Norwegian regulations. Certain general requirements for sales are set out in the Financial Institutions Act of 2015 chapter 16, which includes provisions regarding information obligations to the purchaser, pricing, product packaging and terms and conditions. Marketing is regulated in the Norwegian Marketing Act, and insurance agreements are covered and supplemented by the Norwegian Act on insurance Agreements of 1989.
The Norwegian Act on Insurance Distribution of 2005 also sets out specific provisions for sales that are done through an insurance broker or insurance agent.