How are sales of insurance supervised or controlled?
Insurance & Reinsurance
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 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.
Sales of insurances are supervised by the DFSA, as per above. In addition, supervision and control is also performed by different Ombudsmen, e.g. the Danish Consumer 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.
The Insurance Law and the Insurance Intermediation Law set 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 will also be 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.
Insurance activities in Turkey are subject to Act on the Protection of Competition numbered 4054. Agreements, decisions and practices preventing, distorting or restricting competition in markets for goods and services, and the abuse of dominance by the undertakings dominant in the market fall within the scope of the relevant rules of this Law.
Also usage of the insureds’ personal data might be subject to the Personal Data Protection Law numbered 6698. The Personal Data Protection Law's objective is to protect, in particular, the right to privacy and other fundamental rights and freedoms of individuals in the processing of personal data, and to regulate the procedures and principles for individuals and legal entities processing the personal data. Insurers’ transactions might be subject to the sanctions in the Personal Data Protection Law.
All insurance undertakings are required to comply with the general good requirements, which regulate the manner in which insurance undertakings may sell and market insurance products to consumers in Ireland. These general good requirements for the sale of insurance are set out in the:
(a) Central Bank’s Consumer Protection Code 2012 (published by the Central Bank);
(b) Consumer Protection Act 2007;
(c) Sale of Goods and Supply of Services Act 1980;
(d) European Communities (Unfair Terms in Consumer Contracts) Regulations 1995; and
(e) European Communities (Distance Marketing of Consumer Financial Services) Regulations 2004.
Where these requirements are not complied with, entities and their management should expect vigorous investigation and enforcement action by the Central Bank.
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.
The primary supervision and control is performed by the FSA. However, there is also an indirect supervision and control performed by different ombudsmen and other competent bodies, such as the Consumer Ombudsman and the National Board for Consumer Disputes, as well as several sectoral bodies, such as, but not limited to, the Board for Insurance of Persons, the Board for Bodily Injury Liability Insurance and the Board for Legal Protection Insurance Issues.
Since 23 February 2018, the new rules for insurance sales implementing the Insurance Distribution Directive (IDD) have been applicable in Germany. To date, BaFin has summarised its position on insurance sales in a circular (Circular 10/2014 on cooperation with insurance intermediaries, risk management in sales). In the course of the implementation of the IDD, on 11 January 2018, BaFin provided a revised version of that circular for consultation. The draft gives an indication 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, and generally should, ultimately find some direction.
There are also rules providing concrete 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).
Sale of insurance is regulated in the Insurance Contract Act, which determines relevant requirements in relation to disclosure etc. Cooling-off rights also apply to sales to consumers by telephone or online.
Marketing and sales activities are subject to relevant general legal requirements, such as unfair contract terms legislation under the Marketing Act. A part of the FSAN’s mandate is to ensure compliance with these requirements. The FSAN may issue an order to the effect that sales activities in contravention of the regulations shall cease. The FSAN may also, based on its discretion, impose a coercive fine on the insurer in case the unlawful circumstances have not been corrected within a stipulated deadline.
Pursuant Article 202 of the LISF, Insurance companies may only offer services within the insurance operations they are licensed, through insurance products that comply with the requirements set forth by the LISF. As a general rule, insurance products must be registered with the CNSF.
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).
As previously mentioned, IA Resolution No. 3 of 2010, entitled the Code of Conduct and Ethics to be Observed by Insurance Companies Operating in the UAE, sets forth certain standards regarding the conduct of insurers with regard to their customers.
Pricing is controlled by Article 5, which requires the insurer to price in accordance with generally accepted technical rules on a risk based manner and to file these rates with the IA. Article 6 requires that the application for insurance be set forth in a clear manner and request only pertinent information. It is required that the applicant complete the application, and the information may not be inputted by an employee of the company.
Article 7 controls the policy requirement, which must generally be set forth in a clear and accurate manner. One specific requirement is that any provision which invalidates coverage must be printed in a conspicuous manner (i.e. different font or color). Another requires that any Arbitration Clause be contained in a “special agreement, separate from the general terms and conditions incorporated in the Policy.”
As per Article 11, publicity and advertisement of insurance policies is regulated to prohibit dissemination of any inaccurate information or other misleading statements with regard to the contents of any cover that is marketed, including the benefits and pricing thereof. Additionally, it is unlawful to publish any false information concerning the financial position of the company. Article 12 provides some additional requirements as to the advertisement of life policies, which generally prohibit any statement exaggerating the financial benefits that such polices may offer.
Sale of compulsory medical cover is further regulated at the Emirate level by HAAD and DHA, in accordance with their respective regulations, which generally impose a duty upon employers to provide such medical cover for their employees.
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.
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) will bring about profound changes, inter alia as to the day-to-day practice of all insurance agents and insurance brokers. While the corresponding implementation acts have not yet been passed in Austria, the new regime will likely also bring about 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 will also amend the rules on product regulation and was originally supposed to be implemented by February 2018. However, this deadline was recently postponed until July 2018 (cf. Directive 2018/411/EU).
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.
As stated above, all entities involved in the insurance activity have several reporting duties which include providing the Insurance Regulator information regarding the commercialisation of insurance, the types of insurance being commercialised, their distribution channels, etc.
This information is thoroughly reviewed by the Insurance Regulator, which may request any additional information it deems necessary to analyse an entity’s compliance with all insurance laws and regulations.
Insurance regulations also set forth rules regarding the contracting and commercialisation of insurance by different kinds of entities, and by means of different distribution channels.
The Insurance Regulator also supervises the commercialisation of insurance when receiving complaints from insureds. Upon receiving such complaints, the Insurance Regulator will most likely request the involved parties to provide all documentation evidencing the proper commercialisation of the insurance and, if a violation is detected, it may sanction the relevant insurer or insurance broker.
Sales is one of the key functions of an insurance company and as such subject to the general supervision by FINMA. In particular, FINMA may intervene in case of inappropriate sales techniques based on Art 46 ISA in connection Art 117 ISO.
The sale of insurance is only regulated in respect of mass insurance. The SBS has a Framework Regulation for the Marketing of Insurance Products (approved by SBS Resolution No. 2996-2010) which regulates the marketing modalities that insurance companies can use for purposes of offering mass products; understanding by such those standard insurance that do not require special insurance requirements in relation to insurable persons and/or assets.
Insurers are permitted to place insurance business either though their sales executives or through licensed insurance intermediaries. Insurers are prohibited from engaging unlicensed persons for soliciting and procuring insurance business or providing introductions or leads to insurers.
Payment of commission/remuneration to insurance intermediaries is required to be in accordance with the limits prescribed by the IRDAI. Insurers are also expressly permitted to pay “rewards” to insurance intermediaries in accordance with the limits prescribed under the applicable regulations.
All representatives of insurance companies or financial institutions who advises other and/or arranges for any contract of insurance in respect of life policies must be licensed under the Financial Advisers Act (Cap 110).
General insurance products may only be sold by individuals registered with Agents' Registration Board ('ARB') of the GIA through their principal insurers. These individuals must be equipped with minimum qualifications and fulfill GIA's Fit and Proper Criteria.
In general, the sale of insurance is carried out by brokers, subject to the supervision of SUSEP. Consumer law is applied concurrently to ensure that consumers receive adequate information and a guaranteed range of rights in relation to the reliability of the product purchased. From a Consumer Law point of view, there is a protection scheme headed by the Ministry of Justice, and composed of several bodies linked to state and municipal governments, in charge of supervising the sale of insurance.
The sale of insurance is a major part of an insurer’s activities. As such it is closely supervised by the Commissioner.
There are many different ways in which sales of insurance are supervised. Firstly, the Insurance Act contains several provisions regulating publicity and selling by insurance undertakings (Article 28, §2-§6). The Act also protects the interests of consumers. Also, the Royal Decree of 25 April 2014 specifically deals with information duties in respect of the selling of financial products to consumers.
Secondly, the FSMA also supervises the sale of insurance. Experience has shown that the FSMA is very proactive in this particular field.
Thirdly, the MiFID rules of conduct contain several requirements for the information provided by the insurers or insurance intermediaries, as well as actual requirements as to the content of this information.
Furthermore, the FSMA also exercises an ‘ex post’ control, often per sector or per insurance product, allowing it to review the general terms and conditions of insurance products offered on the Belgian market.
Finally, insurance customers can also have recourse to the Belgian Insurance Ombudsman as well as to the Belgian courts. Class actions are allowed under Belgian law.
Insurance 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, one can expect that from the 1 October 2018 onwards, insurance distribution supervision will be strengthened, as the Insurance Distribution Directive will come into force and introduce new obligations, 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.
The provincial and territorial laws and regulations pertaining to the licensing of insurance brokers and agents referred to in 3 above also regulate the sale and distribution of insurance products in their jurisdictions. The provincial and territorial laws require intermediaries to follow codes of practice and industry standards in the distribution of insurance products and the disclosure of certain information to customers such as the amount of premiums and commissions. The provincial and territorial laws and regulations also limit the payment of commissions from the sale of insurance products to properly licensed individuals.
The General Directorate of Insurance is in charge of control and supervision of insurance sales. To this end, the regulator conducts routine inspection on insurers to verify that insurers follow and comply with the required market practices.
This would apply not only to local/Spanish insurers but also to EU insurers operating in Spain on a FOE/FOS basis, as they must comply with market conduct rules set out by Spanish law and, more generally, with Spanish General Good Provision; and the Spanish General Directorate of Insurance will be competent to inspect / supervise compliance with these market practices.
The Spanish General Directorate of Insurance will also deal with customer claims and
complaints addressed to the so called "Claims Service" where customers can bring claims and complaints which were previously rejected or not dealt with within the relevant period (i.e. 2 months) by the Customer Service/Department of the insurance company. From our experience, one of the main reasons why a Spanish regulator decides to conduct an inspection or focus on a product, distribution chain or insurer is when there is a significantly increased or large number of claims and/or complaints.
With regard to compulsory insurance contracts, PIRL sets forth that:
a. ASF might require insurance undertakings to use standard clauses and policies for the purposes of contracting any type of compulsory insurance;
b. Any insurance undertaking intending to distribute any compulsory insurance contract shall disclose/notify to ASF the general and specific conditions of the respective insurance policy.
As regards non-compulsory insurance contracts, ASF might request insurance and reinsurance undertakings with registered office in Portugal, as well as branches of insurance and reinsurance undertakings with registered office in another EU member state or in a third country, to disclose the general and specific conditions of the insurance policies, its tariffs, technical basis, and other relevant documents.
For the purposes of guaranteeing compliance with actuarial principles, ASF might request insurance and reinsurance undertakings with registered office in Portugal, as well as branches of insurance undertakings with registered office in a third country to disclose the technical basis applied for the purposes of calculating tariffs, instalments, contributions and technical provisions related to life insurance contracts.
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).