On 20 January 2016, Directive (EU) 2016/97 on insurance distribution ("IDD") was adopted. An act adopted by the House of Representatives on 14 November 2018 implements this directive into Belgian law. This act gathers all the legal rules concerning insurance distribution into the Act of 4 April 2014 on insurance and repeals the AssurMiFID royal decrees and provisions on insurance found in the Act of 2 August 2002 on financial sector surveillance. The Belgian legislator has transposed IDD without "gold-plating", except in a limited number of respects.
IDD regulates the status of insurance product distributors through a minimum level of harmonisation. It also includes information requirements and conduct of business rules for such distributors. IDD contains specific requirements for investment-based insurance products ("IBIP"), defined by the directive as "an insurance product which offers a maturity or surrender value and where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations,…".
The act streamlines and clarifies the regulatory framework.
Scope
Compared to IDD's scope, the act extends the conduct of business rules and information requirements applicable to IBIP to other insurance products defined by the legislator as "savings insurance" (branches 21, 22 or 26 with a savings component) or "investment insurance" (essentially branch 23 products). The explanatory memorandum gives the example of branch 21 savings insurance products offering a fixed return or insurance of the "third pension pillar".
The Act of 4 April 2014 has been adapted to organise the status of ancillary insurance intermediaries. An ancillary insurance intermediary is the one that proposes, on an ancillary basis with regard to its main professional activity, certain insurance products that are complementary to a good or service primarily offered. The intermediary may be exempted from registration in the register of insurance intermediaries provided that the insurance price does not exceed EUR 200 and the insurance covers the risk of breakdown, loss of or damage to the good or the non-use of the service, or damage to or loss of luggage and other risks linked to travel booked with the intermediary. Insurance undertakings collaborating with such intermediaries will have to comply with information and control requirements.
Knowledge and professional skills
All persons taking part in insurance distribution must demonstrate a relevant level of knowledge and professional skills. A royal decree, to be issued on the FSMA's advice, will specify the relevant professional knowledge and skill requirements.
The act requires insurance undertakings active in insurance distribution to take organisational measures to ensure compliance with knowledge and skill requirements.
The act reinforces professionalism requirements by requiring persons directly taking part in insurance distribution to undergo at least 15 hours of professional training or development per year.
Conduct of business rules and information requirements
Implementing Regulation (EU) 2017/1469 lays down a standardised presentation format for the non-life insurance product information document.
For IBIP exclusively, information on advice costs, products costs, the cumulative effect of costs on the return on the investment and how the customer may pay for these costs must be provided at least once a year.
During the sale with advice of an IBIP, the distributor must provide, in principle before entering into the contract, a suitability statement specifying the appropriateness of the product to the customer's financial situation and investment objectives. If the distributor has undertaken to do so, it must provide a suitability report periodically.
The act allows various exemptions to the information requirements vis-à-vis professional clients, as in the case in the MiFID framework.
Conflicts of interest
Organisational and information rules concerning conflicts of interest apply to all insurance products, while IDD only imposes these rules for IBIP.
Inducements
According to the act, inducements may not have a negative impact on the quality of the service provided to the customer and may not impair compliance with the duty to act honestly, fairly and professionally.
A code of inducements laid down by the organisations in the insurance sector must draw up a list of inducements which have a negative impact and which will, in principle, be prohibited. This code must also define criteria permitting evaluation of the suitability of inducements with regard to the conduct of business rules.
Product governance
Rules on product governance apply to producers and distributors of every kind of insurance product, except coverage of large risks. A proportionality rule takes into account the type of product, the type of customer and the service provided.
The producer must specifically identify the target market, and must ensure that products meet the needs of the target market and are distributed to the target market. The producer must also regularly review the target market and the product performance. It is the distributor's responsibility to obtain and understand information regarding the product approval process.
Product governance does not exempt the distributor from assessing whether the product meets the customer's needs.
Additional control tools
The supervisory authorities (FSMA and OCM-CDZ) have new tools at their disposal to monitor compliance with insurance distribution requirements. In particular, there is a requirement to notify a collaboration between an insurance undertaking and an intermediary. As from the entry into force of the act, these collaborations must be established by written contract.
Information flows between insurance undertakings and intermediaries must also be regulated to ensure that the insurance undertaking provides the intermediary with the necessary information for the customer.
Transitional regime and entry into force
The act will enter into force 10 days after its publication in the Belgian Official Gazette.
Ancillary insurance intermediaries conducting their activity at the date of entry into force but who are not exempted from registration are authorised to pursue their activity for a period of two years after the entry into force of the act. Unless they have applied for full registration with the FSMA as ancillary insurance intermediaries within this two-year period, the authorisation will automatically terminate.