Belgium introduces new insurance industry client money and risk transfer rules


Belgium recently amended legislation on client money rules applicable to Belgian insurance intermediaries, bringing the law in line with regulations found in the EU's Insurance Distribution Directive (IDD), although the rules still contain gaps regarding reinsurance contracts.

For years, Belgian insurance law provided for a general regime of risk transfer for client money whereby the insurer bears the solvency risk of intermediaries. Money paid by the policyholder to the broker was deemed paid to the insurer and the insurer’s payment obligations vis-à-vis the insured were only discharged when actually received by the insured.

The legal regime had two components:

  • the risk transfer rule, which was applicable to all insurance policies governed under Belgian law; and
  • furthermore, the risk transfer rule was applicable to all insurance policies distributed by insurance intermediaries whether or not the policies were governed by Belgian law.

Upon implementation of the IDD into Belgian law, lawmakers made a technical error by failing to reiterate these two aspects of the scope of application of risk transfer rules. As a result, since 2018 Belgian insurance law provided that risk transfer rules were only applicable to insurance policies governed by Belgian law.

The effects of this omission were particularly acute vis-à-vis Brexit since many English law insurance intermediaries active in Belgium (either as a pre-existing subsidiary or by setting-up a new Belgian entity) distribute non-Belgian law governed policies. As a result, these industry players had concerns on how to treat their clients' money since it was unclear whether non-risk transfer arrangements could be put in place, taking into account the difficulty of anticipating whether the lawmaker would intervene on this issue.

In June 2021, Belgian lawmakers rectified this omission by applying the risk transfer rule to all insurance distribution activities taking place in Belgium. This rule now clearly applies to all Belgian law insurance intermediaries acting on all insurance policies whether or not the policies are governed under Belgian law.

While this clarification is certainly welcome (even though it now obliges brokers to adjust their Insurers Terms of Business Agreements into risk transfer terms of agreements), two uncertainties remain:

  • Do these new rules also apply to foreign insurance intermediaries doing business in Belgium (via a branch or on a freedom of services basis)? So far, it seems that the answer is no since the new legal provision does not specifically pertain to general goods (yet);
  • The risk transfer rule does not apply to reinsurance policies (either Belgian or non-Belgian) although the IDD requires member states to implement a client money regime. Since Belgium has not done this, lawmakers should fill this gap as soon as possible.

For more information on this legislation, implementation of the IDD and the Belgian insurance industry, contact your CMS client partner or local CMS experts: