Scope of application
The new regime will predominantly regulate the provision of “insurance mediation services” by insurers and their intermediaries (agents and brokers). It shall apply to all insurance products: both life and non-life products are concerned.
Rules of conduct
Base rules of conduct (such as the requirement to act honestly, to provide clear and appropriate information, to provide adequate reporting, to keep clients records and to address conflict of interests) will apply to all regulated entities.
Additional (and more constraining) rules of conduct will apply to regulated entities providing insurance mediation services in relation with life insurance products with a saving or an investment component (such as Universal Life or unit-linked products).
In that case, regulated entities will be required to collect detailed information on the client‘s knowledge, objectives and financial capacity and to carry out a suitability or appropriateness test.
For other insurance products, the current legal requirement to (merely) determine the client’s needs and requirements will continue to apply.
On top of the processes and documentation to implement to become MiFID compliant, all these rules will significantly increase the liability risk lying on the insurance sector’s professionals.
Another rule of conduct is likely to shake up the existing remuneration practices in the insurance sector. Indeed, under the so-called ‘inducement rule’, the remuneration of the sales network (agents and brokers) shall have to be disclosed to clients.
To date, the remuneration of agents or brokers is integrated and therefore hidden in the premium amount. Tomorrow, brokers and agents (other than tied agents – see hereunder) will not be regarded as acting honestly, fairly and professionally in accordance with the best interests of a client if they do not clearly disclose to the client the existence, nature and amount of their remuneration.
So far, insurance intermediaries were either agent or broker (or sub-agent). The new reform has created a new sub-category within the agent category, being the ‘tied agent‘. The category of agents will now be sub-divided into ‘tied agents’ and agents other than tied agents.
The tied agent is the agent who is subject to a contractual obligation to work exclusively with:
- either one single insurance undertaking (i.e. all its production comes from one insurer); or
- several insurance undertakings provided that the products of these undertakings are not competing with each other.
In that respect, if an agent may commercialize (i) non-life insurance products of the same class of insurance from different insurers or (ii) saving/investment life insurance products from different insurers or (iii) life insurance products other than saving/investment from different insurers, such an agent will be deemed to offer products which compete with each other and therefore will not be a tied agent.
To be noted that an agent could be deemed as a ‘tied agent’ for certain products (for instance, the agent works exclusively with insurer X for fire insurance products) and as an agent other than a tied agent for other products (for instance, this agent also works exclusively with insurer Y for universal life products and with insurer Z for class 23 products – both being saving/investment life products).
Tied agents will carry out their activities under full responsibility of the insurance undertaking (for all breaches to rules of conduct), which will increase the burden of control and monitoring of the latter’s distribution network.