Insurance Intermediation: Innovations and New Outlooks

Corporations are consistently faced with newly emerging regulatory and legal risks, particularly so during the last few years with the multiplication of texts regarding obligations concerning governance and corporate responsibility.

There is an increasing liability on corporations and their executives to provide a duty of care around the verification and independence of service providers. Their approach to compliance needs to be rethought in order to align with these evolving regulatory demands. In this context, the role of insurers and insurance distributors has also evolved and the new regulation fits into this perspective.

The Directive (EU) 2016/97 of the European Parliament and of the Council of January 16th 2016, on insurance distribution (known as the Insurance Distribution Act, hereafter ‘IDA’), was transposed into French Law with the Ordinance of May 16th 2018, which entered into force on October 1st 2018.

The insurance distribution sector is already strongly regulated in France, and intermediaries are subject to the licensing and inspection of the regulatory authority, the Prudential Supervisory and the Resolution Authority (Authorité de Contrôle Prudentiel et de Résolution, hereafter ‘ACPR’). The intermediary members of the European Union can exercise their activity thanks to an extension of their license, either in view of the freedom of establishment, or the freedom to provide services. Intermediaries foreign to the European Union are required to create a corporation in France that would be licensed and inspected by the ACPR.

The IDA has the main objective of extending the regulation and inspection to the complete chain of distribution, by integrating new actors, such as insurance comparators, and reinforcing their duties.

The Directive pursues a second objective: that insurance clients benefit from the same level of protection, regardless of the differences between the channels of distribution, and that they can, therefore, benefit from basic requirements for insurers in order to guarantee that they are perfectly informed. Concretely, the Directive reinforces the intermediary’s obligation to formalise a collection of requirements and pre-contractual information and to propose an insurance product perfectly consistent with the needs of the insured.

Additionally, there are transparency obligations concerning the remuneration of the entire chain of distribution. As an example, the IDA requires that the insured is informed regarding the existence of financial links with one or more insurance corporations.

Intermediaries must also indicate if they receive compensation and the nature of this compensation. More generally, intermediaries should not be compensated in a way which would go against their obligation to act in the best interest of their clients. Corporations that are not insurance intermediaries, but do distribute insurance contracts on an ancillary basis (for example Airbnb, telephone operators, banks, loyalty programs…), are also subject to the new regulation – but in a lighter way.

Indeed, intermediaries that distribute insurance products on an ancillary basis are partially exempted with respect to the regulation introduced by the IDA, provided the insurance contract:

• constitutes a complement to the good or service and covers certain risks, excluding that of civil liability
• has a premium that does not surpass EUR 600 per year or EUR 200 in a case where the contract constitutes a complement to a service. The duration of the service must also be three months or less.

Henceforth, corporations that do not respect these criteria will be subjected to reinforced reporting obligations set up by the IDA, such as, sharing the nature of their remuneration and, in certain cases, the amount of their compensation.

To date, few French intermediaries have implemented this regulation.

Building upon our strong experience in consulting and litigation in the sector of insurance liability and regulation, we accompany our clients – intermediaries and insured – at every stage of prevention and risk management: mapping out risks, compliance with the regulation, development of handbooks, audits in insurance coverage, identification of needs, insurance coverage negotiations and litigation – among other things.

Baro Alto works with an excellent network of partners, made up of insurance professionals (intermediary experts) with whom we intervene in the interest of a better understanding of risks and their coverage.

To read more about IR Global’s French members, please click here to view our most recent Virtual Series.