Insurance distribution bill goes to Parliament

On 11 May 2018 the Council of Ministers approved and sent to the Cortes Generales the bill on the distribution of private insurance and reinsurance. The rule transposes into Spanish law Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution.

The European directive pursues two basic objectives. First, to strengthen policyholder protection through more transparency, the prevention of conflicts of interest and the design of products better suited to the consumer. Second, to establish a level playing field among all operators in the sector, with rules appropriate and proportionate to each distribution channel. The directive’s transposition deadline had expired on 23 February 2018, so the parliamentary process is being followed closely in the sector.

What insurance distribution is

Distributing insurance means advising on, proposing or concluding insurance contracts, or assisting in their administration. It is done by insurers themselves, agents, brokers, bancassurance operators and, increasingly, other channels where insurance is sold as an add-on to another product or service, such as a purchase or a trip.

The bill changes the structure of the market, setting out the types of distributor and the requirements to enter the activity. It also reinforces the professionalism and competence requirements for insurance and reinsurance intermediaries, so that those who advise a client have adequate training and knowledge. This distinction matters because conduct rules vary by channel: what is required of someone selling insurance as a main activity is not the same as for someone offering it as an ancillary add-on to another product.

What changes in practice

The bill reinforces conduct and transparency rules. It requires avoiding conflicts of interest that may harm the client and sets product governance requirements, in particular for design, approval and monitoring. It also introduces the concept of tied and bundled sales, that is, when insurance is offered together with another product or service. The Spanish insurance sector combines large insurers with agents and brokers of very different sizes; a regulatory change of this scale therefore affects many operators and millions of customers.

Insurance-based investment products, such as certain life policies with a savings component, are subject to additional information and suitability requirements. And the regime of infringements and penalties is strengthened, so that non-compliance has proportionate and dissuasive consequences. Insurance-based investment products combine protection and savings, and their value can vary with the markets. That is why the directive requires clear information on costs, risks and the product’s suitability for the client.

What to review

Companies that distribute insurance, whether as their main activity or as an add-on to their business, should start reviewing their processes: how clients are informed, how advice is documented, what training staff can show and how conflicts of interest are managed. The parliamentary process will reveal the final changes.

Those who buy insurance, whether individuals or companies, can expect more information on the product, its costs and the intermediary’s possible conflicts of interest. It is worth asking for it and keeping it. This information is general and is not legal advice or a recommendation to buy any product. While the bill is processed, companies in the sector can prepare their organisation, and clients can begin asking for more clarity on commissions and the remuneration of whoever advises them.

A well-applied distribution law benefits both those who offer and those who buy insurance.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.