On 16 February 2017, the Spanish Insurance Regulator (the ”DGSFP”) submitted to the interested parties the final Draft of the Insurance Distribution Act (the ”ALDS”), which implements in Spain the Directive 2016/97 of the European Parliament and of the Council of 20 January 2016 on Insurance Distribution (the ”IDD”).
The objectives of the ALDS are (i) to lay down the rules concerning the taking-up and pursuit of the activities of distribution of insurance and reinsurance distribution; (ii) to regulate the conditions in which such distribution activity shall be carried out; and (iii) to establish the applicable supervision regime. The new regulation will lay down the requirements that shall be complied with by the insurance and reinsurance distributors to adapt to the IDD concerning product oversight and governance requirements, conflicts of interest and transparency rules.
The main novelties introduced by the ALDS with respect to the current Spanish Insurance Mediation Act are the following:
- The new Distribution Act will apply, not only to insurance and reinsurance intermediaries, but also to insurance undertakings when they pursuit direct distribution activities.
- The definition of insurance distribution is extended to the activity carried out by the insurance comparers, who shall be subject to the Distribution Act in those cases where their activity implies the possibility for the client of entering into an insurance contract, either directly or indirectly.
- The limitation of Article 25.1 of the current Insurance Mediation Act, according to which the credit or financial institution could only make its distribution network available to a single bank-assurance operator, has now been removed.
- Where advice is provided prior to the sale of an insurance product, a personalised recommendation should be provided to the customer explaining why a particular product best meets the customer’s insurance demands and needs. This obligation applies not only to brokers (like in the current Insurance Mediation Act) but also to the rest of distributors.
- The distributors’ information duties are reinforced, especially when it comes to insurance-based investment products.
- Insurance intermediaries and insurers distributing insurance-based investments products must meet additional requirements (regarding prevention of conflicts of interest and assessment of suitability and appropriateness and reporting to customers).
- For the first time, the ALDS regulates ”cross-selling”.
- The infringements and sanctions regime is hardened.
The Insurance and Reinsurance team in Madrid has drafted a document making Comments on the Draft Insurance Distribution Act, which can be read here.
On 6 March 2017 the FCA published its first consultation paper (CP 17/7, the “Consultation Paper“) on its proposals for implementing the Insurance Distribution Directive ((EU) 2016/97, the “IDD“). The deadline for implementation is 23 February 2018.
The FCA plans to make a number of important changes to the FCA rules in order to accommodate the new requirements under the IDD. Notably, the new requirements will apply to all insurance intermediaries regardless of whether or not they have any direct contact with the end customer.
Other significant changes include widening the scope of the FCA rules to apply to a new category of firm – ancillary insurance intermediaries (“AIIs“) – and the inclusion of a new “customer’s best interests” rule. Continue Reading
On the morning of 2 March 2017 the FCA published PS 17/3 (the “Policy Statement”), its response to feedback on its proposals regarding the handing of Payment Protection Insurance (“PPI“) mis-selling complaints. The FCA’s original proposals were set out in CP 15/39 (see our blog post), and a further consultation was issued in CP 16/20 (see our blog post).
Following further feedback from firms, trade bodies, consumer organisations, claims management companies (“CMCs“) and individuals, the FCA still broadly considers that the proposed package of measures set out in the consultation papers should be taken forward. The amendments to the DISP Rules have now been finalised, and will come into effect on 29 August 2017.
There are also some important new developments in the Policy Statement. These include a requirement for firms to make contact with complainants who have previously had their claims rejected, expanded commentary on the inclusion of profit share in the calculation of “commission”, and a carve-out from the deadline for future complainants in a narrow range of circumstances. Continue Reading
Member States across the EU are due to implement the Insurance Distribution Directive by 23 February 2018. With just one year to go we have looked at what progress the supervisory authorities in France, Germany, Italy, Poland, Spain and the UK are making with their implementation plans and how firms in each country might be impacted by the Directive.
Click here to access our note: The Insurance Distribution Directive….one year to go.
The Government has introduced the Vehicle Technology and Aviation Bill to Parliament, setting out in detail how the UK’s compulsory motor insurance framework will be amended to handle automated vehicles.
Automated vehicles pose challenges for the conventional motor insurance regime in the UK, not least if an accident occurs when a vehicle is in driverless mode. Injured parties would face difficulties in recovering directly from insurers and could face a disproportionately long and costly route through the courts to secure compensation. Continue Reading
As Hogan Lovells previously reported, the New York State Department of Financial Services (NYDFS) has launched a significant initiative to impose detailed cybersecurity requirements on covered financial institutions. On February 16, NYDFS issued its Final Rules, following the initial proposed rules published in September 2016 and two rounds of feedback via industry complaints and public comment. The Final Rules set forth requirements for a risk-based approach to cybersecurity, and include expectations for reporting on cybersecurity risks and events to senior management and NYDFS.
Click here to learn more about how to prepare for the new requirements, timing and implementation details, changes to the rules since the December announcement, and other related cybersecurity developments.
A growing trend is emerging within the insurance sector, where insurers and other users of insurance products are looking to structured finance solutions both from an investment and risk management perspective.
What are the driving forces behind this development? Is regulation enhancing or impeding the trend? What role do insurers and other participants play in this new market?
On 10 November 2016, Hogan Lovells hosted a seminar to discuss these issues. Our panel of experts included Gavin Palmer from KPMG, Michael Eakins from Goldman Sachs, and James Doyle, Tauhid Ijaz and Steven McEwan from Hogan Lovells, who put forward their thoughts and shared their own recent experiences. The issues discussed included the following:
- What have you seen as the main drivers of insurers changing their approach to asset strategy following the introduction of Solvency ?
- How can derivatives be used by insurers for the reduction of risks and efficient Solvency II balance sheet management ?
- What are the main things that insurers have to be wary of when investing in a securitisation ?
- What are the main reasons why insurers are increasingly looking to structured finance rather than traditional bond and equity markets ?
- Given current uncertainty regarding Solvency II, Brexit, interest rates and the value of sterling, is now the right time to enter into significant transactions ?
- To what extent are general insurers involved in this trend ? Are these developments limited to the UK and the US ?
- Over time, are we seeing the erosion of the traditional distinctions between insurers and banks ?
- Is there a way to hedge an insurer’s risk margin and its rates position that won’t lock-in if the PRA changes its approach to calculation of the risk margin ?
- What would each panellist single out as the main area of difficulty that insurers face in relation to their investment activity under Solvency II?
You can watch a video of the seminar on our website, and we have prepared a written summary that is available for download. Please use the links below the access them:
Watch the video
Download the summary
On 4 January 2017 the China Insurance Regulatory Commission (“CIRC“) published on its website the final version of the Measures on the Compliance Management of Insurance Companies (the “Compliance Measures“), which will become effective on 1 July 2017.
The Compliance Measures apply to insurance companies and insurance groups established in China, but also act as a reference for branches of foreign insurance companies, insurance asset management companies and other insurance organizations approved by and registered with CIRC.
Based on the notes at the beginning of the Compliance Measures, all Chinese insurance companies and insurance groups are required to establish compliance departments and functions, and make arrangements to avoid possible conflicts of interest in accordance with the requirements specified in the Compliance Measures before their official effective date. Continue Reading
On 15 February 2017, the Centers for Medicare & Medicaid Services (CMS) took a step toward addressing concerns about the stability of the individual and small group health insurance markets by proposing a modicum of regulatory relief for insurers. Most of the proposed changes are relatively modest and, for the most part, would not be effective until the 2018 plan year. Especially given the ongoing uncertainty regarding the future of the health insurance exchanges under the new administration and Congress, it is unclear whether the proposals would be enough to prevent more insurers from exiting the exchanges, as Humana recently announced it would, or to stave off significant rate increases for 2018. The Proposed Rule, “Patient Protection and Affordable Care Act; Market Stabilization” (CMS-9929-P), will be published in the Federal Register on 17 February 2017. Commenters should note that the proposed rule has an abbreviated comment period and comments are due by 7 March 2017.
Click here for the full article…
On January 13, 2017, representatives of the European Union and the United States of America issued a joint statement announcing that they had successfully concluded negotiation of an agreement (the “Agreement” or “Covered Agreement”) that both parties contend “will ensure ongoing robust insurance consumer protection and provide enhanced regulatory certainty for insurers and reinsurers operating in both the U.S. and the EU.” According to the joint statement, the Agreement constitutes a “covered agreement” within the meaning of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) in the U.S. and an “agreement” under Article 218 of the Treaty on the Functioning of the European Union in the EU.
The Agreement addresses three areas of prudential insurance regulation important to internationally active (re)insurers: (1) reinsurance; (2) group supervision; and (3) the exchange of information between insurance supervisors. As discussed more fully below, key aspects of the Agreement are meant to provide EU-based (re)insurers with relief from U.S. collateral requirements, to provide U.S.-based (re)insurers with relief from EU local presence requirements, and to free U.S. insurance groups operating in the EU from EU worldwide group capital, solvency, reporting, and governance requirements under the EU “Solvency II” Directive and applicable implementing legislation (“Solvency II”). The group supervision and reinsurance provisions are conditioned upon one another. Therefore, without collateral relief for EU-based entities, there is no local presence or worldwide group supervision relief for U.S.-based entities, and vice-versa.
This article provides some background on the impetus behind the Agreement, summarizes its substantive terms, and discusses issues related to its implementation.
Click here to continue reading the article.