INSURANCE DISTRIBUTION

INSURANCE PRODUCT INFORMATION - THE INTERMEDIARY’S DUTY TO INFORM

The new DK Insurance Distribution Act (IDA) came into force 1 October 2018. The Act implements the EU Directive of Insurance Distribution (IDD).

 

Date published

04/10/2018

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INSURANCE PRODUCT INFORMATION - THE INTERMEDIARY’S DUTY TO INFORM

The new DK Insurance Distribution Act (IDA) came into force 1 October 2018. The Act implements the EU Directive of Insurance Distribution (IDD).

The IDA introduces a number of new requirements to insurance intermediaries, the duty to inform being one. Under the previous act, the intermediary is to provide certain information about the insurance product, but the requirements are now much more detailed and the intermediary has to use a specific template.

In the following, we will go through the main requirements and introduce the template, which is an exhibit to EU regulation 1469/2017.

The duty to inform customers is detailed in DK Regulation number 455, dated 30 April 2018.

 

Scope

In principle, the DK Regulation applies to both consumers and businesses.

However, with respect to businesses a number of exemptions apply.

First of all, the duty to inform does not apply to insurance contracts with respect to “large risks”.

Large risks are defined in Section 2, no. 7 of the DK Regulation such as:

(a) risks such as transport of goods, force majeure, motor liability, aircrafts, and vessel.

(b) risks such as credit insurance, in the event that the policyholder is an industrial or commercial company or a service provider and the risks concern such industrial, commercial or service activities.

(c) other risks including liability insurance products such as Professional Indemnity, Directors and Officers liability insurance, IPO insurance, etc. if the policyholder meets at least 2 of the following requirements:

(1) the policyholder’s balance sheet is minimum €6.2m.

(2) The policyholder has an annual turnaround of no less than €12.8m.

(3) According to the latest annual account, the policyholder has more than 250 full time employees.

In conclusion, the duty to inform does not apply with respect to relatively large policyholders.

On the other hand, the duty to inform does apply to smaller businesses/policyholders who need to take out a PI insurance or need D&O coverage and who do not meet the abovementioned conditions with respect to turnover or number of employees.

 

Content of duty to inform

The Insurance Intermediary’s duty to inform includes two separate categories.

(1) Information about the Insurance Intermediary such as contact details, remuneration as well as identity of the insurance company/the carrier.

(2) Information on the insurance product, coverage and exclusions, etc.

 

insurance intermediary

The Insurance Intermediary is obligated to provide certain details about the intermediary itself.  

The Intermediary shall inform about:

  • The fact that the Insurance Intermediary is in fact an Insurance Intermediary and not an Insurance Company as well as whether or not the Insurance Intermediary offers advice on insurance products or not.
  • Where the Insurance Intermediary is registered and how to verify that.
  • Whether the Insurance Intermediary represents the customer or acts on behalf of an Insurance Company.
  • Whether the Insurance Intermediary has a direct or indirect share of 10 per cent or more of the votes or the shares in an Insurance Company.
  • Whether or not an Insurance Company or the parent company of an Insurance Company has a direct or indirect share of 10 per cent of more of the votes or the shares in the Insurance Intermediary.

The IDA differs between whether the Intermediary offers advice to the customer or not.

The Insurance Intermediary shall in form the customer as to whether an advice is based on an objective and individual analysis;

In case the Intermediary is contractually obliged to use one or more insurance companies exclusively, this needs to be disclosed together with the name of the insurance company in question.

In case the Intermediary is not contractually obliged to use one or more insurance companies exclusively, the Insurance Intermediary shall provide information about the names of those insurance companies, which the Insurance Intermediary does in fact use, though there is no contractual obligation to do so.

The Intermediary is also obliged to disclose information with respect to remuneration, including whether the customers pay directly or the Intermediary receives a commission.

It should be added that insurance brokers are not allowed to receive commissions from insurance companies, cf. section 16 of the IDA

The requirement to have a complaint procedure and inform of it remains.

 

No. 2 – information about the insurance product

Section 17 of the DK Regulation regulates the duty to provide information about the insurance product.

With respect to non-life insurance products, including indemnity insurance, the Insurance Intermediary shall use a standard document to be handed out either on paper or on another type of “durable medium”

With the usual sense for detail, EU Regulation 1469/2017 of 11 August 2017 lays down a standardised presentation format for insurance product information documents.

The EU Regulation is binding in its entirety and directly applicable in all EU member states.

It is the insurance company that has to prepare the standardised presentation document and make sure that it is compliant.

The following information is required:

  1. The most important of the insured risks/perils.If it is an all risk insurance, the risks and or losses covered need to be described f.a. which properties are covered or whether business interruption f.i. is covered.It should also be noted if it is per claim and/or in the aggregate.Is pretty much self-explanatory.This should include geographical exclusions as well as types of losses excluded or root causes excluded.The information document /sheet should also include:• Any or the most important exceptions where the insured is not obliged to notify the claim. This is probably not relevant to RSG.• Any obligations of the insureds during the course of the insurance contract, i.e. the obligation to inform about increased risks.• Terms of terminating the insurance contract for instance if termination is to be given with say 30 days' notice.The Insurance Intermediary is obliged to provide the insured/the policyholder with the above information well before finalising the insurance contract.
  2. Moreover, the Insurance Intermediary shall inform about payment of premium, including for how long the premiums are to be paid and other payment details.
  3. • The duration of the insurance contract such as beginning and termination and renewal.
  4. • The obligations of the insureds when taking out insurance, including which documents to disclose.
  5. • The insured’s obligations with respect to notifying a claim, i.e. how to notify and which documents to include in notification or which format to use.
  6. If the policy includes a serial damage clause, this should be/could be mentioned as a limitation of cover – and not an exclusion.
  7. 4) A summary of excluded risks/perils.
  8. 3) The geographical scope.
  9. 2) The limit of liability.
  10. With respect to liability insurance, the kinds of liability covered need to be described f.i. professional of personal liability.

Durable medium

It may seem a bit old fashioned, but IDA requires the Insurance Intermediary to provide the product information in hard copy or on a durable medium. In this context, durable medium means any instrument that enables the customer to store information and make it accessible.

As an exemption, the Insurance Intermediary may provide information via its website only if

(1) This is advisable with respect to the way the Insurance Intermediary and the customer conducts their businesses.

(2) The customer has accepted that information is provided via the website.

(3) The customer is informed by way of electronic correspondence (emails) about the website and how to find information on the website.

(4) The said information is available on the website as long as the customer can rightfully expect it to be available.

 

Demands and needs

According to Section 20 of the DK Regulation, the Insurance Intermediary shall do an analysis of the customer’s demands and needs and shall provide the customers with objective information about the insurance product in a comprehensible form to allow the customer to make an informed decision.

Any contract proposed shall be consistent with the customer’s insurance demands and needs.

Where advice is provided prior to the conclusion of an insurance contract, the Insurance Intermediary shall advise the customer on why it recommends a certain insurance product and why that product is the best suited with respect to the customer’s demands and needs.

The already applicable rules on fairness and honesty on good practice and the requirement not to provide misleading information still applies. In that respect, not much has changed.

If you have questions to the new DK Insurance Distribution Act, please contact Kennedys Copenhagen for further information.