New Year, new life for the insurance sector. Almost two years after publication of the Insurance Distribution Law (Law no 7/2019 of 16th January available here), the Insurance and Pension Funds Supervisory Authority (henceforth ASF) has standardised the rules on insurance distribution via the approval of the regulatory standard no 13/2020-R of the 30th December 2020 (henceforth Standard and available here).
This Standard regulates the legal regime for insurance and reinsurance distribution (henceforth Legal Regime), approved in an annex to the Insurance Distribution Law. To this end, in its first article, 25 paragraphs are provided that define and adapt the scope and purpose of the regulation.
The aforementioned points can be grouped into three major cornerstones, namely:
- Inclusion of the applicable requirements for the new category of insurance intermediaries on an ancillary basis;
- Revision of the procedures applicable to the suitability and control of qualifying holdings assessments;
- Implementation of the duties applicable with regard to policy treatment of policyholders, insured persons, beneficiaries and injured third parties and complaint management.
These are, furthermore, the concerns that ASF had raised at the time the Standard was put into public consultation between 28th October and 25th November 2020.
A - Inclusion of the applicable requirements for the new category of insurance intermediaries on an ancillary basis
It’s important to mention that the approval of the Insurance Distribution Law has repealed the “linked insurance intermediaries” category. At the same time, the categories of agents and insurance brokers were kept. Additionally, the category of ancillary insurance intermediaries was created.
In this context, the Standard details the new category. Articles 15 and 16 introduce new provisions to the access conditions to the category of ancillary insurance intermediary, expanding the legal requirements provided for in the Legal Regime ( see Articles 11 and20 (1) (b) and (c)).In short, these are formal requirements concerning documentation to be submitted to the Regulator.
Additionally, new substantial requirements are also set, among which it’s worth emphasising the requirements regarding the corporate governance model suitability and economic and financial sustainability. ASF will promote periodical adequacy reviews with a view to verifying if ratios of financial autonomy, solvency and liquidity are equal or greater to, respectively, 10%, 15% and 100%.
B - Revision of the procedures applicable to the suitability and control of qualifying holdings assessments
Revision of suitability procedures are intended to increase trust in the sector, as well as to update regulatory provisions in force in accordance with ASF’s directives..
These new provisions are mostly related to obtaining additional information by the mediator when assessing his/her suitability, as required by Article 14 of the Legal Regime
With regard to the qualified holdings control, article 65 of the Standard provides that any person, individual or collective, or legally equivalent entity that intends to “hold qualified holdings, equal or greater to 10% of the shareholding capital or of the voting rights, or any other possibility of exercising a significant influence in the management of an insurance broker or reinsurance intermediary, or to increase the qualified holding they already hold in such a way that the percentage of voting rights or of capital reaches or exceeds 20%, a third or 50%, or where the business transforms itself into a subsidiary, must communicate to ASF the acquisition project or increase in qualified holding.”
The acquisition project must also be accompanied by the Standard Annex IV details , which requires the provision of rigorous information, specifically in relation to:
- Acquirer: suitability, professional experience, financial statements and shareholding structure (if applicable);
- Acquisition: detailed description of the acquisition project.
C - Implementation of the duties applicable with regard to policy treatment of policyholders, insured persons, beneficiaries and injured third parties and complaint management
In the Report on Insurance Industry Complaints with regard to the first semester of 2020, ASF indicates that it received 4,722 complaints between January and June of the year under review.
In order to facilitate the analysis work of complaints cataloguing s, article 40 of the Standard provides that the insurance intermediary or the ancillary insurance intermediary must produce, on an annual basis, up until the end of the month of February, a report covering the management of complaints with regard to the prior period of economic activity.
This report will be composed of two parts, with the first one covering statistical information (those such as “grounds for complaint”,“Average timeframe of response”, “Response direction to the complainant”) and the second part the conclusions drawn from the process of complaint management and the measures implemented or to be implemented.
The report form to be provided to ASF can be consulted in the annex to the Standard under appreciation.
In parallel, in accordance with article 32 of the Standard, “The insurance or insurance intermediary as an ancillary natural person or the management body of the insurance or insurance intermediary as an ancillary legal person is responsible for defining and approving a policy for the treatment of policyholders, insured persons, beneficiaries or injured third parties and for the proper enforcement and monitoring of that policy .”
In light of the above, the aforementioned agents will have to define principles of conduct that foresee obligations of loyalty, diligence, transparency and proportionality applicable to the exercise of their activity, to be set out in a written text which is public and searchable by consumers and the ASF.
D – Validity and Ruling Force
The Standard under appreciation will come into force 31 days after its publication. However, article 48 on the portfolios’ dispersion will come into force on 1st January.
In this sense, it’s important to mention that we are facing a new cycle of regulatory effectiveness to the extent that this Standard revokes three Regulatory standards: NR no 17/2006-R, of the 29th December; NR no 18/2007-R, of the 31st December and NR no 15/2009-R, of the 30th December.
Finally, the new Standard brings together rules that until now have been spread throughout several normative standards. We underline the good work in compiling the rules on financial reporting and the conclusion of professional indemnity insurance by insurance, reinsurance and ancillary insurance intermediaries
Abreu Advogados has a team that is particularly well-placed and prepared to provide interdisciplinary assistance on all of these changes and to support affected individuals and entities in the planning and execution of all actions necessary to comply with the new regulatory standards.