On 1 December 2018 the new Insurance Distribution Act (the "Act") became effective in the Czech Republic. It replaces the still effective Act No. 38/2004 Coll., on Insurance Intermediaries and Loss Adjusters, as amended ("IILA"), and implements the plan envisaged by the European Parliament and the Council (EU) Directive 2016/97 on insurance distribution (revised version) ("IDD"), even if a little later than anticipated.
In this article we will briefly try to highlight selected questions in the Act (inevitably making certain simplifications).
Fewer categories of intermediaries
An important change introduced by the Act is a reduction in the number of categories of persons authorised to mediate insurance or reinsurance from the IILA's original six to four.
Insurance agents and brokers fall into one category of individual insurance intermediaries. The new categories of tied representatives and supplementary insurance intermediaries are referred to only in a single case, while the terms subordinated insurance intermediary, tied insurance intermediary or exclusive insurance agent, which we know from the IILA, will no longer be found in the Act at all. Insurance intermediaries under the IILA can operate even after the Act is in force. Existing insurance agents and brokers immediately become agents and brokers under the Act on 1 February 2019, unless they have announced to the Czech National Bank by the end of 2018 that they are unwilling to be independent intermediaries under the Act. Other insurance intermediaries have until the end of March 2019 to obtain authorisation under the Act or to be enrolled into the relevant registry, provided that if they have applied for registration in the register according to the IILA and were not enrolled by 30 November 2018, they will no longer be registered.
Validity of the authorisation, remuneration rules and other changes
The Act newly introduces a time limit on the validity intermediary authorisation. Authorisation to act as an intermediary now lasts up to two years (valid until the end of the year following the year when the distributor was entered into the registry) and can be extended by 12 months by submitting an application to the Czech National Bank and paying the relevant administrative fee, which is CZK 5,000 (approx. EUR 200) for individual intermediaries, i.e. an agent or broker, and CZK 1,000 (approx. CZK 40) for tied representatives or supplementary insurance intermediaries).
Increasing consumer protection is linked to more detailed rules relating to the remuneration of persons involved in the distribution of insurance. The Act maintains the rule of distribution or reimbursement of life insurance remuneration. These rules, which according to the explanatory memorandum are inspired by the Austrian legislation, were originally transposed into the IILA through a 2016 amendment. In our experience, in terms of insurance companies and intermediaries, including banks, they represent a major challenge when negotiating contracts on insurance intermediation or partnership in the field of bancassurance. The Act also newly prohibits remuneration similar to pyramid schemes or remuneration to the intermediary conditional upon the payment of an entry fee or similar payments. These rules were framed during the effectiveness of the IILA in the opinions of the Czech National Bank regulating remuneration of intermediaries.
The legislator has taken the opportunity stated in the IDD and more strictly regulated, among others, professional liability insurance (versus the IILA it has raised minimum indemnity limits and deductibles for intermediaries were introduced) or the scope of life insurance information which the intermediary has to provide to the consumer.
Beyond the requirements of the IDD, the Act contains a modified system of accredited tests for insurance intermediaries or the rules of group distribution insurance negotiated in a business manner (fleet).
We could continue to enumerate the many areas that the Act modifies or implements from the IDD, and the questions that will need to be answered. All we can do for now is wait with an open mind to see how these questions will be resolved in practice, which is something we are glad to be a part of.
By Jitka Kadlcikova, Attorney at Law Schoenherr