Further to the MFSA Circular on the transposition of the Insurance Distribution Directive ('IDD') issued on the 10th April 2017, the MFSA has now issued a consultation document highlighting the main changes proposed to be carried out to the Insurance Intermediaries Act ('IIA') as well as the Insurance Business Act ('IBA'). Attached to the consultation document are the draft bills amending the IIA and IBA. The MFSA has also issued for consultation the proposed Insurance Distribution (Exemption) Regulations, 2017.
A. Insurance agent, broker and manager
The IDD introduces a number of new requirements. In order for an insurance agent, insurance manger and insurance broker to be registered in their respective registers, these intermediaries are required to:
- have appropriate knowledge and ability in relation to (re)insurance distribution activities for which they are to be registered and to complete tasks and perform duties adequately. These requirements will be determined by Insurance Distribution Rules; and
- pursue continuous professional training and development. A person enrolled in terms of the IIA, as well as its employees, will be required to comply with continuing professional training and development requirements in order to maintain an adequate level of performance corresponding to the role performed and the relative market. The requirements will be determined by Insurance Distribution Rules or Conduct of Business Rules.
B. Tied Insurance Intermediary
A tied insurance intermediary will, under the IDD, be subject to the same requirements applicable to insurance intermediaries. This means that the TII will be subject to the qualifications requirements for amongst others registration and continued professional training. The IDD also introduces new grounds for which TIIs may be struck off the Tied Insurance Intermediaries List.
C. Ancillary Insurance Intermediary
The IDD introduces a new category of intermediary under the IIA which shall be known as the "Ancillary Insurance Intermediary". The new category of intermediary under the IDD has been carved out from the definition of 'insurance intermediary' and therefore such category is not considered to be an insurance intermediary but a specific type of intermediary operating under specific conditions (such as travel agents, car rental companies and motor vehicle dealers). Ancillary Insurance intermediaries shall carry out insurance distribution activities listed in paragraph (5) of the Third Column of the Schedule to the proposed amended IIA. Ancillary insurance intermediaries are not to be confused with tied insurance intermediaries which regime shall be retained. It is being proposed that a person enrolled in the Ancillary Insurance Intermediaries List, is to be prohibited from being appointed and registered in the Tied Insurance Intermediaries List.
The appointment of an ancillary insurance intermediary by an authorised insurance undertaking and insurance agent will be conditional on the completion of a fit and proper test, as well as a knowledge and ability test. The ancillary insurance intermediary, will as a minimum be required to know the terms and conditions of the policies they distribute and, where applicable, rules on handling claims and complaints.
Ancillary insurance intermediaries activities are described as the activities of persons who, for remuneration, take up or pursue insurance distribution activities on an ancillary basis, acting under the full responsibility of authorised undertakings, for the products which concern them, provided that all of the following conditions are met:
- the principal professional activity of the natural or legal persons is other than insurance distribution activities;
- the natural or legal persons only carry out insurance distribution activities in relation to certain insurance products that are complementary to a good or service; and
- the insurance products concerned do not cover long-term business of insurance or liability risks, unless that cover complements the good or service which the natural or legal persons provide as their principal professional activity.
Ancillary insurance intermediaries will be required to maintain a professional indemnity insurance or comparable guarantee. Monies received by ancillary insurance intermediaries shall be treated as having been paid to the authorised insurance undertaking or insurance agent issuing or offering the contract, and on whose behalf the ancillary insurance intermediary is acting. Moreover, monies paid by such authorised insurance undertaking or insurance agent to the ancillary insurance intermediary, which are intended for the policyholder, are not to be treated as having been paid to the policyholder until such monies are actually received by the policyholder concerned. It is also being proposed to introduce a requirement for an ancillary insurance intermediary to maintain an ancillary insurance intermediaries' account.
D. Exempted insurance-related activities
The new Insurance Distribution (Exemption) Regulations, 2017 will repeal the current Insurance Intermediaries (Exemption) Regulations, 2006, (S.L. 487.05). Limited exemptions will only be made available to ancillary insurance intermediaries. An ancillary insurance intermediary would be exempted from the requirements set out in the IDD should the following cumulative conditions be satisfied:
- the insurance is complementary to the good or service supplied by a provider, where such insurance covers:(i) the risk of breakdown, loss of, or damage to, the good or the non-use of the service supplied by that provider; or(ii) damage to, or loss of, baggage and other risks linked to travel booked with that provider;
- the amount of the premium paid for the insurance product does not exceed EUR 600 calculated on a pro rata annual basis;
- by way of derogation from point (b), where the insurance is complementary to a service referred to in point (a) and the duration of that service is equal to, or less than, three months, the amount of the premium paid per person does not exceed EUR 200.
Notwithstanding the above, ancillary insurance intermediaries would still be required to fulfil certain basic requirements to ensure adequate consumer protection.
E. Transposing the IDD - timelines
The transposition of the IDD will also necessitate amendments to the current insurance intermediaries rules and possibly the issuing of new rules under the amended IIA. In addition, once the new Conduct of Business Rulebook is issued, Chapter 12 on Conduct of Business Rules of the Insurance Rules and insurance intermediaries rules containing conduct of business requirements will be carved out and incorporated in the said Conduct of Business Rulebook.
The IDD is to be transposed into national law by the 23rd February 2018. Any feedback in relation to the draft proposed amendments is to reach the MFSA by the 11th August 2017. The consultation document and draft documents can be accessed at https://mfsa.com.mt/pages/announcement.aspx?id=9469