• Insurance and reinsurance companies and insurance intermediaries

Insurance distribution – some provisions on the Act on insurance and reinsurance distribution

Significance of the answers

These answers express the opinion of Czech National Bank staff members. The Bank Board of the Czech National Bank may be of a different opinion.

At the same time, we would like to caution that the answers may change based on EIOPA discussions and possibly for other reasons. In such case, the Czech National Bank will always provide the persons affected with enough time to adapt.

Regulations and abbreviations used

IDD – Directive 2016/97/EU of the European Parliament and of the Council on insurance distribution

Act No. 38/2004 Coll. – Act No. 38/2004 Coll., on Insurance Intermediaries and Independent Loss Adjusters and on the Amendment of the Trades Licensing Act, as amended

AoIRD, Act – Act No. 170/2018 Coll., on Insurance and Reinsurance Distribution

Decree – Decree No. 195/2018 Coll., on professional qualifications for insurance distribution

Regulation 2017/2358 – Commission Delegated Regulation (EU) 2017/2358 of 21 September 2017 supplementing Directive (EU) 2016/97 of the European Parliament and of the Council with regard to product oversight and governance requirements for insurance undertakings and insurance distributors

Regulation 2017/2359 – Commission Delegated Regulation (EU) 2017/2359 of 21 September 2017 supplementing Directive (EU) 2016/97 of the European Parliament and of the Council with regard to information requirements and conduct of business rules applicable to the distribution of insurance-based investment products

Insurance Act – Act No. 277/2009 Coll., on Insurance, as amended

List of thematic areas:

Insurance comparison websites

1. Does the operator of a comparison website satisfy the exemption from the Act within the meaning of Article 3(1)(c) of the AoIRD even where it collects information from enquirers on their demands, objectives and needs and recommends a specific product in the given case as being the most suitable for an enquirer when the website itself does not enable an insurance contract to be concluded (for example, the website links to the website of another insurance intermediary or insurance company where insurance can be arranged or asks the enquirer to provide contact details through which they will be subsequently contacted by an insurance company or insurance intermediary regarding the arrangement of insurance)?

Summary:
Comparison websites where enquirers enter their demands, objectives and needs and/or receive recommendations based on these demands and needs and which do not just offer general comparisons of certain types of products on the market, and on which enquirers are offered the (albeit indirect) possibility to arrange insurance, satisfy the definition of insurance mediation. In cases where the activity of such websites is not of such intensity, the AoIRD, pursuant to Article 3(1)(c), does not apply to them.

Article 3(1)(c) of the AoIRD states that the AoIRD does not apply to the comparison of insurance if such comparison does not allow the arrangement or change of insurance. The explanatory memorandum to the cited provision specifies that “the compilation of lists of insurance products ranked by suitability, including the comparison of prices and products or discounts on premiums, falls within the scope of this Act if, at the end of this process, the customer is able to directly or indirectly conclude an insurance contract via a website or other medium”.

In practice, however, it can be common for a comparison website, before comparing policies, to request the enquirer to enter specific demands, objectives and needs, based on which the site will recommend a certain product as being the most suitable. Although insurance is not necessarily arranged through the said website, the enquirer is referred to other sites (for example, directly to the site of an insurance company) where it will be possible to arrange insurance. Similarly, at the end of the comparison process, the enquirer may be asked to provide contact information, based on which they will subsequently be contacted by an insurance company or insurance intermediary who will arrange insurance with the enquirer. This involves the possibility of arranging insurance which is directly linked to the product comparison and which is viewed by the customer as a single process leading to the arrangement of insurance. This activity thus satisfies the definition under the law as clarified by the explanatory memorandum, since the customer is able, at the very least indirectly, to arrange insurance through this process.

If, on the other hand, the comparison website compares products on the basis of the demands and needs entered without offering the customer, directly or indirectly, the possibility of arranging insurance, such activity cannot be regarded as intermediary activity falling under the AoIRD. One example of activity in this sense exempt from the AoIRD is the comparison of offers of insurance products based on model (i.e. hypothetical, non-individualised) parameters of the subject of the insurance, including giving just the name of the relevant insurance company for a given product.

With regard to the wording of the exemption in Article 3(1)(c) of the AoIRD and the definition of “insurance mediation” in Article 2(e) of the AoIRD, it can therefore be concluded that comparison websites where enquirers enter their demands, objectives and needs and are provided with recommendations based on those demands and needs (not just general comparisons of certain types of products on the market) and also the possibility (albeit indirect) to arrange insurance have the characteristics of insurance mediation, since they do not satisfy the exemption under Article 3(1)(c) of the AoIRD and are “offering the possibility to arrange…insurance, including comparing insurance” (Article 2(e)(1) of the AoIRD) or “carrying out further preparatory work directed towards the arrangement of…insurance, including providing recommendations leading to the arrangement of…” (Article 2(e)(3) of the AoIRD).

Exemption pursuant to Article 3(2) of the AoIRD

2. Does an entity mediating insurance on an ancillary basis within the meaning of Article 3(2) of the AoIRD need to have authorisation to act as an ancillary insurance intermediary within the meaning of Article 5(1)(c) of the AoIRD?

Summary:
Such entities are not subject to a registration duty, as follows from Article 3(2) of the AoIRD itself and from the explanatory memorandum accompanying the Act.

The said exemption under Article 3(2) of the AoIRD concerns entities that mediate insurance in the sense of the definition given in Article 2(f) of the AoIRD but are not insurance intermediaries within the meaning of Article 5 of the AoIRD. For such entities, the AoIRD, in respect of the requirements set out in Article 1(4) of the IDD, nevertheless stipulates that despite being exempted from the Act, such entities must comply with certain rules, in particular the conduct of business rules, and to satisfy information duties. The list of rules does not, however, contain a registration duty. The explanatory memorandum accompanying the AoIRD then adds that this concerns, for example, travel agencies enabling the arrangement of travel insurance, including trip cancellation insurance. Article 3(2) of the AoIRD itself also implies that neither the provision on registration nor Article 5 of the AoIRD apply to such activity. It is therefore clear that entities that meet the conditions of Article 3(2) of the AoIRD when mediating insurance need not be authorised to mediate insurance within the meaning of Article 5 of the AoIRD nor, therefore, to act as an ancillary insurance intermediary, so that such entities are not included in the list of entities subject to CNB supervision in Article 94 of the AoIRD. When distributing insurance, these persons will nevertheless be representing insurance companies that are subject to supervision. It can also be concluded that supervision of such persons’ compliance with the consumer protection obligations pursuant to Article 23(1) of Act No. 634/1992 Coll., on Consumer Protection, will be performed by the Czech Trade Inspection Authority and, where relevant, by municipal trade licensing offices in the scope of Article 23(5) of the Consumer Protection Act.

Amounts listed in euros

3. How (at what rate of exchange) are the amounts given in euros in the AoIRD converted?

Summary:
Amounts must be converted using the exchange rate of the Czech koruna against the euro declared by the Czech National Bank. Given the continuous nature of the obligations in question, the rate used must be the one valid for the day on which the conversion is made.

The AoIRD does not specify rules for the conversion of amounts set in euros and there is no general rule in the applicable legislation that can be applied if a legal instrument does not contain its own rule for conversion between another currency and the Czech koruna. The AoIRD contains two main provisions working with amounts in euros – the limit pursuant to Article 3(2)(b) of the AoIRD and the limits for mandatory insurance in Article 13 of the AoIRD (and subsequently, for example, in Articles 77 and 79 of the AoIRD governing the exemption from some rules depending on the premium amount).

Article 13(1) of the AoIRD establishes requirements for mandatory insurance where the minimum indemnity limits are set in euros. However, the agreement of limits in an insurance contract in Czech korunas cannot be ruled out, as the Act does not prohibit it. Given the continuous nature of this obligation, it is necessary to monitor compliance with the converted limits always on the current date, since the legally established limits in euros should be observed over the entire duration of the authorisation for activity. The indemnity limits can also be agreed directly in euros in the insurance contract, which simplifies the situation. It should be added that Article 13(1) of the AoIRD reserves the right for the European Commission to amend the amount of mandatory insurance in respect of the IDD in delegated acts. One such proposal has already been adopted by the European Commission.[1]

Further, it is necessary to determine the rate of exchange that must be used to convert the amount pursuant to Article 3(2)(b) of the AoIRD, which is again set in euros. Here too, this involves conversion for every day the limit is applied, i.e. for the day the insurance is mediated, so that the limits are not exceeded here either. The same goes for Articles 77 and 79 of the AoIRD in relation to fulfilment of the obligation to provide a recommendation and prepare record of dealings with client.

By default, the exchange rate announced by the CNB pursuant to Article 35(b) of Act No. 6/1993 Coll., on the Czech National Bank, should be used. This is a recognised standard for conversion between a foreign currency and the Czech koruna in the Czech Republic, and this exchange rate is also referred to by other legal regulations in similar contexts (such as valuation, tax and customs proceedings and the Consumer Credit Act).

The current exchange rate is available on the CNB website: https://www.cnb.cz/.

Lapse of authorisation to act as a tied agent

4. How should a represented entity notify the CNB that the obligation of its tied agent arising from the contract pursuant to Article 15(2) of the AoIRD has terminated? Is it necessary to make such notification using the CNB electronic application, or is it sufficient to send notification to the CNB in paper form by post or to a data box? How is notification of termination of activity pursuant to Article 20(1)(c) of the AoIRD submitted, and is it necessary to submit two notifications if the two events occur simultaneously,?

Summary:
The represented entity should send notification of the termination of the obligation of its tied agent via the CNB’s electronic application for the registration of entities (Regis). Where the represented entity notifies the CNB of the termination of the obligation, this simultaneously constitutes notification of the termination of activity of the tied agent.

Article 19(3) of the AoIRD provides that the represented entity is obliged to notify the CNB without undue delay that the obligation arising from the contract pursuant to Article 15(2) of the AoIRD, i.e. from the contract concluded between the tied agent and the represented entity under which the tied agent carries on insurance mediation activities, has terminated. Such notification is submitted via the CNB’s electronic application for the registration of entities. Pursuant to Article 20(1)(d) of the AoIRD, the termination of the obligation then constitutes a reason for the lapse of the authorisation to act as a tied agent. The represented entity must therefore use the Regis system to make this notification.

In the case of notification of the termination of the activity of a tied agent, Article 20(1)(c) of the AoIRD stipulates that the authorisation to act as a tied agent also lapses with “notification of the termination of activity”. It can therefore be concluded that notification of the termination of activity constitutes a different reason for the termination of authorisation for activity than the termination of the contractual obligation under letter (d) of the cited notification. Notification of termination of activity must then be made via the Regis system (in the case of the represented person) or electronically (in the case it is made by the tied agent him- or herself– see Article 20(3) of the AoIRD).

In practice, the activity of the tied agent is terminated as a result of the termination of the agreement on cooperation/sales representation between the represented entity and the tied agent by agreement, cancellation or withdrawal. This therefore de facto constitutes termination of the obligation within the meaning of Article 15(2) of the AoIRD, which the represented entity is obliged to notify the CNB of. Where the represented entity notifies the CNB of the termination of the obligation, it thereby simultaneously notifies it of the termination of the activity of the tied agent. Thus, the reasons for the termination of authorisation to act as a tied agent under Article 20(1)(c) and (d) of the AoIRD essentially merge and, for reasons of procedural economy, it must be concluded that in the said case the represented person should make only one notification (which simultaneously constitutes notification of the termination of the obligation and notification of the termination of activity). It should do so exclusively through the Regis system.

Professional knowledge and competence

5. Where a distributor is arranging motor vehicle liability insurance (within the meaning of Act No. 168/1999 Coll.) for a business vehicle, for example one used in road transport, are the expertise and skills pursuant to Article 57(1)(b) of the AoIRD sufficient, or is it also necessary to have the expertise and skills for the distribution of non-life insurance relating to the business activity of the customer pursuant to Article 57(1)(d) or, as the case may be, 57(1) (e) of the AoIRD?

Summary:
With regard to the main purpose and nature of the risks covered by the said insurance, motor vehicle liability insurance primarily involves insurance for liability for damage caused by the operation of the vehicle and only secondarily concerns the business nature of the customer’s activities. Expertise pursuant to Article 57(1)(b) of the AoIRD is therefore sufficient. Nonetheless, if the distributor distributes vehicle insurance for business vehicles bundled with other products, they must have the corresponding expertise, for example pursuant to Article 57(1)(d) of the AoIRD.

The AoIRD introduces a new system for proving the expertise of insurance distributors, with new categories of expertise replacing the previous categorisation. For the purposes of the distribution of motor vehicle insurance, including casco insurance and vehicle liability insurance, evidence of successful completion of a professional examination is required for the category in Article 57(1)(b) of the AoIRD. By contrast, the category of expertise in Article 57(1)(d) of the AoIRD applies to the distribution of insurance relating to business activities.

Where insurance of motor vehicles used for business is arranged by a distributor who has passed the professional examination for the category of expertise in Article 57(1)(d) of the AoIRD, the distributor will have sufficient expertise to arrange such insurance in accordance with Article 57(3) of the AoIRD, since certificate of successful completion of the professional examination for the category of expertise in Article 57(1)(d) of the AoIRD also serves as proof of expertise and skills for the categories of expertise in Article 57(1)(b)–(c) of the AoIRD.

The above-mentioned situation where the said insurance is arranged by a distributor only with the category of expertise laid down in Article 57(1)(b) of the AoIRD must be evaluated with regard to the main purpose and nature of the risks covered by the insurance, which in the case, for example, of motor vehicle liability insurance, primarily involves motor vehicle liability insurance itself and only secondarily concerns the nature of the customer’s business. Nevertheless, in the case of vehicles used exclusively or mainly for business (typically, for example, construction vehicles or other work vehicles, or a fleet of personal or freight vehicles), motor vehicle liability insurance is often offered bundled with other products that relate primarily to business activity, and this then involves risks for which the insurance distributor should possess expertise pursuant to Article 57(1)(d) of the AoIRD. It can therefore be recommended that a distributor negotiating with a business person regarding an offer of motor liability insurance should have the category of expertise in Article 57(1)(d) of the AoIRD so that if, during the meeting, for example, the business person is interested in arranging additional coverage falling in the category of business risks, the distributor is qualified to perform an analysis and offer a suitable product (otherwise the distributors would have to cut off the meeting with the customer in this matter, since they would not have the requisite expertise to do so; see Article 55 of the AoIRD).

A different situation arises in the case of arranging insurance for a business person that meets the criteria listed in Article 131(1)(c) of the Insurance Act. Such insurance meets the definition of large insurance risks, as that definition is based on clearly defined parameters of the insured entity and so there is no longer any room to examine the purpose of the insurance. Distribution of insurance to such an entity must always be considered distribution of insurance of large insurance risks, for which it is necessary to have expertise and skills for the given category, i.e. pursuant to Article 57(1)(e) of the AoIRD.

6. If an insurance distributor, based on the appropriate certificate, is authorised to mediate insurance in multiple categories of expertise pursuant to Article 57(3) of the AoIRD, does the requirement for continuing professional training of at least 15 hours per calendar year apply to each category of expertise separately, or to all categories together?

Summary:
The requirement for 15 hours of continuing professional training per calendar year should be interpreted as being a minimum amount of hours for all the categories of expertise (subsumed and non-subsumed) of the insurance that the distributor is authorised to distribute. For this reason also if the distributor is professionally competent in such a category of expertise, where the professional examination authorises him, pursuant to Article 57(3), also to distribute insurance in other subsumed categories of  expertise, the distributor fulfils the above-mentioned obligation for these subsumed categories as well and it is therefore not necessary to attend continuing professional training for each category of expertise separately.

Article 59 of the AoIRD states that the extent of further training shall be at least 15 hours per calendar year and shall be focused on deepening expertise and skills according the category of expertise of the person referred to in Article 55. The explanatory memorandum to this provision specifies that compliance with this obligation shall be demonstrated by certificates for the completion of further training, but does not require proof by way of passing an examination.

The distributor must complete the continuing training  of at least 15 hours per calendar year with a focus on the insurance that the distributor distributes.[2] This minimum limit should be viewed as the sum total limit for all categories of expertise in which the distributor distributes insurance.

Where the insurance distributor is authorised to perform multiple activities according to their expertise within the meaning of Article 57 of the AoIRD, it is also possible to apply Article 57(3) of the AoIRD, which sets out that

  1. certificate of successful completion of the professional examination for the category of expertise in Article 57(1)(e) also serves as proof of expertise and skills for the categories in Article 57(1)(b)–(d).
  2. certificate of successful completion of the professional examination for the category of expertise in Article 57(1)(d) also serves as proof of expertise and skills for the categories in Article 57(1)(b) and (c), and
  3. certifice of successful completion of the professional examination for the category of expertise in Article 57(1)(c) also serves as proof of expertise and skills for the categories in Article 57(1)(b).

If, therefore, certificate of successful completion of the professional examination for one category of expertise serves as proof of expertise and skills for other categories that are “subsumed” to that category, the deepening of expertise can be proven based on the same principle, and by completing training in the superior category the distributor will also fulfil the above-mentioned obligation for the categories subsumed in it. It is therefore not necessary to attend continuing training for every category of expertise separately.

It should be added that mandatory continuing training is intended mainly to maintain the insurance distributor’s expertise, which should be reflected in practice. The deciding factor is therefore the expert knowledge the distributor actually possesses, which should be in accordance with Article 3 of the Decree. So if, for example, the distributor has completed continuing training only in partial domain that falls under the category of expertise in which the distributor has completed an examination, the distributor does meet the requirement for continuing training but even so must possess expertise and skills in the full scope of the category of expertise.

Product governance

7. To what extent are product governance measures applied to existing products, i.e. to products approved before 1 December 2018 and distributed between 1 December 2018 and the present?

Summary:
The continuing obligations arising from Article 53 of the AoIRD and Regulation 2017/2358 must be applied to products approved by the insurance company before 1 December 2018. This includes compliance with Article 53(2) and (3) of the AoIRD. Given the absence of a transitional provision, the proportionality principle must be applied while the obligations phase in.

Since the existing products were created and approved before 1 December 2018 but the product governance obligations were incorporated into the legislation only after 1 December 2018 (pursuant to Article 53 of the AoIRD), an insurance company, an independent intermediary or an insurance intermediary domiciled elsewhere than the Czech Republic is only required to fulfil those which are of a continuing nature and which must be fulfilled over the life of the insurance product, in particular concerning the ongoing review and regular evaluation of the insurance product, the evaluation of the suitability of the distribution channel and also the approval of the product in the event of a significant adaptation of the product pursuant to Article 4 of Regulation 2358/2017, because a significant adaptation as defined in the cited regulation may de facto give rise to a new product. Existing products will thus not need to be re-approved; nevertheless, it will be necessary to at least provide for the fulfilment of the obligation to monitor and regularly review products and the related obligations.

Continuing obligations cannot be applied to products created before and after 1 December 2018 in a different way, as the new legislation does not differentiate between products.[3]

Loss adjustment, conflicts of interest

8. Given the prohibition to act simultaneously as insurance agent and insurance broker, is it possible for an independent intermediary to perform loss adjustment or to assist the customer in exercising rights arising from insurance they have arranged? Isn’t this a conflict of interest?

Summary:
An independent intermediary can assist in exercising rights arising from insurance. This does not constitute a breach of obligations under the AoIRD unless the independent intermediary acted as an insurance agent in the arrangement of the insurance and assists in exercising rights arising from the insurance (which is not loss adjustment in the strict sense) as an insurance broker. If the independent intermediary mediated the insurance as an insurance broker but performs loss adjustment for the insurance company under the Trade Licensing Act, this is a conflict of interest, which must be ruled out.

Loss adjustment as previously defined, i.e. an investigation needed to determine the scope of an obligation to settle a claim arising from arranged insurance, performed on behalf of and on the account of the insurance company, is by definition not a part of the mediation of insurance, as also follows from Article 2(2)(b) of the IDD. The AoIRD deregulated the activity of independent claims adjusters by removing them from the field of insurance mediation and bringing them under the Trade Licensing Act (Act No. 455/1991 Coll., as amended). On the other hand, assistance provided to a customer in the settlement of insurance claims relating to an insured event, falls under mediation of insurance. These cases are assistance in the administration of insurance and in the exercising of rights arising from insurance within the meaning of Article 2(e)(5) of the AoIRD (and Article 2(1)(1) of the IDD).

If, then, the independent intermediary acted as insurance broker in the arrangement of insurance and in the same role assists the customer in exercising rights arising from this insurance pursuant to Article 2(e)(5) of the AoIRD, this is not a conflict of interest. If the independent intermediary arranged the insurance as an insurance agent and, under his trade licence, carries out loss adjustment for the insurance company, it is not a breach of the prohibition of simultaneous performance of brokerage and agent activities under Article 76 of the AoIRD but it may be a conflict of interest, which must be managed (for example by introducing an independent audit of such loss adjustment) in accordance with Article 6 of the Insurance Act (for the insurance company) and Article 48 of the AoIRD (for the independent intermediary). Where this conflict of interest affects the customer[4] and concerns insurance-based investment product (“IBIP”), then management of the conflict of interest, primarily with respect to Article 3 et seq. of Regulation 2017/2359, also includes, in the specific case, subject to the fulfilment of other conditions, the obligation to inform the customer of this and refuse to represent the insurance company.

Within the meaning of Article 76 of the AoIRD, the independent intermediary is prohibited from mediating individual insurance policies at the same time in the position of insurance agent and insurance broker. This kind of breach would also be the case if the independent intermediary mediated insurance on behalf of the insurance company as an insurance agent and was simultaneously helping the customer to make claims arising from that insurance in the role of an insurance broker.[5]

If the independent intermediary were to arrange insurance as an insurance broker but then, under their trade licence, perform loss adjustment, this would constitute a conflict of interest, which the insurance company, with respect to the similar level of risk, should rule out entirely in accordance with the requirements of Article 6 of the Insurance Act.

9. Will a insurance brokerage company be in conflict with the AoIRD in the administration of insurance policies if this activity is performed for it in its operating system by its parent company as an outsourced service (for financial remuneration under, and in the scope of, a contract)? The parent (100% owner) and subsidiary are both independent intermediaries pursuant to the AoIRD.

Description of activity:

  • a subsidiary brokerage company has mediated insurance policies that are administrated by its parent company, which also receives remuneration from the insurance company;
  • the parent company calculates and distributes the commission per customer and credits the account of the subsidiary brokerage company after deducting its contractual remuneration;
  • as part of the administration of the insurance, the parent company records premium payments in its operating system (non-payers, debts, overpayments), expirations of insurance, anniversaries, renewals, etc. and informs the subsidiary. The subsidiary then informs and deals with the customer:
  • it is the subsidiary who is empowered by customers to act on their behalf , as recorded by the insurance companies. Customers therefore communicate excslusively directly with the subsidiary.

Summary:
If the parent and subsidiary represented each other vis-à-vis either the customer or the insurance company, this would be in conflict with Article 47 of the AoIRD, and if either of them represented both the customer and the insurance company at the same time, that would be in conflict with Article 76 of the AoIRD. The outsourcing model is not ruled out if the above prohibitions are respected.

Assistance in the management of insurance by one independent intermediary which is a parent company for another independent intermediary (its subsidiary) within the meaning of the AoIRD, where the customer communicates and has entered into a brokerage agreement exclusively with the subsidiary, is in compliance with the AoIRD only if this solely involves arranging the performance of certain activities by another entity (outsourcing) and there is no chain of proxy authorisations in the mediation of the insurance.

If, by contrast, the customer is represented vis-à-vis the insurance company by another independent intermediary (parent company) in addition to the subsidiary, this would be in breach of Article 47 of the AoIRD. Under this provision, an independent intermediary may, in the mediation of insurance, only be represented by an employee, a tied agent (“TA”) or an ancillary insurance intermediary. Assistance in the administration of insurance is part of mediation both for the customer (brokerage activity) and for the insurance company (agent activity). If, in the administration of the insurance, the legal relationships are organised as follows:

customer – independent intermediary (subsidiary) – independent intermediary (parent) – insurance company

where these are representation (not outsourcing) relationships with one independent intermediary acting on behalf of the customer and at the same time allowing itself to be represented vis-à-vis the insurance company by another independent intermediary acting on their behalf and on their account, there is a chain of insurance representatives in breach of Article 47 of the AoIRD.

Conflicts of interest are regulated mainly in Article 76 of the AoIRD, according to which an independent intermediary is prohibited from mediating individual insurance policies as an insurance agent and an insurance broker at the same time. Where the insurance is arranged by a subsidiary as an insurance broker and the insurance is administered by its parent company as an insurance agent on the basis of cooperation between the parent and the subsidiary, this is a violation of Article 76 of the AoIRD if one of these companies acts simultaneously as a broker and as an agent (i.e. performs the said activity on the basis of both a contract with the customer and a trilateral agreement to which the insurance company is also a party, as also evidenced by the fact that the subsidiary is remunerated for this activity by the insurance company). Given the need for an objective approach to settling individual insured events, it is necessary for the independent intermediary to act in a single role in the insurance relationship from its beginning to its end without changing that role in the course of the contract depending on the situation arising. As a general rule, the subsidiary should itself know in what role it is performing which activity, to act in that role, and to communicate that role to the customer in communications with the customer in a way that is clear and not misleading (Article 72(2) and Article 73 of the AoIRD).

On the other hand, it would not necessarily be a violation of Article 76 of the AoIRD if the situation involved the outsourcing of activities by the insurance company and potentially also by the first independent intermediary (the subsidiary brokerage company) without either of them acting in a dual role (agent-broker) vis-à-vis the customer or the insurance company. This also means, however, that the parent company must not violate Article 47 of the AoIRD and be represented – vis-à-vis either the insurance company or the customer – by another independent intermediary either. In any case, even when outsourcing, potential conflicts of interest must be managed in accordance with Article 48 of the AoIRD.

Demands, objectives and needs of the customer, advice

10. Do recommendations under Article 77 of the AoIRD and advice under Article 78 of the AoIRD always include an obligation to evaluate the consistency of the insurance product offered with the demands, objectives and needs of the customer? How does the determination of demands, objectives and needs differ under Article 77 and Article 78 of the AoIRD? What are the consequences of the customer not providing information on their demands, objectives and needs pursuant to Article 77 and Article 78 of the AoIRD?

Summary:
The product offered must be consistent with the needs, demands and objectives in the case of recommendations pursuant to Article 77 and in the case of advice pursuant to Article 78 of the AoIRD. On the issue of demands, objectives and needs, the two provisions differ only in the level of detail. If the customer refuses to provide the necessary information pursuant to Article 77 and Article 78(2)(a)(1) of the AoIRD and the distributor is not aware of the customer’s demands, objectives and needs to the extent allowing it to recommend a specific product and arrange a particular type of insurance, the insurance cannot be arranged.

The obligation set out in Article 77 of the AoIRD implies that, before the conclusion of an insurance contract, the insurance distributor shall determine the demands, objectives and needs of the customer on the basis of information received from the customer and shall provide the customer with objective information about the insurance product in an comprehensible form so as to enable the customer to make an informed decision. All proposed insurance policies must be consistent with the customer’s demands and needs.

The above basic requirements, namely that (i) the insurance product offered must always be consistent with the determined demands, objectives and needs of the customer and (ii) objective information must be provided about the insurance product, form part of the mandatory recommendation pursuant to Article 77 of the AoIRD and the required advice for IBIP pursuant to Article 78(2)(a)(1) of the AoIRD. The customer’s demands, objectives and needs must therefore always be determined. Even “advice” pursuant to Article 78 thus by definition includes a “recommendation”. A recommendation pursuant to Article 77 hence differs from advice provided pursuant to Article 78 of the AoIRD only in the level of detail, and the two can be viewed as a continuum rather than as completely different obligations.[6]

That said, there are some differences between the two. For non-IBIP, if no voluntary advice is provided pursuant to Article 78(3) of the AoIRD, first of all it is not necessary to determine all the facts about the customer and their needs, but usually only those that depend on the product demanded and its complexity (covered risks, exclusions, deductibles and so on). This means that the obligation to determine demands and needs will have a somewhat different scope and depth for each product and will basically correspond to the customer-formulated parameters of the product.

If, therefore, the nature of the product so allows (in particular, if it is a simple product with simply determined risks covered), it may be assumed that the demands, objectives and needs of the customers are expressed by the customers themselves choosing and stating the risk parameters when requesting a specific product (for example, motor vehicle liability insurance). Even then, given the requirement for the same level of protection regardless of the technology or distribution channels used (see recital 6 of the Preamble to IDD), the customer’s demands, objectives and needs must be determined to at least a similar extent as during an oral interview so that the process of arranging or significant adaptation of an insurance contract is traceable and so that it is clear what demands, objectives and needs the customer had expressed. The form of the recommendation is not prescribed by law, so for simple products, sales on an on-line platform are possible, provided that such platform will allow for sufficient determination of the customer’s demands, objectives and needs and that the offer of products that will constitute a recommendation within the meaning of Article 77 of the AoIRD will therefore be consistent with the determined or expressed demands, objectives and needs of the customer.

The determination and expression of the demands, objectives and needs of the customer (Article 77(1) and Article 78(2)(a)(1) of the AoIRD) is also linked to the management of the insurance company’s and insurance intermediary’s risks associated with the sale of an unsuitable product and to the insurance company’s actual ability to underwrite the risks. The insurance company must have information on the risks to be able to properly evaluate them. As regards the information necessary for the insurance company to evaluate the insured risk, the policyholder or the insured must comply with Article 2 788 of Act No. 89/2012 Coll. (hereinafter the “Civil Code”), that is, to answer truthfully any written questions from the insurer.[7] The customer is therefore obliged to provide this information. If the customer breaches this obligation, consequences ensue pursuant to Article 2 800 of the Civil Code (the right to reduce indemnification and potentially the right to withdraw from the contract).

For all products, it is therefore necessary to fulfil the legal obligation and obtain from the customer the information necessary to assess the customer’s demands, objectives and needs. If the customer expressly refuses to provide this information and the distributor is unaware of the customer’s demands, objectives and needs, either completely or to such an extent that the distributor is unable to provide the enquirer with a sufficiently personalised recommendation to allow the customer to make an informed decision on arranging or significantly adapting the insurance, the distributor may not – given the necessity to manage the insurance company’s risks (for example, the requirements of insurable interest, insured risk and a its evaluation) – conclude or significantly adapt the insurance contract. In the event of breach of this obligation, liability for an administrative offence arises and liability for any damage can be assessed. An independent intermediary must be insured for such an eventuality pursuant to Article 13 of the AoIRD. Additional consequences might also ensue, and the courts may be called upon to pass judgement.

11. Can the obligation to obtain information from the customer on their demands, objectives and needs and to provide them with a suitable recommendation be replaced by the performance of an analysis of the target market carried out already in the product governance process and by the provision of generally valid recommendations for the product target group?

Summary:
Determining the customer’s demands, objectives and needs and recommending a suitable product pursuant to Article 77 of the AoIRD cannot be replaced by defining the target market and providing a general recommendation valid for the product target group. These are two different obligations, one of which concerns the rules of conduct towards customers and the other the product in general where it is intended for distribution to a larger number of persons. A recommendation is therefore made during interaction with the customer. Nevertheless, for simple products that are already, by design, compatible for an entire target group (for example, where the customer has purchased other products or another service that indicate the suitability of the given insurance for the customer), the recommendation may take the form of a statement that the customer corresponds to the target market and its characteristics.

Defining a target market means describing a group of customers sharing common characteristics on a general level, and must not be confused with individually evaluating the demands, objectives and needs of an individual customer. The essence of the procedure pursuant to Article 77 of the AoIRD is the provision of a personalised recommendation that takes into account the specifics of the case. The obligation to determine the customer’s demands, objectives and needs pursuant to Article 77 of the AoIRD and the obligations included under product governance pursuant to Article 53 of the AoIRD and Directive (EU) 2017/2358 are thus two different sets of obligations, and neither one can replace the other. They must therefore be systematically differentiated in the internal documents (regulations) of the represented entity (for example, the insurance company) addressed to the distributors that represent it.

Although for simple products the determination of the target market can as a result be based on the same parameters that make up the customer’s demands, objectives and needs (typically for motor liability insurance, where the description of the target group may often overlap with the customer’s demands, objectives and needs), compliance with the obligation to recommend a product to the customer based on information obtained from them, which implies determining the customer’s demands, objectives and needs in interaction with them, cannot be replaced by publishing or otherwise making available a general recommendation that is not based on the individual customer’s individual demands, objectives and needs.

It is indispensable to obtain information and make a recommendation pursuant to Article 77 of the AoIRD, since the recommendation is provided on the basis of this information and thus forms part of the standards of professional care under the rules of conduct towards customers, while the product governance process relates more to creating, monitoring, reviewing and changing products intended for distribution to a group of persons not specified in advance.[8]It is therefore essential that the information pursuant to Article 77 of the AoIRD be determined in interaction with the customer so that the process of arranging or significantly adapting insurance is traceable and it is possible to verify what demands, objectives and needs the customer has expressed and whether the recommendation provided is consistent with them.

12. Is it necessary to provide advice within the meaning of Article 78 of the AoIRD if a significant adaptation is being made to an IBIP arranged while Act No. 38/2004 Coll. was still in effect, i.e. arranged with no advisory activity within the meaning of Article 78 of the AoIRD?

Summary:
Advice must be provided even in cases where a significant adaptation is being made to a product arranged while Act No. 38/2004 Coll. was in effect. This mainly involves evaluating the change to the product in relation to the customer’s current (financial) situation and their existing legal relationships concerning substitute financial products.

The AoIRD must be complied with even in the case of changes to insurance policies concluded before it came into effect, regardless of whether they were concluded under the Civil Code or the Insurance Contract Act. Advice within the meaning of Article 78(1) of the AoIRD should be provided, among other things, before making a significant adaptation of investment insurance and, pursuant to Article 78(2) of the AoIRD, involves an analysis and the selection of suitable products.[9] The analysis and the selection of the product therefore relates primarily to a potential new product or, in the case of a significant adaptation, to a change to a product. A significant adaptation means any change consisting in a change of the scope of insurance or the premium amount, as stated in the explanatory memorandum to Article 77 of the AoIRD, which explains this term. Nevertheless, the situation of advice pursuant to Article 78 of the AoIRD can also involve changes in areas that are the standard subject of advice pursuant to this provision, for example a change of investment strategy. This mainly involves an evaluation of a new product or an adaptation of a product in relation to the customer’s (financial) situation, regarding which information is to be collected. Regarding an existing product or, more precisely, an adaptation thereof, it is necessary under the law to determine the effect on the customer’s current financial situation and on the customer’s existing legal relationships concerning financial products that are “substitute” products for the IBIP in question.

In determining the impacts of a change to, or termination of, existing insurance on the customer, it is also necessary to compare the possible course of events under the existing insurance with the expected course of events given the conclusion of new insurance. Even for the projections concerning the existing product made in the past, such as the projection of the investment component of insurance, even under the previous legislation the CNB expected the customer to be provided with information[10] on the investment strategies associated with the products offered and the customer’s demands and needs to be identified.[11] Even the previous rules of conduct for offering IBIPs therefore included the provision of sufficient information to enable the customer to decide which investment or investment strategy to choose.

Even from the information available on an existing product, it will therefore be possible to assess the appropriateness of maintaining, modifying or potentially replacing the product in the context of new products for which all parameters for conducting the analysis and selection pursuant to Article 78(2) of the AoIRD will be known.[12]

13. Is it necessary to provide advice within the meaning of Article 78 of the AoIRD if, in the course of selecting life insurance, the customer chooses an IBIP that has a negligible or zero investment component or chooses a change of allocation ratio within the same IBIP?

Summary:
Advice is provided for an IBIP, i.e. insurance that allows a capital reserve to be created from premiums. This advice concerns the suitability of the legal actions that are actually envisaged by the customer. Advice is provided even when the investment component is negligible, but is provided in proportion to the size of the investment component. Any change in the premium amount, as well as a decision to start investing in a fund (or portfolio or strategy) where investment in the fund has not yet been arranged, must be considered a significant adaptation of insurance in respect of which it is the obligation of the distributor to provide the customer with advice pursuant to Article 78 of the AoIRD. Where the IBIP allows the customer to change the allocation ratio, advice must be given with respect to these product options only when the insurance is arranged and at no other time.

Article 78(1) of the AoIRD sets forth the obligation to provide advice “before the arrangement or making of a significant adaptation to the IBIP”. It is therefore clear that whenever IBIP is to be arranged or significantly changed, it is necessary to perform an analysis and select a suitable product within the meaning of Article 78(2) of the AoIRD. IBIP is defined in Article 2(n) of the AoIRD as life insurance that allows a capital reserve to be created from premiums, when this capital reserve may be fully or partially paid out to the person entitled thereto. If a product does not allow a capital reserve to be created, it is not an IBIP and the obligation to provide advice pursuant to Article 78(1) of the AoIRD does not apply to it. If, on the other hand, the product enables the creation of an investment component, the relevant provisions of the AoIRD, including Article 78(1) and (2), do apply to the distribution of such insurance.

The amount of the reserve created is an expression of the value that is invested usually in such a way that the customer bears the market risk, and in order to evaluate the suitability of the product an analysis is performed pursuant to Article 78(2)(a)(1)–(6) of the AoIRD. Where the creation of a small capital reserve is arranged, the rules of mandatory advice pursuant to Article 78 of the AoIRD are applied in full scope. Nevertheless, the small intended reserve can be taken into consideration in the result of the advice provided (for example, in relation to the customer’s ability to bear losses and general financial situation).

Advice is provided regarding the suitability of the legal actions that are actually envisaged by the customer. This also concerns the specific extent to which the customer intends to undertake such acts (for example, the conclusion of a specific insurance contract).[13] If, then, the specific contract allows a capital reserve to be created, including where the customer has the continuous option to adjust the already agreed allocation ratio of investments in various funds (or portfolios or strategies), then this is the legal action regarding the suitability of which advice should be given, including on the allocation options arising from such insurance. At the time of IBIP arrangement, the distributor, in accordance with the requirement to act honestly and with professional care (Articles 71 and 72 of the AoIRD), should bring to the customer’s attention the nature of the product and what changes in the allocation ratio are unsuitable for the customer. It should be added that any change in the premium amount, as well as the decision to start investing in a fund (or portfolio or strategy), where investment in the fund has not been arranged up to this point, must be considered a significant adaptation of insurance in respect of which it is the obligation of the distributor to provide the customer with advice pursuant to Article 78 of the AoIRD.

14. How should one proceed in cases where a customer flatly refuses to provide some or any of the information necessary for the provision of advice pursuant to Article 78 of the AoIRD? For example, what if the customer flatly refuses to complete the investment questionnaire relating to the parameters of Article 78(2)(a)(2)–(6) of the AoIRD?

Summary:
Pursuant to Article 78 of the AoIRD, providing advice is a mandatory rule of conduct when arranging or making a significant adaptation to IBIP, and the distributor must provide it before arranging or making a significant adaptation to the IBIP. Advice can be provided not only on the basis of the investment questionnaire, but also on the basis of any information on the customer that the distributor possesses. Breach of this obligation will have consequences pursuant to the AoIRD and other laws, in particular responsibility for an administrative offence.

Before arranging or making a significant adaptation to IBIP, the insurance company and the insurance intermediary, pursuant to Article 77 of the AoIRD, are required to provide the customer with advice concerning the suitability of these legal acts for the customer. The advice is provided on the basis of an analysis of the information on demands, objectives and needs obtained from the customer, the risks to which the customer may be exposed over the life of the contract, the customer’s financial situation, the customer’s knowledge and experience in the field of investment, the customer’s risk tolerance, the customer’s ability to bear losses, the customer’s legal relationships concerning other financial market products and the selection of a sufficient number of suitable insurance products that the insurance company or the insurance intermediary can distribute. The AoIRD does not contain any further, more specific, guidelines regarding the situation where a customer refuses to provide sufficient information necessary for the provision of advice.[14]

The obligation to provide advice on the basis of an analysis of certain information pursuant to Article 78 of the AoIRD is a public law obligation that is linked to the general obligation to determine the demands, objectives and needs of the customer (see above; in the case of IBIP, the demands, objectives and needs also pertain to the investment component) and is intended to prevent the sale of unsuitable products to the customer and in this way also protect the consumer. If, then, the customer refuses to cooperate with the distributor during the actual arrangement of the insurance and is not willing to provide all the necessary information (such as details on their financial situation), the distributor, where acting with professional care and in the best interests of the customer (Articles 71 and 72 of the AoIRD), may provide advice based on the information it does possess on the customer, but only if there is no reason to believe that this information has changed and that it is necessary to request it anew. The distributor may only provide advice if they have information to the extent necessary to perform an analysis within the meaning of Article 78(2)(a) of the AoIRD and identify a suitable product. The distributor must give the information on the basis of which the analysis was performed in the record of the dealings with client pursuant to Article 79 of the AoIRD in a way that makes it clear, and that is potentially verifiable for the customer, when and how the distributor obtained such information.[15] Breach of the obligation to provide advice gives rise to liability for an administrative offence pursuant to Article 114(1)(e) and (l) of the AoIRD and to potential liability for damages. An independent intermediary must be insured for such an eventuality pursuant to Article 13 of the AoIRD. Additional consequences might also ensue, and the courts may be called upon to pass judgement.

15. How should one proceed in cases where a distributor provides advice and performs a suitability test but the customer chooses a different option, such as a higher-risk strategy? How should one proceed when the customer does not fall into the target market or even falls into a customer category for which the product is unsuitable but despite this is interested in concluding the contract?

Summary:
When performing its activities, the distributor is obliged to take professional care, and in particular to notify the customer that the product is not suitable for them. A product can be arranged despite being unsuitable as long as doing so does not endanger the risk management of the insurance company and the insurance intermediary. In the context of this risk management and the taking of professional care, the distributor must assess whether the customer, given their personal attributes (education, social standing, etc.), is able to understand the warning about the unsuitability of the product.

As part of professional care, the customer must always be notified of the risks associated with his choice, but cannot be prevented from concluding the contract unless the unsuitability of the product renders it impossible for the distributor to manage its own risks or to comply with some other public law obligation. This applies to insurance distributors; as regards manufacturers of insurance products,[16] the insurance company should in this case carefully consider whether to allow its distribution networks to arrange such products as part of its distribution strategy and product approval, as there is a risk that the products will not meet the demands and needs of the customer determined on the basis of the procedure in Article 78 of the AoIRD over the whole product cycle, which may lead, inter alia, to premature termination of the insurance contract or to other harm being incurred by the customer with an impact on the life of the contract and hence to breach of the obligation to act in the customer’s best interests (Article 72(1) of the AoIRD). The manufacturer should pay particular attention to whether its employee or insurance intermediary could be motivated through inappropriate incentives to lead the customer in reality to a different product than one consistent with the needs identified. The manufacturer  cannot rely on the  customer´s approach without further ado, especially without a functional checking system in relation to the insurance intermediary.

Record of dealings with client

16. Can it be concluded from Article 79 of the AoIRD that a distributor should always prepare record, i.e. even when insurance is not ultimately arranged or adapted, since it is not certain ahead of time whether it will be necessary to prepare minutes or not?

Summary:
Record cannot be prepared after the arrangement or making of a significant adaptation to insurance, since it must be provided sufficiently in advance; nevertheless, failure to write the record can only be penalised if the arrangement or making of a significant adaptation to insurance actually took place.

Article 79 of the AoIRD sets forth the obligation to prepare a record containing the demands, objectives and needs of the customer, the recommendation and the reasons for the recommendation, but only of the dealings that “have led to” the arrangement or making of a significant adaptation to insurance. However, it cannot be concluded from use of the present perfect “have led to” that the record could have been written only after the arrangement or making of a significant adaptation of insurance, since that would be in conflict with Article 92(3) of the AoIRD, which stipulates that the record shall be presented to the customer “sufficiently in advance of the arrangement or making of a significant adaptation to insurance”. Thus is the present perfect tense stipulates the material scope of the obligation, not the time of its fulfilment, and hence from the wording of Article 79 of the AoIRD it is necessary to conclude that the obligation to prepare the record can be checked and enforced only in cases where it is certain that the obligation to prepare the record does indeed apply to the dealings concerned (i.e. that insurance has been arranged/adapted). Given the point of making record, which is unquestionably to protect the interests of the customer, and also given the legislation in force, it can thus be recommended that a record should be drawn up as a precautionary measure whenever it becomes apparent in the course of dealings that the said dealings could potentially lead to a significant adaptation of the insurance contract or to the arrangement of insurance, as only in this way can the obligation to provide the record to the customer before arranging/adapting insurance be met.

Pre-contractual information obligation

17. Does an insurance intermediary that acts as a tied agent of an independent intermediary have the obligation to disclose the represented entity’s registered address to the customer before arranging insurance?

Summary:
As long as the represented entity can be clearly identified based on their first and last name and their relationship with the tied agent, it is not necessary to state the entity’s address directly. Only if there might a confusion of names is it necessary to do so, given the obligation to communicate in a way that is not misleading.

According to Article 18(a)(i) of the IDD, member states have an obligation to ensure that an insurance intermediary discloses its identity and address and that it is an insurance intermediary to the customer in good time before the conclusion of an insurance contract.

In connection with this, Article 88(1) of the AoIRD sets out the obligation for an insurance intermediary to disclose its name and registered address, that it is an insurance intermediary, and the position in which it carries on the business of mediating insurance to the customer before arranging insurance. Letter (d) of this provision furthermore stipulates the obligation to disclose the name of the represented entity to the customer.

As the represented entity bears primary liability for the actions of the tied agent, there is no doubt that the customer should know the identity of the represented entity, including with respect to any disputes arising from the actions of the tied agent. In this regard, it can be stated that in cases where the represented entity’s identity is self-evident, especially because the entity can be clearly identified in the register of entities regulated by the CNB according to the name of the represented entity and the registered links of the tied agent to the represented entity, it is not necessary to explicitly state the address of the represented entity in communications with the customer. Only if doubts might arise as to who the tied agent represents, for example due to similarities of the name of the represented entity with a different entity active on the financial market, is it necessary for the tied agent to give additional identifying information about the represented entity, such as its address, under the obligation to communicate in way that is clear and not misleading and to act with professional care.

18. Is an insurance distributor obliged to inform the customer before concluding an insurance contract whether it is providing advice pursuant to Article 78 of the AoIRD?

Summary:
This obligation arises for insurance companies in cases of life insurance directly from Article 85(f) of the AoIRD and for insurance intermediaries distributing life insurance under Article 90(4) and (5) of the AoIRD. In other cases, the distributor informs the customer that it is providing advice in accordance with Article 78(3) of the AoIRD, i.e. in the case of voluntary advice. Given that in the AoIRD, in contrast to the IDD, the provision of a recommendation within the meaning of Article 77 of the AoIRD is always mandatory and is an integral part of insurance distribution, the express obligation to inform the customer that they are being provided with advice relates only to the situation of provision of advice within the meaning of Article 78 of the AoIRD.

The AoIRD sets out this obligation for the insurance company as part of its pre-contractual information obligation for life insurance in Article 85(f). Informing the customer on the provision of advice also arises from Article 90(4) and (5) of the AoIRD if the insurance is being mediated by an insurance intermediary.

Where the distributor provides advice on a voluntarily basis within the scope of Article 78 of the AoIRD, and no life insurance (where Article 85(f) of the AoIRD is applied) is involved, an assumption that the distributor informs the customer of his giving an advice is expressed in Article 78(3) of the AoIRD. This provision states: “If the insurance intermediary informs the customer, before arranging or significantly adapting non-IBIP, that he is providing advice on the suitability of such legal acts for the customer, paragraph 2 shall apply mutatis mutandis”. This is not a pre-contractual information obligation but the information is provided de facto through the distributor’s voluntary communication that he is providing advice.

The insurance distributor is obliged to communicate with the customer clearly, unambiguously and concisely, and, on the contrary, not to communicate deceptively or misleadingly (Article 73 of the AoIRD), including in matters concerning services provided and in dealings with the customer generally. The distributor is also obliged to act transparently and honestly (Article 72(1) of the AoIRD). This also means acting in a way that makes it clear to the customer in what scope the distributor is providing the service (whether only as a recommendation or as advice as well). These requirements shall apply especially to voluntary communications pursuant to Article 78(3) of the AoIRD.

In Czech law, the provision of a recommendation is an integral part of insurance distribution as a rule of conduct and the express information duty therefore pertains only to situations where advice is being provided within the meaning of Article 78 of the AoIRD. This also implies that even if the distributor fails to inform the customer that it is providing advice, it is in any case providing a recommendation based on the information obtained from the customer pursuant to Article 77(2), which is deemed to be a form of advice and arises from the legislation as a required standard.

19. Is the insurance intermediary obliged to inform the customer before arranging insurance of how its registration in the register can be verified?

Summary:
Given that the register is available on-line on the CNB website, it is sufficient to state the specific internet address of this register. Verification instructions (procedures) can be recommended as good practice where communication with the customer makes it clear that they do not have a sufficient mastery of searching on-line.

Pursuant to Article 18(a)(iv) of the IDD, Member States shall ensure in good time before the conclusion of an insurance contract that an insurance intermediary discloses to customers the register in which it has been included and the means for verifying that it has been registered.

Article 88(1)(b) of the AoIRD obliges an insurance intermediary to disclose to the customer the identification of the register in which it has been included, but not how this registration can be verified, because the latter arises from the public nature of the register.

The purpose of the cited provision of the IDD is to enable the customer to verify the inclusion of the insurance intermediary in the register. This will usually be possible upon the fulfilment of the obligation set out in Article 88(1)(a) of the AoIRD, i.e. the stating of the name and registered address of the insurance intermediary. The register in which the insurance intermediary has been included should be identified specifically, i.e. not just generally, such as by linking to the CNB website, but by giving the address of the insurance intermediary register (https://www.cnb.cz/cnb/jerrs_en). Given that this is a public register available on the internet, the way of verifying the registration is automatically obvious. Nonetheless, given the requirement to provide clear, concise and non-misleading information (Article 73(1) and (2) of the AoIRD), it can be recommended as good practice to provide customers with information on the methods/means of verifying entries in the register where communication with the customer indicate that they do not have a sufficient mastery of searching on-line.

[1] See https://ec.europa.eu/info/law/insurance-distribution-directive-2016-97-eu/amending-and-supplementary-acts/implementing-and-delegated-acts_en.

[2] See, for example, the second subparagraph of Article 10(2) of the IDD, which states: “…taking into account the nature of the products sold, the type of distributor, the role they perform, and the activity carried out within the insurance or reinsurance distributor”.

[3] It is also relevant to point out that in 2016 EIOPA published Preparatory Guidelines on product oversight and governance arrangements by insurance undertakings and insurance distributors. The CNB declared that insurers and distributors either comply or intend to comply with these guidelines. The product governance process and rules are therefore not entirely new. However, it is necessary to take the proportionality principle into consideration and to phase in the product governance rules commensurately, as this is a new legal obligation for which no transition period has been set in either domestic or European law.

[4] For example, if an error came to light in the independent intermediary’s actions during the arrangement of the insurance which could affect the subsequent loss adjustment of an insured event arising from that same insurance.

[5] See also the explanatory opinion of the CNB on simultaneously acting as an insurance agent and an insurance broker from  2008 (in Czech only).

[6] See EIOPA’s answers to questions on the IDD of 10 July 2018.

[7] If the insurer asks the enquirer when arranging the conclusion of an insurance contract, or the policyholder when arranging a change to an insurance contract, in writing about facts that are relevant to the insurer’s decision, to how the insurer will evaluate the insurance risk or to whether and under what conditions the insurer will insure these risks, the enquirer or the policyholder must answer these questions truthfully and completely. The obligation is considered duly fulfilled if nothing substantial was withheld in the answer.

[8] Pursuant to Article 5(1) of Commission Delegated Regulation (EU) 2017/2358, the product approval process shall for each insurance product identify the target market and the group of compatible customers. The target market shall be identified at a sufficiently granular level, taking into account the characteristics, risk profile, complexity and nature of the insurance product.

[9] See Article 78(2): (2) Advice is provided on the basis of:

  1. a) an analysis of
  2. the demands, objectives and needs obtained from the customer,
  3. the risks to which the customer may be exposed over the life of the insurance product,
  4. the customer’s financial situation
  5. the customer’s knowledge and experience in the area of investment,
  6. the customer’s risk tolerance and capability of sustaining losses,
  7. the customer’s legal relationships concerning other financial market products and
  8. b) the selection of a sufficient number of suitable insurance products which the insurance company or insurance intermediary can distribute.

[10] See for example Supervisory Benchmark 3/2012 of 30 November 2012 (in Czech only), Life insurance product costs, information on surrender value, pp. 5–6, examples 4 to 7 containing information on the estimate of the amount of the investment part (time dependent, based on realistic assumptions, comprehensible – for example in the form of a chart). Further, see Supervisory Benchmark 5/2012 of 19 December 2012, On the obligation of insurance intermediaries to carry out activities with professional care, in particular in relation to the fulfilment of information obligations in the arrangement of investment life insurance, which expresses the expectation that it is necessary to determine the customer’s demands, needs and possibilities even in the case of a significant adaptation of an insurance product. Finally, see also the CNB Official Information of 2 May 2012, which on p. 2, among the information on life insurance, also lists information on the expected or potential returns or characteristics of investments with reference to the then applicable Consumer Protection Act and Insurance Contract Act.

[11] See Article 21(8) of the No. 38/2004 Coll.: Before concluding an insurance contract, the insurance intermediary is obliged to record the customer’s demands and needs relating to the insurance being arranged and the reasons forming the basis of the intermediary’s recommendation for the selection of an insurance product, based in particular on the information provided by the customer and in relation to the nature of the insurance being arranged.

[12] See also Article 4(4)(b) of Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products. According to that provision, any entity that makes changes to an existing product with an investment component, including, but not limited to, altering its risk and reward profile or the costs associated with an investment in that product, is also deemed the manufacturer of that product. That entity is therefore subject to the obligation to draw up a key information document, which it shall provide to the customer in the event of a significant adaptation of an existing product.

[13] The same follows from the obligation under Article 78(2)(a)(1) of the AoIRD, i.e. the obligation to determine the demands, objectives and needs of the customer in advance and to adapt the advice on the suitability of the insurance to those demands, objectives and needs.

[14] Such as Article 136(3) and (4) of Act No. 427/2011 Coll., on Supplementary Pension Savings, which stipulates the conditions under which a contract can be concluded despite the customer’s non-cooperation, Article 54(8) of Regulation (EU) 2017/565, which implements MiFID II, according to which if an investment firm does not obtain the information necessary to provide qualified advice, it shall not provide advice (although this regulation does not stipulate mandatory advice as such), and Article 15i of Act No. 256/2004 Coll., on Capital Market Undertakings, as amended, according to which an investment firm, if it does not obtain information from the customer for services without an advisory element, shall notify the customer that the suitability of the service or product for the customer cannot be assessed.

[15] Where the distributor is unaware of the customer’s demands, objectives and needs, the above interpretation of Article 77 of the AoIRD applies and the distributor may not arrange the product. This also implies that in the case of insufficient information, for example concerning the customer’s financial situation, in accordance with the obligation of professional care the customer must not in any way be induced or otherwise recommended to conclude the given investment insurance product. Another form of inducement to conclude an unsuitable product is the situation where the customer is presented with a standardised form or questionnaire of an insurance company or an insurance intermediary which assumes that the background information will not be provided and contains a pre-printed tick-box refusal to provide information and consent to the arrangement of unsuitable insurance or insurance whose suitability cannot be assessed.

[16] See Articles 2 and 3 of Regulation 2017/2358.

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