The Belgian State Gazette (Moniteur Belge) of 30 April 2014 has published the Law of 4 April 2014 "on insurance".
The aim of the law is basically to clarify and consolidate in one statute the currently existing legislation on insurance contracts, intermediation and supervision.
The law does however also contain a number of new provisions aimed in particular at increasing protection for policyholders (partially implementing the Solvency II Directive).
The law is going to enter into force on November 1st 2014. Transitional arrangements are foreseen for certain rules. The new provisions concerning insurance contracts will apply to all contracts in process at the time of the law's entry into force. Insurers must adapt contracts and other documents no later than the first day of the 13th month following the publication of the law, i.e. June 1st 2015 (Article 311).
Codification of existing legislation
With the aim of clarifying the existing legislation on the relationship between an insurer and the "consumer of insurance" and making it more understandable for the public, the new law codifies - for the most part without changing the content - the following currently existing laws (now repealed):
- those parts of the Law of 9 July 1975 on the supervision on insurance companies which deal with the relationship between a policyholder and an insurer (basically involving, under the Twin Peaks model, FSMA supervision, as opposed to what is within the competence of the National Bank);
- the majority of provisions found in the Law of 25 June 1992 on non-marine insurance contracts;
- the Law of 11 June 1874;
- the Law of 27 March 1995 on insurance intermediation.
All Royal Decrees or other measures implementing these laws which are currently in force will remain in force and will continue to be applied under the new law. In the case of any contradiction, the new law shall take precedence.
This codification does not however mean that laws not included (especially the Law of 6 April 2010 on market practices or the Law of 10 May 2007 on fighting discrimination) will no longer be applicable to the insurance sector.
Enhanced consumer protection and (partial) transposition of Solvency II
Over and above codifying existing legislation, the aim of the new law is to enhance consumer protection. In this respect it displays the willingness to transpose the majority of provisions found in the Solvency II Directive which relate to consumer protection, though also with certain new provisions not foreseen in the EU directive.
The new rules basically concern:
- life insurance policies linked to investment funds;
- the drafting of contractual and marketing documents, as well as advertising material;
- the limitation of segmentation possibilities;
- increased transparency with regard to policyholder bonuses (profit sharing).
Except when specified otherwise, the provisions of the new law apply whenever a Belgian customer is concerned or when Belgian law is applicable, whether the insurer or intermediary is based in Belgium, whether it operates on Belgian territory while being based in an EEA Member State or whether it is based outside the EEA. (Article 4)
The notion of 'insurer' is used in a broad sense, i.e. the law will apply whenever the activity concerned is related to insurance, regardless of whether the person exercising this activity is authorized (new notion of "insurer" as opposed to an "insurance company").
The law makes a clear distinction - summa divisio - between "non-life" and "life" classes of insurance activities.
It similarly stipulates that capitalisation contracts are to be considered as insurance contracts (within the category of person insurance).
Taking this inclusion of capitalisation operations into account, the law now uses the term "place of engagement" (rather than "place of risk") when referring to the "life" class of insurance to determine application of Belgian rules.
Life insurance policies linked to investment funds (Part 2 - Title III)
The legislator's aim is to create a level playing field through ensuring that, from a consumer protection angle, the same rules apply whether a customer invests in a UCITS (undertaking for collective investment in transferable securities) or in a life insurance policy linked to an investment fund.
Transitional arrangement (Article 311): These new rules shall only apply to contracts signed after the new law has come into force. For existing contracts, they are to be complied with from the moment when:
- there is a change of fund or if the regulations governing the management of the fund are changed;
- the conditions pertaining to the (minimum) yield are changed.
Product knowledge and customer information (Article 19)
For life insurances policies where the investment risk is borne by the policyholder, insurance benefits may only be, directly or indirectly, linked to assets and instruments where the insurer is in a position to properly assess the risks.
The insurer must inform the policyholder in clear terms of any risk the latter is to bear, before concluding the contract. This is particularly important in the case of complex and structured products.
Limitation of eligible assets (Article 20)
Contrary to the opinion of the Conseil d'État, the Government has taken the decision (followed in this by Parliament) to apply the rules in this respect as soon as the place of engagement is Belgium, regardless of whether the insurer is based in Belgium or not.
The Conseil d'État had pointed out that the rules in respect of investment policy restrictions fall under prudential supervision and are therefore subject to "home country control". As a consequence, Belgium has no right to enact rules to be applied to insurers based in another EEA Member State and operating in Belgium under F0S.
The Government justifies its position by the fact that the entry into force of European consumer protection rules (Solvency II, PRIPS) is being constantly postponed and that Belgium wants to impose rules in this matter forthwith.
In our view, this justification seems questionable, insofar as, under the European law currently in force, the choice of eligible assets is a decision taken by the home country. This principle is upheld by Solvency II as regards any restrictions possibly applied when the implementation of the contract is linked to certain assets and the policyholder is a natural person (Article 133.3 of Directive 2009/138/EC).
The rule foreseen in the new law is that, insofar as the policyholder is a "retail customer" and the place of engagement is Belgium, the insurance benefits may only be linked, directly or indirectly, to certain types of assets:
- shares in Belgian or foreign UCITS registered in Belgium with the FSMA in the lists foreseen for such under Articles 33 and 149 of the Law of 3 August 2012 (transposing UCITS Directive 2009/65/EC) and, generally speaking, shares in Belgian or EEA UCITS governed by Directive 2009/65/EC;
- but also (directly):
- assets within the investment categories open to UCITS under Belgian law, insofar as the rules laid down in Directive 2009/65/EC relating to investment policy (Chapter VII) and general obligations (Chapter X) are complied with;
- assets within the investment categories open to public collective investment undertakings under Belgian law, insofar as the rules governing the fund's investment policy do not differ from those applicable to Belgian undertakings;
i.e. in a nutshell:
- that the securities and financial assets are liquid
- that they are:
- listed or traded on a regulated or secondary market in the EEA (and under certain conditions on the markets of a non-EEA Member State);
- shares of other UCITS (maximum 10%) regulated by Directive 2009/65/EC (and under certain conditions UCITS not meeting the Directive's requirements) ;
- financial derivatives (under certain conditions).
(Cf. in this respect the Law of 3 August 2012 as well as its implementing Royal Decree of 12 November 2012.)
By derogation, the UCITS Directive limit of not having more than 20% of assets invested in deposits made with the same body is not applicable to (i) deposits with the same credit institution (approved within the EEA) or to (ii) investments in bonds or other fixed-income securities issued by the same credit institution (approved within the EEA) or to (iii) investments in financial instruments issued or guaranteed by an EEA Member State, insofar as the marketing documents clearly refer to the associated credit risk and do not mention any capital guarantee (except when such a guarantee actually exists). The term of the financial instruments referred to under (ii) must, in such a case, coincide with the term of the insurance contract.
The rules on commissions and fees directly or indirectly charged to policyholders must be clear and precise.
It will be the responsibility of the insurer's auditor to certify each year that these investment rules have been complied with, that the organisation structure of the funds is not harmful to the interests of policyholders and does not cause any increase in current fees (in the sense of the UCITS legislation).
Drafting of contractual documents and advertising material - Document filing
All documents must be drafted in clear and precise terms. There is a ban on all provisions violating the equivalence between the insurer's commitments and those of the policyholder. (Article 23)
Should interpretation doubts arise, the interpretation most favourable to the policyholder shall take precedence (new rule in insurance legislation, though already provided for under the 2010 law on market practices). (Article 23)
Should the contractual documents not comply with parts 2 & 3 of the Law, they are to be interpreted as if the non-compliant provisions were replaced by compliant ones on concluding the contract. (Article 22)
The King is authorized to set down rules to be complied with when drafting documents relating to the conclusion and implementation of insurance contracts. (Article 21)
Advertising material (Article 28)
All marketing documents made available in Belgium must fulfil the following minimum conditions:
- must not be misleading or inaccurate;
- must be compatible with the mandatory information provided for by law;
- where advertising material is involved: must be clearly recognisable as such.
The King is also authorized to set down rules governing the contents and presentation of such documents.
Document filing (Articles 14 and 28§5)
For Belgian and foreign (non-EEA) insurers, the law introduces an obligation to file all documents relating to signed contracts. There is no time limit attached to this obligation.
In addition the law specifies that all physical or electronic copies are presumed to be, unless proved otherwise, faithful reproductions of the originals when they are made by or under the control of a Belgian or foreign (non-EEA) insurer.
It can be inferred from the wording of Article 14 that these requirements do not apply to insurers based in the EEA and operating on the Belgian market. The presumption regarding the copies is similarly not applicable to them.
As regards marketing documents, Article 28§5 sets forth a specific filing rule: The insurers (hence not just Belgian insurers, but also EEA and non-EEA ones) are required to file copies of all marketing documents until the longer of the following deadlines is reached:
- the limitation period for actions related thereto;
- 2 years after the termination of the last contract to which these documents relate.
The restructuring of the rules on pre-contractual information and information supplied in the course of the contract.
The law stipulates that certain information must be supplied before a contract is concluded and during its term, with a distinction being made between policies belonging to the "non-life" class of insurance (Articles 32 - 34) and the "life" class (Articles 35 - 36).
This information must be worded clearly and accurately, and must be in written form and in one of Belgium's official languages (Article 37).
The King is authorized to set down the mandatory content of the documents for the policyholder, the insured person, the beneficiary or a third party (Article 30), or to specify or extend the information to be communicated (Article 38).
Segmentation (Articles 42 ff)
Though segmentation is recognized as an essential element of insurance, the legislator intends to protect policyholders against any arbitrary differentiation and to generalize the anti-discrimination rules.
These rules are considered as being of general interest and therefore also applicable to foreign insurers.
For certain types of insurance (auto liability insurance, simple-risk fire insurance, private liability insurance, legal protection, individual life insurance and health insurance) and conditional on the policyholder being a consumer, the new law imposes specific transparency and justification requirements regarding the segmentation in question: any form of differentiation (on the basis of whatever criterion) with regard to acceptance, pricing or guarantees must be objectively justified by a legitimate objective and the means used must be appropriate and necessary.
The insurer must publish the segmentation criteria and related explanations on his website. When a contract is being offered or when an existing contract is in the course of being modified, the insurer must also justify, in clear terms understandable to the policyholder, the criteria used in each individual case.
The King may impose or ban certain criteria.
Except in certain cases limited by law, the insurer must also justify his reasons for refusing a person insurance coverage.
These new provisions will apply immediately to contracts offered and/or concluded after the date the law enters into force (1 November 2014). For contracts signed before this date, these provisions will apply following any modification and/or renewal thereof no later than the first day of the 13th month following the entry into force of the law, i.e. 1 December 2015 (Article 311).
Policyholder bonuses (profit-sharing) (Articles 47 ff.)
The rules here apply to all contracts where the risk or engagement is located in Belgium.
Reference may only be made to the existence of a policyholder bonus when there is a legal or contractual obligation to accord one (from the moment certain conditions - which must be known to the policyholder - are met).
When the bonus is dependent on a discretionary decision of the insurer, the latter may not make any reference to past performance or to future predictions in his advertising material.
Insurers must provide a bonus plan which is to be made available to potential policyholders before conclusion of a contract. This plan must contain the following:
- the way the total distributable profit is calculated and the way of determining whether and to what extent this profit will be paid to policyholders in the form of a bonus;
- the criteria and conditions under which the profits will be distributed among the different contracts.
The King is authorized to set up a mandatory system for sharing profits with policyholders.
Sanctions under civil law: nullity and damages (Article 8)
The Law merges the different nullity systems foreseen by the law on the supervision of insurance companies and recently introduced by Twin Peaks to now foresee, for all insurance contracts:
- The nullity of contracts concluded by an insurer not authorized to operate in Belgium;
- the requirement for the insurer to perform his obligations, despite the nullity, when the policyholder signed the contract in good faith;
- the requirement for the insurer to compensate any damage caused by the nullity;
- the irrefutable presumption of causation between the damage and the irregular conclusion of the contract.
In the process, Article 86ter §1 -5 recently introduced into the Law of 2 August 2002 on account of Twin Peaks is again repealed.
This rewording of the still very new system of nullity introduced by Twin Peaks raises questions however:
- The new Article 8 of the Law on Insurance Contracts does not specify whether nullity is absolute or relative, where one could reasonably surmise from the wording of Article 86 ter that absolute nullity was meant.
- The clarification in Article 86 ter §3, under which the fact that an EEA-based insurer has not fulfilled the formalities foreseen with regard to the free provision of services or freedom of establishment was not to be considered as a lack of authorisation leading to the nullity of contracts (insofar as the insurer is in possession of authorisation in his home country), has been removed. Does this now mean that we must consider an insurer who has not fulfilled these formalities to be unauthorized to operate in Belgium, meaning in turn that contracts become null and void through application of Article 8?
The Law also includes certain modifications to existing rules, in particular in the following fields:
- Mandatory insurances (Articles 25 - 27)
- Right of withdrawal (Article 57)
- Medical information (Article 61)
- Benefits paid to minors or persons incapable of acting on their own behalf (Articles 68 and 246)
- Giving notice before suspending or terminating the contract (Article 70)
- Defaulting on the payment of the premium (Article 71)
- Third-party beneficiary contracts: The King is authorized to set down the conditions to be met in a third-party beneficiary contract.
- Contract termination after a claim (Article 86)
- Mandatory specifications with regard to minors and other persons incapable of acting on their own behalf (Articles 89 & 256)
- Inclusion of the interpretative law of 19 July 2013 concerning Article 97 of the Law of 25 June 1992 in the text of the new law (Article 160)
- The effects of divorce (Article 191 ff.)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.