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Brexit - Belgium hard brexit law - Insurance

The ‘hard’ Brexit law contains two important measures for the Belgian insurance sector, aimed at mitigating the major modifications following the Brexit:

1. Legal framework for establishing a temporary regime

It is still uncertain whether the UK will become a third country following Brexit, or whether an equivalence regime will apply.

In order to be authorised to continue their activities in Belgium, insurance companies governed by UK law will in principle have to comply with the equivalence or mutual recognition regimes of third countries, which will are generally governed by the national law of each member-state.

With regard to current insurance contracts, the Belgian federal government wishes to protect insurance clients and to allow the execution of contracts concluded prior to Brexit, as well as their renewal as the case may be.

EIOPA (the European Insurance and Occupational Pensions Authority) has issued, also on 19 February 2019, some recommendations, calling competent authorities to apply a legal framework or mechanism to facilitate the orderly run-off of business which would become unauthorised by Brexit, or to immediately take all necessary measures to become authorised under European Union law.

For EIOPA, competent authorities should allow the finalisation of portfolio transfers from UK insurance undertakings to EU27 insurance undertakings, provided that it was initiated before the withdrawal date.

To avoid any uncertainty, the Belgian Brexit law gives powers to Belgian government, after seeking the advice of the Financial Services and Markets Authority (FSMA) and the National Bank of Belgium, to take the necessary measures in order to secure the continuity of the execution of insurance contracts entered into before the loss of their license or authorisations by UK regulated insurance companies and intermediaries (and due to Brexit).

A Royal Decree could therefore potentially be subsequently adopted by the federal government, in order to guarantee the proper execution of insurance contracts concluded prior to Brexit and:

  • Grant certain licenses / authorisations under the third-country regime. In this respect, EIOPA is calling national authorities, in assessing whether the legal conditions for the authorisation of a third-country branch are fulfilled, to apply the principle of proportionality and to take into account that the UK insurance undertaking was subject to Solvency II requirements before Brexit. According to EIOPA, such authorisation should at least be given in order to run-off existing business, or
  • Provide for an assimilation (where applicable temporary) to the EU regime.

In a recent FSMA Communication regarding the consequences of Brexit on the provision of investment services and performance of investment activities, the FSMA invites the companies concerned to proceed very carefully with their analysis. For the FSMA it is therefore not realistic to consider that all things will remain equal after Brexit.

2. The new category of ‘underwriting agents’

The federal government is aware that Brexit will lead to an increase in the activity of underwriting agents in Belgium, insofar as this type of activity is typical of the UK market. Today, Belgium does not have an appropriate / separate category for this type of intermediary.

With respect to insurance intermediaries, EIOPA also calls for the competent (Belgian) authorities to ensure that UK intermediaries and entities which intend to continue or commence distribution activities to EU27 policyholders and for EU27 risks after the UK’s withdrawal, are established and registered in the EU27 in line with the relevant provisions of the IDD. For this purpose, the competent authorities should assess any distribution model against the definition of distribution activity as provided for in the IDD.

The introduction of the new framework on underwriting agents in Belgian law intends to address this issue and will further also address the following concerns:

  • Creating a greater clarity on the existence of underwriting agents, both for clients (policyholders, insureds, beneficiaries) as for insurance intermediaries who collaborate with underwriting agents. Clients now often confuse underwriting agents and the insurance company itself;
  • Avoiding recent frauds perpetrated by unauthorized persons (‘ghost underwriters’) or underwriters collaborating with insurance companies not duly licensed in Belgium; and
  • Ensuring that persons engaged in such activities have a sufficiently and entrusted organization.

The new Belgian regime is in line with the existing regimes in the UK and in the Netherlands.

Underwriting agents will be required to register as insurance intermediaries. An additional category, reserved for underwriting agents, will be created in the FSMA’s register of intermediaries. They will be subject to the same registration conditions as insurance brokers, and to the same conditions for carrying out the activity than other intermediaries (including new rules of conduct resulting from the transposition of IDD).

A number of specific provisions are provided for underwriting agents:

  • The underwriting agents must have an adequate organisation, allowing them to comply with legal requirements;
  • Particular attention is paid to the issue of conflicts of interest. As a consequence, the activity of underwriting agents cannot be combined with the traditional "distribution" activities of a traditional insurance intermediary (broker, agent or sub-agent). Such cumulation would lead to confusion as to the quality in which the intermediary acts both towards the consumer and in the sector. The activities must therefore be strictly separated from other distribution activities, i.e.  within an apart legal entity;
  • The publication on the FSMA website of the names of the underwriting agents and of the names of the insurance undertakings which have given them powers of attorney and for which tasks.

Finally, like other insurance intermediaries, underwriting agents will be subject to the FSMA’s supervision. Violations of the legislation may therefore be subject to administrative measures and criminal sanctions provided for by the Insurance Law.

The section regarding underwriting agents in the Brexit lax entered into force on 10 April 2019.