Insurance Flash – November 2022

1. The warning of the European Insurance and Occupational Pensions Authority (EIOPA) to insurers and banks to address consumer protection issues related to sale of credit protection insurance (CPI) products, published on 4 October 2022.

We refer to the thematic review conducted by EIOPA and its main findings, the content of the warning, its publicity by the Directorate General of Insurance and Pension Funds (commonly known by its acronym in Spanish, “DGSFP”) and our preliminary assessment of the issue.

For the reasons explained below, we consider that the EIOPA's warning, to which the DGSFP has adhered, together with the pressure from certain associations that are making assessments contrary to the bank distribution of insurance (bancassurance), even raising questions about the adequacy of existing practices to the regulations on restrictive antitrust practices, will require insurance undertakings which are distributing their products through banking networks, through bancassurance intermediaries, and banks, in the coming months, to review their procedures, in particular with regard to; (i) product oversight and governance rules, (ii) prior information provided to the customer by the distributor -in particular with regard to the distributor's remuneration policies and close links between insurance and banks-, and (iii) conduct of business rules, in order to ensure that these procedures meet the requirements and standards established by the national supervisory authority.

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2. The peer review report on outsourcing, published by EIOPA on 19 July 2022.

The report identifies areas for improvement where greater convergence and clarity could be achieved with regard to the supervisory activity, including in particular the following areas: (i) the outsourcing of delegated authority, (ii) the definition of "material developments" and the meaning of "notification in a timely manner", both terms used in article 49.3 of the Solvency II Directive, and (iii) the supervision of so-called "empty shells".

Future changes to the regulation of the supervision of outsourced functions and activities as a result of the recommendations set out in the EIOPA document could affect, among other issues, the additional documentation and/or information that the DGSFP requires from insurance companies within the outsourcing prior notification process, to the criteria used by insurance company to classify a function or activity as critical or important, as well as the functions and/or activities that insurers currently consider to be critical or important.

In addition, national supervisory authorities can be expected to pay particular attention to the intra-group outsourcing model of EU insurance companies in third countries.

In short, we consider that Spanish insurance companies should pay special attention to possible future legislative developments regarding prior notification of the outsourcing of critical or important functions and activities, as well as to the criteria that may also be published in the future by the DGSFP on the determination of when a certain function or activity should be considered critical or important.

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3. Judgment of the Court of Justice of the European Union (CJEU) of 29 September 2022 (Case C-633/20) on "improper" policyholders in group insurance.

The Court of Justice of the European Union has ruled on a reference for a preliminary ruling from the German Federal High Court (Bundesgerightshof).

The question posed, very briefly, was whether an "improper" policyholder in group insurance contract, who receives remuneration from the persons who join as insured parties, is considered to be an insurance intermediary, both from the perspective of the repealed 2002 Insurance Mediation Directive and from the perspective of the current 2016 Insurance Distribution Directive.

The Court concludes that the activity carried out by the policyholder, in the specific case analysed, is covered by the concepts of insurance intermediary and insurance distributor as defined in the EU legislation.

For the reasons set out in the notice, we do not believe that this ruling of the Court of Justice of the European Union represents, in the context of the Spanish legal system, a real novelty with respect to the traditional position of the DGSFP and our Courts, without prejudice to the fact that the ruling acknowledges, at the Community level, the "compatibility" between the "formal" figure of the policyholder in an improper group insurance policy and the concept of insurance intermediary or distributor.

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4. The Resolutions of the DGSFP of 6 September 2022, publicising the revised Guidelines of the European Insurance and Occupational Pensions Authority on the valuation of technical provisions and contractual boundaries (endorsed by the DGSFP).

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