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Belgium lawmakers amend risk transfer rules for insurance intermediaries

Lawmakers in Belgium have amended legislation for client money rules for insurance intermediaries, thereby closing a gap in legislation that had existed for more than three years and removing a potentially costly liability for insurance buyers.

However, the amendment has not been extended to cover reinsurance contracts, leaving a gap that will still need to be covered by more rule changes. Furthermore, according to a leading Belgian lawyer, there remains a lack of clarity over the scope of the amendment in relation to insurance intermediaries from other EU states conducting business in Belgium.

The recent amendment concerns the use of risk transfer rules for insurance industry client money. Under Belgian law, the insurer bears the solvency risk for an intermediary such as a broker. This was applicable to all insurance policies governed under Belgian law and to all insurance policies distributed by intermediaries in Belgium, even if they are not governed by Belgian law.

In 2018, Belgium authorities implemented the EU’s Insurance Distribution Directive into law. However, according to Benoît Vandervelde, partner at Belgian law firm CMS Belgium, lawmakers “made a technical error” by deleting part of the pre-existing risk transfer rules that were applicable to all insurance policies.

As a result, for the last three years risk transfer rules have only been applicable to policies governed by Belgian law.

This oversight was spotted at the time by UK insurance intermediaries and reported to the regulators, said Vandervelde. However it has taken the time since for the amendment to be made.

In the interim, there were some tough and difficult discussions between Belgian brokers and foreign insurance companies about terms of business agreements and which rules should apply in terms of client money and risk transfer, said Vandervelde.

The effects of the oversight were particularly acute as a result of Brexit, given that many UK firms set up offices in Belgium in order to continue distributing insurance policies within the EU, most of which are governed by UK law.

It was also a significant risk for insurance buyers, said Vandervelde: “If the risk transfer rule is not in place, it is the purchaser that it is liable for an intermediary’s insolvency. Risk managers should be aware of this because they pay large premiums and cover could be refused.”

However, while risk managers should welcome the amendment and the certainty it brings, a gap in the legislation still exists, according to Vandervelde. “The amendment does not apply to reinsurance contracts. There are no rules in place,” he said.

Vandervelde is unsure why this hasn’t been addressed simultaneously. There was no industry consultation over the amendment or draft proposals, which may have highlighted the error prior to the rule change becoming effective.

However, one contributory factor could be the absence of an elected government during much of the last three years – for 589 days between December 2018 and September 2020.

Vandervelde said it is also unclear whether the new rules also will apply to non-Belgian brokers and insurers doing business in the country on a freedom-of-service basis. While Vandervelde said the answer is likely to be ‘no’, given that the new legal requirement is not included, as yet, as part of Belgium’s general goods provisions.

However, Vandervelde has urged Belgian lawmakers to fill this gap as soon as possible.

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