On 10 April 2019, the Belgian Act of 3 April 2019 on the withdrawal of the United Kingdom from the European Union (Brexit Act) was published in the Belgian State Gazette and will largely enter into force upon the occurrence of a no-deal Brexit.
The main focus of the Brexit Act is to provide for contingency measures in the financial services and insurance industry to ensure the continuity of contracts and legacy books in the case of a no-deal Brexit. It also authorizes the government to adopt additional requirements for third-country investment firms, regulated markets, multilateral trading facilities and organised trading facilities. With these Brexit preparedness measures, Belgium is following closely in the footsteps of other Member States, such as Germany, Spain and the Netherlands, which have already adopted similar Brexit measures.
Interestingly, however, the Brexit Act also amends the Belgian Act of 4 April 2014 on insurances (Insurance Act) by introducing a new type of insurance intermediary under Belgian law: the mandated underwriter. In contrast to other provisions of the Brexit Act, these new rules already entered into force on 10 April 2019, regardless of the outcome of Brexit discussions. The introduction of this new type of intermediary is an important change for the Belgian insurance market and will be the subject of this alert.
What does it mean?
Introducing the mandated underwriter
Prior to 10 April 2019, the Insurance Act distinguished between three types of insurance intermediaries: agents, brokers and subagents. With the Brexit Act, a new type of insurance intermediary is added to that list, the mandated underwriter (gevolmachtigde onderschrijver/souscripteur mandaté).
By law, the mandated underwriter is defined as the insurance intermediary that, acting on behalf of one or more insurance undertakings, is mandated to accept coverage of risks and to write and manage insurance contracts in the name and on behalf of insurance undertakings. Accordingly, the mandated underwriter's main task is to determine the nature and size of the risk that is to be insured and to determine the insurance premium that must be paid. Mandated underwriters are mostly active in underwriting highly specialized insurance policies for the coverage of certain company risks, such as marine insurance, transport insurance, insurance for large construction sites, etc.
In the past, mandated underwriters had to register in Belgium as an agent, broker or subagent — whose models are not adapted to their specific activities — or had to passport their home country authorization in Belgium. As they are typical to the UK insurance market, the activities of mandated underwriters in Belgium are expected to increase in light of the Brexit discussions.
In the case of a no-deal Brexit, UK mandated underwriters risk losing access to the Belgian market as they would lose their European passport. As a result, this specific type of specialized insurance offering may disappear (at least partially) in Belgium, to the detriment of Belgian policyholders and the Belgian insurance sector in general. To mitigate this risk, the Brexit Act introduces the new legal status of mandated underwriter, enabling these types of intermediaries to establish themselves in Belgium and to obtain authorization from the Belgian Financial Services and Markets Authority (FSMA). This will eventually enable continued access of mandated underwriters on the Belgian insurance market in the case of a no-deal Brexit.
The new regime also increases clarity with respect to this type of intermediary, as the activity of mandated underwriters was not always well known on the Belgian market. They were often confused with the insurer on behalf of whom they acted.
Mandated underwriters are always insurance intermediaries and they may only carry out the activity of underwriting after having been registered with the Belgian FSMA. They are subject to almost the same registration requirements as for insurance brokers. An important difference with brokers, however, is that mandated underwriters are entitled to carry out their activities under an exclusive agency agreement or other legal obligation that directly or indirectly requires them to place their entire insurance portfolio or a certain extent thereof with one insurance undertaking.
Moreover, the mandated underwriter will have to comply with a series of other requirements as well. Firstly, mandated underwriters must have an appropriate internal organization, allowing it to manage the risks associated with its activities. The Belgian government is entitled to further implement and clarify the requirement of having an appropriate internal organization by Royal Decree. The preparatory works suggest that such measures must create a level playing field, to a certain extent, with the regulatory environment for mandated underwriters in other countries, whereby reference is made to the regimes of the United Kingdom and the Netherlands.
Secondly, like any other insurance intermediary, mandated underwriters must comply with transparency and information requirements:
- They must announce on their website or, in absence thereof, provide on a durable medium at their customers' request, the names of all insurance undertakings that have mandated them, as well as the insurance branches for which each mandate was granted.
- On each insurance policy, they must state the name of the insurance undertaking(s) that cover the risk.
Lastly, mandated underwriters are not allowed to combine their activities with a registration in another category of insurance intermediary (i.e., broker, agent or subagent), as this would create confusion as to the capacity in which the intermediary is acting. However, this does not prevent a single group from having two distinct entities in its group structure, whereby each entity is registered in a different category of insurance intermediary.
Entry into force and transitional regime
The new regulatory framework on mandated underwriters entered into force on 10 April 2019. Mandated underwriters who are currently registered in Belgium as an insurance broker or agent must notify the FSMA at the latest by 10 July 2019. Subsequently, a request for registration as a mandated underwriter must be submitted to the FSMA before 10 April 2020. From then, existing mandated underwriters who did not file the registration request in a timely manner, or whose request was refused for failing to comply with the relevant regulatory requirements, are no longer entitled to carry out activities as a mandated underwriter.
The new regulatory framework for mandated underwriters is an important change for the Belgian insurance market, as a new type of intermediary has now been formally introduced under Belgian law. Although the new regime has entered into force, a transitional regime applies until 10 April 2020 for existing mandated underwriters. A Royal Decree is also still to be adopted to further clarify the organisational requirements for mandated underwriters.
For more information on Belgium's regulatory framework for mandated underwriters, you may wish to consult the text of the law directly here or the text of the preparatory works here. A newsletter from the FSMA on the new insurance intermediary was released recently and can be consulted here.