Clifford Chance

Background

The case was taken by a German consumer association against TC Medical Air Ambulance Agency GmbH ("TCMA"). TCMA appointed external advertising companies to offer consumers, by way of door-to-door sales, membership of a collective insurance scheme in return for a fee. TCMA (i) subscribed to a group insurance policy with W. Versicherungs-AG (the "Insurer") comprising coverage in the event of sickness or accident abroad and coverage for repatriation costs incurred abroad and in national territory and (ii) paid the premiums due to the Insurer under the group insurance policy. The customers of TCMA who joined the group insurance received the right to various insurance benefits under such group insurance policy and paid a fee to TCMA.

Neither TCMA nor the advertising companies which it used held the licence provided for under national law to carry out the activity of insurance mediation.

Considerations

The Court of Justice of the European Union ("ECJ") analysed whether the regulatory concept of "insurance intermediary" and "distributor of insurance products" would cover a legal person whose activity consists of offering its customers membership on a voluntary basis, in return for a payment made by such customers, of a group insurance policy (to which it was the policyholder), where that membership entitles those customers to insurance benefits in the event, in particular, of sickness or accident abroad.

The starting point of the analysis made by ECB was to analyse how the concepts of "insurance mediation" or "insurance distribution" and of "insurance intermediary" are defined in the Directive 2002/92 ("IMD") and the Directive 2016/97 ("IDD").

Under the IMD:

• "Insurance mediation" is defined by reference to those activities of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim (Article 2(3)).
• An "insurance intermediary" is a person who, for remuneration, takes up or pursues insurance mediation (Article 2(5)).

Under the IDD:

• "Insurance distribution" is defined by reference to those activities of advising on, proposing, or carrying out other work preparatory to the conclusion of contracts of insurance, of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim (Article 2(1)(1)).
• An "insurance intermediary" is any person, other than an insurance or reinsurance undertaking or their employees and other than an ancillary insurance intermediary, who, for remuneration, takes up or pursues the activity of insurance distribution (Article 2(1)(3)).
• An "insurance distributor" means any insurance intermediary, ancillary insurance intermediary or insurance undertaking (Article 2(1)(5)).

Considering the above, the ECJ ruled that the activities being performed by TCMA in the case at hand are captured under the definitions of "insurance mediation" and "insurance distribution" with TCMA itself being an "insurance intermediary" and an "insurance distributor" on the following grounds:

• The definitions of "insurance mediation" under the IMD and "insurance distribution" under the IDD refer to several activities each of which individually constitutes "insurance mediation" or "insurance distribution" and that should be interpreted in broad terms

The activities being deemed as "insurance mediation" and "insurance distribution" as referred are presented as alternatives that each of them constitutes, on its own, an insurance mediation activity, i.e. it is not required that all such activities are carried out cumulatively in order for such activities to be considered "insurance mediation" or "insurance distribution" .

In addition, such definitions should not be interpreted narrowly, as the activities included in such definitions are formulated in broad terms and comprise not only the presentation and the proposal of insurance contracts, but also the performance of other work preparatory to the conclusion of such contracts, and the nature of the preparatory work referred to is not limited in any way whatsoever (vid. the ECJ judgment of 31 May 2018, Länsförsäkringar Sak Försäkringsaktiebolag and Others, C‑542/16).

• Interpretation by analogy

Although the definitions of "insurance mediation" and "insurance distribution" do not expressly mention the specific activity carried out by TCMA, they must be read (by analogy and considering their purpose) as encompassing such an activity. The ECJ follows a "substance-over-form" interpretation of such concepts, deeming the activity carried out by TCMA substantially equivalent to those expressly referred to in the definitions.

• The existence of remuneration is a paramount element to determine whether a person is an "insurance intermediary" or not

The existence of remuneration is a requirement for a person to be considered an "insurance intermediary". "Remuneration" is defined on broad terms in the IDD as "any commission, fee, charge or other payment, including an economic benefit of any kind or any other financial or non-financial advantage or incentive offered or given in respect of insurance distribution activities" (Article 2(1)(9)).

The fact that membership by TCMA's customers of the group insurance policy gives rise to a payment by such customers in exchange is deemed sufficient by the ECJ to hold that there is remuneration in this case. Such payments represent an economic interest of their own for TCMA, which would likely induce it to work towards gaining a large number of members (so as to obtain a higher remuneration). The use of advertising companies to offer membership to end-customers is considered a clear indication of such economic interest.

In fact, the ECJ sets out that the activity at issue is comparable to the paid activity of an insurance agent or a distributor of insurance products which seeks the conclusion, by policyholders, of insurance contracts with an insurer whose object is to cover certain risks in return for the payment of an insurance premium, which are undoubtedly subject to the IDD (and the IMD before). They did not consider it relevant that TCMA is a party, as policyholder, to the group insurance policy which it intends to encourage its customers to join. It is possible to be both policyholder and carry on the regulated activity of insurance distribution.

The fact that TCMA's economic interest consists of receiving the payments from customers who acquire membership of the group policy, and not of receiving a commission from the Insurer, is deemed irrelevant, considering that the concept of "remuneration" is defined broadly in the IDD.

• Equal treatment for distributors of equal products

Insurance products may be distributed by different types of persons and, in order to ensure equal treatment between operators and consumer protection, it is necessary that all those persons are covered by the same applicable rules. Ensuring such equal treatment is one of the main aims pursued by the IMD and even more so in the IDD and is enshrined as such in the recitals of such directives and in the ECJ case law (vid., judgment of 17 October 2013, EEAE and Others, C‑555/11).

Considering that a person such as TCMA who carries out activities that are of a comparable nature to insurance distribution is an insurance intermediary is consistent with the objective of ensuring equal treatment between all intermediaries and distributors of insurance products pursued by the directives.

• Consistency with the consumer protection objectives pursued by the IMD and the IDD

In order to ensure that the activity of an insurance intermediary guarantees an adequate level of consumer protection, that intermediary is required, in accordance with the IMD and the IDD, to comply with inter alia a set of professional, financial and organisational requirements, rules of conduct such as those aimed at preventing the risk of a conflict of interest arising from any links between that intermediary and a given insurer, and with obligations to inform and advise those consumer.

It is aligned with the consumer protection objectives of the applicable EU law provisions that TCMA, insofar as it carries out insurance intermediation and insurance distribution activities, is obliged to comply the authorisation and registration obligations set out in the IMD (before) and the IDD and implementing national legislation (now). That would only be achieved if TCMA is deemed to be an "insurance intermediary" (and "insurance distributor") for the purposes of the relevant applicable law.

Impact

The full impact of the ECJ ruling remains to be seen - it will mainly depend on how national competent authorities for insurance supervision ("NCAs") enforce the ruling having regard to the national regulations applicable in each member state, which may differ to a certain extent, and the local specificities of the insurance distribution business models. NCAs may issue formal or informal guidance for businesses dedicated to the distribution of insurance products according to similar models as the one at issue in the ECJ ruling. One thing is clear - it is only a matter of time that businesses affected by the ECJ ruling will need to revisit their distribution strategy.

The key takeaways from the ECJ ruling for insurance distribution structures are the following:

• Selling membership to a group insurance policy as policyholder to end customers in return for a payment will be deemed as insurance distribution activity, which will mean that the policyholder will be an "insurance distributor".
• Businesses being deemed as "insurance distributors" will need to assess whether they can either apply for a regulatory exemption (e.g. connected contracts exemptions) or obtain a full insurance distribution license -thus complying with the full set of requirements in terms of fitness and properness of directors, training, know your customer rules, conflicts of interests, advisory terms and so on- or ancillary insurance distribution licenses.