A recent, preliminary ruling of the Court of Justice of the European Union (the "ECJ"), in response to a referral made by the German Federal Court, sheds some interesting light on the application of the Insurance Distribution Directive (the "IDD") to entities which arrange membership of group insurance policies.
The defendant in the grounding German case offers its customers membership of a group insurance policy, which the defendant has subscribed to, in return for a fee. Broadly, this membership entitles the defendant’s customers to the benefits of the insurance contract, in the event of sickness or accident abroad. In addition, the defendant actively engages advertising agencies to sell this offering by way of door-to-door sales. Crucially, neither the defendant nor the advertising agencies in question are licenced under IDD. The defendant maintained during the original proceedings, that no licence under IDD was required, as no contracts of insurance were concluded between the defendant and its customers, instead the customers are permitted to join the group insurance policy, which the defendant has subscribed to, thereby giving them the opportunity to benefit from the policy.
The ECJ was asked to consider the position under the Insurance Mediation Directive as well as the IDD, as activities straddle the timeline of both directives. However, for the purposes of this note, we will look at the ECJ's view on the IDD only.
Decision of the ECJ
The ECJ in its judgement, states that the question posed for determination is whether "a legal person, such as the defendant in the main proceedings falls within the definition of "insurance intermediary" and, therefore, that of "insurance distributor". In order to answer this question it explains that consideration must be had to
- not only the wording of those provisions, but
- the context in which they occur; and
- the objectives pursued by the rules of which they are part.
Wording of the relevant provisions
Having regard to the wording of article 2(1)(3) of IDD, the ECJ noted the following:
- an insurance intermediary is defined as a person, who "for remuneration" takes up or pursues the activities of insurance distribution; and
- the concept of insurance intermediary is defined by reference to activities of insurance distribution.
In respect of 1 above, the ECJ concluded that having regard to the facts of the case, the "condition relating to remuneration must be regarded as satisfied". In explaining how it came to this conclusion, the ECJ was of the view that:
- every membership, of a customer of the defendant, gives rise to a payment to the defendant – remuneration;
- this remuneration was equal to "an economic interest of its own", as distinct from the interest of the members, given the efforts made by the defendant to secure members (through engaging advertising agencies); and
- "it is irrelevant" that the payment is made by the members in return for rights to the insurance benefits transferred to them by the defendant and not by the insurer in the form, for example of a commission.
In respect of 2 above, the ECJ explained that in a previous decision, it had held that activities listed in the insurance intermediary provisions are presented as "alternatives" and that each of them constitutes, on its own, an insurance distribution activity. It concluded that although the language of the IDD "does not expressly mention an activity such as that covered by the question referred, the definition contained in those provisions must be read as encompassing such an activity".
The ECJ stated that it was "immaterial" that the defendant does not seek the conclusion of insurance contracts by which policy holders intend to obtain insurance cover from an insurer in return for payment of premium. The activity of seeking memberships, in return for payment, of a group insurance policy is "comparable" to that of insurance agent or distributor.
Additionally, the ECJ maintained that the fact that the defendant is themselves a policyholder is "not decisive".
Objectives of IDD
The ECJ explained that the IDD seeks to ensure that consumers should benefit from the same level of protection despite the difference between distribution channels. By not finding the defendant to be within scope, the objective of the IDD is not adhered to.
Judgement of the ECJ
In light of the foregoing analysis, the ECJ concluded that the concept of ‘insurance intermediary’ and, therefore, that of ‘insurance distributor’, within the meaning of the IDD, covers the activities of the defendant.
Impact of the Judgment
It will be important, going forward, that those entities across the EU which have been relying on the structure of a group insurance policy in order to avoid become regulated under IDD, examine their activities, as the ECJ has now confirmed that cover being sold, arranged under a group policy, is not in itself sufficient to avoid the entity selling the policy being authorised as a distributor under IDD.