A recent preliminary ruling from the Court of Justice of the European UnionOpens in new window (the “ECJ”)1in response to a referral from the German Federal Court, sheds interesting light on the application of the insurance distribution directiveOpens in new window2 (there “IDD“) to entities that arrange membership of group insurance policies.
The defendant in the founding German case offers its clients membership in a group insurance policy, to which the defendant has subscribed, in return for remuneration. In general, this membership entitles the defendant’s clients to the benefits of the insurance contract, in the event of illness or accident abroad. In addition, the defendant actively engages advertising agencies to sell this offering through door-to-door sales. Basically, neither the defendant nor the ad agencies in question hold an IDD license. The defendant argued during the original proceedings that no license under the IDD was required, since no insurance contract had been entered into between the defendant and its customers, but that the customers were authorized to join the group insurance policy to which the defendant had subscribed, thereby giving them the possibility of benefiting from the policy.
The CJEU has been asked to consider the position under the Insurance Mediation Directive as well as the IDD, as the activities overlap the timeline of the two directives. However, for the purposes of this note, we will only consider the CJEU’s view of the IDD.
The ECJ, in its judgment, states that the question posed to be determined 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”. To answer this question, he explains that it is necessary to take into account
- not only the wording of these provisions, but
- the context in which they occur; and
- the objectives pursued by the rules of which they form part.
Wording of relevant provisions
With regard to the wording of Article 2(1)(3) of the IDD, the CJEU noted the following:
- an insurance intermediary is defined as a person who “against payment” undertakes or carries on the business of distributing insurance; and
- the concept of insurance intermediary is defined by reference to insurance distribution activities.
With regard to point 1 above, the CJEU concluded that, having regard to the facts of the case, the “condition relating to remuneration must be deemed to have been fulfilled”. In explaining how it came to this conclusion, the ECJ held that:
- any membership, of a client of the defendant, gives rise to a payment to the defendant – remuneration;
- this remuneration was equal to “an economic interest in itself“, distinct from the interest of the members, given the defendant’s efforts to obtain members (by engaging advertising agencies); and
- “it does not matter“that the payment is made by the members in return for rights to insurance benefits which are transferred to them by the defendant and not by the insurer in the form, for example, of a commission.
With regard to point 2 above, the CJEU explained that in an earlier decision3it had ruled that the activities listed in the provisions relating to insurance intermediaries 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 DDA “does not expressly mention an activity such as that referred to in the preliminary question, the definition contained in these provisions must be read as encompassing such an activity“.
The CJEU said it was “intangible“that the defendant does not solicit the conclusion of insurance contracts by which the insured intend to obtain insurance cover from an insurer against payment of a premium. The activity of seeking membership against payment to a contract group insurance is “comparable“to that of insurance agent or distributor.
Furthermore, the ECJ held that the fact that the defendant is himself a policyholder is “not decisive“.
The CJEU explained that the IDD aims to ensure that consumers benefit from the same level of protection despite the difference between the distribution channels. By not finding that the defendant was within scope, the purpose of the DDA is not met.
Judgment of the ECJ
In view of the above analysis, the CJEU 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 judgment
It will be important in the future that EU entities that have relied on the structure of a group insurance policy to avoid being regulated by the DDA review their activities, as the ECJ has now confirmed that coverage being sold, entered into as part of a collective contract, is not in itself sufficient to prevent the entity selling the contract from being approved as a distributor under the DDA.
1. Case C-633/20
2. Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution
3. Case C-542/16
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