Insurance/reinsurance companies play an important role for the European economy. Many European countries, among them Belgium, are listed in the top 20 OECD countries with the highest gross insurance premiums, with Belgian premiums reaching around 30 billion US dollars in 2017.

The Belgian government approved a bill according to which the insurance for legal protection will be tax deductible. This is expected to create a fiscal incentive for individuals and an augmentation of the premiums in the coming years.

Numerous legislative documents have been published since the financial crisis of 2008 in an effort to regulate the market. Insurance companies are expected to be compliant with all the applicable laws and regulations, hence the work of compliance officers has become more complex and demanding.

Insurance is the transfer of the risk, from one entity/person to the insurance firm in exchange for premiums.
Reinsurance is an insurance acquired by an insurance firm in order to safeguard itself in case of a loss.

OECD Gross Premiums Country Evolution
Source: OECD

The social-economic public interest characteristic of the insurance industry implies a strong regulatory framework, looking after the individuals as insurance consumers and policyholders.

Financial businesses in the insurance industry need to comply with the set of regulations, rules and directives established by authorized regulators as directed by statutory law in force.
Financial solvency; Consumer protection; Transparency; Reporting; Governance; Ethics; Privacy are a few domains of recently expanding regulation to which insurance and reinsurance firms are entitled entities.

Solvency II Directive (2009/138) introduced provisions for non-life insurance, life insurance and reinsurance companies and its aim is to promote transparency and competitiveness in the insurance sector. The Solvency II regime is following the regime of Basel II, which is applicable in the banking sector. Currently, Basel III applies. Basel standards and Solvency II apply to different sectors but both texts regulate -among others- issues on transparency, risks and capital.

Under Solvency II, the companies have to comply with specific capital requirements, governance standards and supervisory rules. The EU Regulation 35/2015 provides details for the practical application of the Directive.

In Belgium, the Law of 13 March 2016 on the legal status and supervision of insurance or reinsurance companies (the Solvency II Law) was transposed from the EU Directive. In addition, Circulars and Communications of the National Bank of Belgium (NBB) cover certain areas of the applicable legal requirements.

Two documents to consider are:
  • Circular 2016/31 (updated in September 2018) on governance. Under this Circular the entities should have a proper governance system that reassures the sound management of the firm. The Circular provides guidance about the organisational structure of the entities, the independency of control functions, the policies (i.e. continuity policy), the reporting to the government.
  • Circular 2012/14 on compliance function. The Circular provides rules for compliance professionals and their duties. The Compliance function must reassure that the entity works under honesty and integrity, following ethical standards and the applicable legal framework.

In Belgium the legal framework covers local companies but also branches of third-country companies that exercise insurance activities in Belgium. It is very common that insurance groups of one country establish brands in other countries. In 2018, there were eleven (11) Belgian insurance groups under the supervision of NBB. Seven (7) of them have holdings only in Belgian insurance undertakings (national groups), while four groups have holdings in at least one foreign insurance undertaking (international groups).

Another regulation applicable for insurance/reinsurance entities is PRIIPs Regulation (1286/2014). According to the EU Commission "PRIIPs cover a range of investment products which, taken together, make up a market in Europe worth up to €10 trillion."

As PRIIPS products can be very complex, this EU Regulation obliges those who trade them to provide retail investors with "key information documents" (KIDs). A KID is a (maximum) three A4 pages document, which includes the name of the product and the producer, the type of targeted investors, risk indicators and possible maximum losses, the costs for the investors if they buy this product, and the procedure to make a complaint in case of a problem. The European Commission has issued guidelines on KIDs.

With KIDs, the regulator is trying to safeguard retail individuals against placing money on insurance products that they do not completely understand. The investor has to be able to compare key features, risks, potential future performance and costs in order to make an informed decision.

In February 2019, the Joint Committee of the European Supervisory Authorities (ESA) published recommendations regarding KIDs. According to ESA, retail investors are provided with "inappropriate expectations" about the possible returns they may receive. Hence, they propose that in the KID there must be included a warning to ensure that individuals are completely aware of the figures presented to them.

For the further protection of investors, the EU Commission introduced the Insurance Distribution Directive (2016/97). The directive outlines an adequate level of investor protection across all EU member states. The directive was implemented in Belgium with the law of 6 December 2018. The law gold-plates the Directive in different parts like the rules on conflicts of interest.

The NBB and Financial Services and Markets Authority (FSMA) are the two supervisory authorities for insurance and reinsurance in Belgium. Although other relevant authorities in the EU, like the FCA in United Kingdom, are more advanced, the Belgian authorities make a continuous effort. Both the NBB and the FSMA improve in the way they inform, specify details and practice aspects of the EU and national legal framework. Their webpages (NBB and FSMA) are becoming more informative and the future seems very prominent.

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