New rules for fleet insurance and its intermediaries
Responding to the judgment of the Court of Justice of the European Union (CJEU) in case C-633/20 TC Medical Air Ambulance Agency, which dealt with the interpretation of the term ‘insurance mediation,’ the Czech Chamber of Deputies is currently debating an amendment to the Act on Insurance and Reinsurance Distribution.
The CJEU ruled that the activities of policyholders who for remuneration offer participation in group insurance schemes entitling participants to claim insurance benefits must be regarded as insurance mediation. The current Czech legislation does not recognise this activity as insurance mediation, which the amendment is to change.
Insurance mediation as a policyholder’s activity must meet the criteria set out in the CJEU judgment. To be regarded as insurance mediation, the activity must fulfil three conditions simultaneously:
- The policyholder intermediates fleet insurance in the course of their business, i.e. for remuneration (any economic benefit, monetary or non-monetary).
- The insured person’s participation in the insurance scheme is voluntary and arises from an individual and active action by the insured and not automatically, e.g., solely based on their membership in a particular group.
- The insured is entitled to insurance benefits. The right of the insured to claim insurance benefits under fleet insurance was also confirmed by the Constitutional Court in ruling No. IV ÚS 3009/17.
Often used in business, fleet insurance is a specific form of group insurance. In this model, a policyholder concludes an insurance contract with an insurance company and then lets third parties become insured under that contract. In practice, this is mostly the case of insurance mediation by a leasing company offering credit insurance, a car dealer providing insurance for the vehicles they sell, or a retailer offering extended warranty insurance or insurance against damage, destruction or theft for the goods they sell, as a policyholder.
The proposed amendment to the Act on Insurance and Reinsurance Distribution removes the provision that expressly excludes ‘offering the possibility to become insured’ from the definition of insurance mediation and introduces new requirements for the provision of fleet insurance. Policyholders who wish to continue to operate in this field will have to obtain a relevant licence in one of the categories regulated by the law (independent intermediary, tied agent, or ancillary insurance intermediary), meet professional qualification and education requirements, establish internal rules, and comply with enhanced information obligations towards the insured persons. They will also be obliged to archive documents and will be accountable for their actions and for the actions of the independent intermediaries they use. The new obligations also include liability for damage caused by the intermediary's failure to comply with the control rules, which is a significant change from the current practice.
The impact of the amendment on the Czech insurance market will be noticeable as it places an increased administrative burden on entities offering fleet insurance, who will be put on equal footing with existing insurance intermediaries. With the introduction of the new requirements and regulations, costs associated with obtaining the relevant licence and fulfilling other obligations will increase, especially concerning compliance and CNB supervision. The amendment is expected to enter into effect on the first day of the seventh calendar month following its promulgation.