Informed sales and advised sales in the draft bill of the Private Insurance and Reinsurance Distribution Law

With the future Private Insurance and Reinsurance Distribution Law, the aim is to increase the protection of policyholders by increasing transparency (similar to the MIFID regulation), so that our insured clients know what they are signing and that they have been provided with all the information about their insurance policy.one of the key points of the new insurance distribution regulation is transparency, which will be specified in the information obligations to be fulfilled by insurance distributors. This information - including advertising communications addressed by insurance distributors to customers or potential customers, which will be clearly identified as such - must be accurate, clear and not misleading (art.46.2), adapted to the type of insurance distributed and to the forms of distribution.In the latter respect, the Insurance Distribution Directive (IDD), differentiates between informed and advised insurance sales (art.20). In particular, one of the most relevant novelties to be introduced by the future Law will be the obligation of insurance distributors to know and evaluate their customers. For this purpose, two types of sales can be distinguished: Firstly, informed sales in which the distributor does not provide advice to the customer. Section V of the Explanatory Memorandum of the future Law will identify this type of sales by stating that the informed sale should be identified "as that which is made in accordance with the demands and needs of the customer, based on information obtained from the customer, and which aims to provide objective and comprehensible information on the insurance product so that the customer can make an informed decision".Secondly, advised sales in which the distributor provides advice to the customer. Advice" is understood to mean "the personalized recommendation made to a customer, at his request or at the initiative of the insurance distributor, in respect of one or more insurance contracts" (Art. 2.15). Therefore, section V of the explanatory memorandum of the future LEDISPRI will identify this type of sales by stating that the advised sale is "that which takes as its essence the existence of a personalized recommendation made to the customer, at the customer's request or at the initiative of the insurance distributor, in respect of one or more insurance contracts".in these cases, the distributor must carry out a suitability analysis with a differentiated scope in the following two hypotheses:

• When the insurance intermediary or insurance company carries out insurance distribution activities in which it offers advice on an insurance-based investment product, it shall in any case also obtain a minimum amount of information about the client or potential client (knowledge and experience in the investment field of the product class; financial situation, including his capacity to bear losses; and investment objectives, including his risk tolerance). This is so that the insurance intermediary or insurance company can recommend to the customer the insurance-based investment products that are suitable for him and, in particular, best suited to his level of risk tolerance and ability to bear losses.
• When the investment advice consists of the recommendation of a set of combined products, the suitability must refer to the set of products considered as a whole.

In both cases, "prior to the conclusion of an insurance contract, the insurance distributor shall determine, on the basis of information obtained from the customer, the requirements and needs of the customer and shall provide the customer with objective information about the insurance product in a comprehensible form, so that the customer can make an informed decision." (Art. 49.1).

Raúl Martínez (Lawyer T&L)