As Sweden transposes the EU Insurance Distribution Directive (IDD) 2016/97 into local law, restrictions on third-party remuneration are being introduced by the legislature.
The Insurance Distribution Act (2018:1219), which enters into force on 1 October 2018, sets out that insurance distributors are prohibited from receiving remuneration from anyone other than customers where:
- such remuneration could conflict with the distributors' fulfilment of the duty to observe good insurance distribution practice and to act honestly, fairly and professionally; and
- the insurance distributor is an intermediary that advises on the basis of a fair and personal analysis.
Remuneration in relation to good insurance distribution practice
According to Article 17.3 of the IDD, third-party remuneration is prohibited in the event that such remuneration could conflict with the insurance distributors' duty to act in accordance with the best interests of their customers. The essence of this provision has been transposed into local law.
Remuneration in relation to advice based on a fair and personal analysis
In addition to the abovementioned prohibition, the Swedish legislature has imposed restrictions on third-party remuneration that are more stringent than those set out in the IDD. These restrictions target intermediaries that give advice on the basis of a fair and personal analysis – historically, a category of intermediaries that often refer to their services as 'independent'. Under the Insurance Distribution Act, intermediaries that give advice in such a capacity can no longer be remunerated by anyone other than the customer.
In respect of the nature of the services, an insurance intermediary must provide information to the customer on whether the intermediary gives advice on the basis of a fair and personal analysis. While the Insurance Distribution Act does not satisfactorily clarify whether this requirement applies to advice that is not based on a fair and personal analysis, a cautious approach would suggest that such transparency is also required.
However, for insurance-based investment products, the requirement is clarified insofar as the intermediary must inform whether it gives advice on the basis of a fair and personal analysis.
Insurance-based investment products and pension insurance
Insurance intermediaries and insurance undertakings that distribute insurance-based investment products (IBIPs) can pay and be paid by someone other than the customer only if the remuneration:
- does not have a detrimental impact on the quality of the relevant service to the customer; or
- does not impair compliance with the distributor's duty to act honestly, fairly and professionally in accordance with the best interests of its customers (Article 29.2 of the IDD).
Further, the Insurance Distribution Act imposes stricter provisions on remuneration for IBIP services. Distributors are prohibited from offering or receiving remuneration from someone other than the customer if the remuneration:
- to a significant extent concerns services that have not yet been carried out;
- in light of its size is based on premiums that have not yet been paid; or
- is clearly disproportionate to the services performed.
As of 1 October 2019, these restrictions will also apply to the distribution of pension insurance products that offer a maturity or surrender value that is wholly or partially exposed, directly or indirectly, to market fluctuations.
Remuneration paid by insurance undertakings to insurance intermediaries has been a common arrangement in Sweden, particularly for life insurance services. The restrictions that are imposed on such remuneration under the Insurance Distribution Act inspire stakeholders on the insurance market to conduct more rigorous analyses of their remuneration arrangements. Alternative remuneration structures could gain ground as a result of the regulatory evolution, along with possible reconsideration of fair and personal branded distribution.
For further information on this topic please contact Caroline Landerfors or Alexander Galfvensjö at Magnusson by telephone (+46 8 463 7500) or email ([email protected] or [email protected]). The Magnusson website can be accessed at www.magnussonlaw.com.
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