Israel LEVITAN, SHARON & CO. Peggy Sharon and Dror Zamir office@levitansharon.co.il. 1. Insurance intermediation activities

Transcription

1 Israel LEVITAN, SHARON & CO. Peggy Sharon and Dror Zamir 1. Insurance intermediation activities 1.1 Is the distribution of insurance products (hereinafter referred to as insurance intermediation activities or insurance intermediation ) limited to insurance intermediaries in your country? Yes. According to section 24 of the Supervision over Financial Services (Insurance) Law 1981 (the Supervision Law ) a person cannot act as an intermediary in insurance business unless he fulfils one of the following terms: a) he holds a broking licence and acts in accordance with the terms set in the licence; b) in life insurance and pension lines, he acts as a pension adviser under a pension advising contract in accordance with the Supervision of Financial Services (Pension Advice and Pension Marketing Business) The Commissioner may grant a broker s licence to an individual or to a corporation as long as all individuals who are engaged in brokering services on behalf of the corporation hold a brokering licence. 1.2 What does the term insurance intermediation include? Is there any definition set forth by statutory or case law? In any case, please indicate which activities/services are included in the above definition, for example, presentation or proposal of insurance products, assistance or consultancy aimed at drafting the agreement. Are collaboration activities that relate the administration or execution of the contracts drafted, even in the case of accidents, included in the definition? Does the drafting of contracts or insurance agreements in a collective form on behalf of insured individuals also form part of insurance e intermediation activities? According to Israeli legal precedents 1 the term intermediary was defined as the activity which is the effective cause of the parties entry into a contract. 1 C.A. 2144/91 Henry Moskovwits v Esther Bir PDI 48(3), 16. C.A. 7247/97 Kochava Itshakovv v Mordechai Avital PDI 56(1), 842. C.A. (T.A.) 1415/99 Lalo Ovadia v Solel Boneh Ltd. PDI 48(3), 16.

2 In a case discussed in the Tel Aviv District Court 2 it was determined that an intermediary which does not carry out any solicitation and the role of which is technical only (such as putting up a stand for brochures in his shop), should not be considered as an insurance broker and thus is not required to hold a licence. 1.3 Are insurance intermediation activities allowed as ancillary activities to other professional activities (eg, travel or rent-a-car services, etc) and to what extent? Furthermore, are there exceptions that allow actors, other than insurance intermediaries, to carry out insurance intermediation activities? Is it a matter related, for example, to the risk covered, the duration or the cost of the policy premium, etc? As stated above, according to the Supervision Law a licence is required in order to act as an insurance broker. Having said that, there are ancillary services provided by various entities which are not considered as providing insurance services, such as guarantees of products or ancillary services to main businesses (such as travel insurance offered by travel agents) which the Supervision Law, in its definition of insurance activities, exempts. Recently, the Commission of Insurance issued a draft circular according to which travel insurance can be sold by travel agents even though they are not licensed brokers. Banking corporations On 17 February 2005, the Commissioner of Insurance issued a circular ( ) relating to the issuance of life insurance and structure insurance incidental to loan mortgage. The circular details the actions that are allowed by banking corporations: a) establishing marketing stands for the purpose of selling insurance ancillary to the extension of mortgage; b) ensuring that the marketing stands will not be filled and will be clearly separated from the banking corporation s activities; c) brokering will be made by insurance brokers who are employed by an insurance agent who is separate from the bank; 2 O.M. (T.A.) The Association of Insurance Brokers and Agents in Israel v The Israel Postal Authority, pm 5752(1), 53.

3 d) agents will receive a licence which is limited to brokering for life insurance and structure insurance incidentally to loan mortgage; e) insurers will pay insurance commission only and will not grant any benefits including by way of providing services to the banking corporation. 2. Insurance intermediaries requirements: 2.1 In order to act as an insurance intermediary, is there need for an authorisation and/or to be enrolled in a register? If yes, what are the requirements to be authorised/enrolled in the register as an insurance intermediary (individual or legal entities, integrity and/or professional requirements, etc)? Briefly explain how it works. An Insurance Intermediary must receive a licence from the Commissioner of Insurance. Individual an individual is entitled to receive a licence provided: 3 a) he is an Israeli resident; b) he is at least 20 years of age; c) he underwent a period of internship and passed examinations conducted by the office of the Commissioner of Insurance; d) he was not convicted in an offence which, according to the Commissioner, based on the nature, severity and circumstances of the offence, would render him unfit fit to serve as an insurance broker. A licence will not be given, even if the above conditions are met, in the following circumstances: a) the individual was declared bankrupt and he has not yet received an exemption; b) the individual was declared as incompetent; c) the individual is an investment adviser; d) the individual is a pension consultant. Corporation the Commissioner of Insurance may grant a broker s licence to a corporation provided that: a) it is a corporation registered under the laws of Israel; b) the corporation name indicates that its business is that of an insurance broker; c) the individuals engaged in brokering in its name and, in case of a partnership, all the non-limited partners hold a licence; 3 Clause 25 of the Supervision Law.

4 d) its manager and every one of its office managers and branch managers hold licences and their main occupation is the management of the incorporated entity, the officer or the branch. The Commissioner will not grant a licence to a corporation if it is a pension consultant or an investment adviser. 2.2 In what form can anyone access and verify the registration/authorisation or verify the fact that the insurance intermediary is a professional (eg, via the web)? The Commissioner of Insurance website includes the details of all licensed brokers. It is possible to obtain and verify the registration by name or by licence number. In addition, usually, the insurance brokers are members of the Association of Insurance Brokers and Agents in Israel. 2.3 Are insurance intermediaries with a registered office in another country allowed to operate in your country and how (eg, under the right of establishment or freedom to provide services in your country, as in the EU)? If yes, under what conditions? In such a case, are they bound by the same obligations as the insurance intermediaries with a registered office in your country? Please describe. In order to operate as an insurance intermediary in Israel one should meet all the requirements provided by the Supervision Law see 1.1 and 2.1 above. A foreign intermediary may operate in Israel only if he meets the above requirements, and receives an Israeli licence. A foreign broker is subject to the same rules and obligations as any other Israeli broker, and must receive an Israeli licence in order to operate in Israel. 3. Different types of Insurance intermediaries 3.1 Please list the different types of insurance intermediaries acting in your country such as agents, brokers, banks, financial intermediaries or financial advisers. There is no difference between the terms agent and broker.

5 Financial intermediaries (pension advisers and investment advisers) are subject to the provisions of the Supervision of Financial Services (Pension Advise and Pension Marketing Business) See also 1.1 and 1.3 above. Banks and any other financial advisers cannot act as an insurance intermediary. 3.2 Do insurance intermediaries need to enter into a written contract with the insurers (or receive a mandate from insurers)? Section 30 of the Supervision of Financial Services (Insurance) Law 1981 determines that the relationship between an insurer and the broker must be set in a written contract, which will include the following terms: the broker s liability to hold sums collected from the insured in a separate bank account which will be managed by him as a trustee of the insurer; the broker s liability to transfer to the insurer the sums charged from the insured on the 15th of every month or on an earlier period determined by the Commissioner of Insurance. The Commissioner of Insurance issued Directives 2004/14 in which he detailed additional terms that shall be included in contracts between insurer and broker. According to the directives, the contract will include terms setting the way a broker will hold and transfer the premiums collected from the insured, including the calculation of the profits arising from the sums held by the broker. The directives state that all premiums collected by the insurance broker, including the profits arising from the sums, will be fully transferred to the insurer. 3.3 Can an Insurance intermediary enter into a contract with the insurers (or receive a mandate from the insurer) and in turn enter into one or more agreements with the other insurance intermediaries (the so called horizontal distribution)? Yes. Provided that the other insurers intermediary holds a valid broker s licence. 3.4 The insurance intermediaries more in detail: The agent Does the role of insurance agent exist in your country? If yes, describe the agent s functions.

6 There is no difference between insurance broker and insurance agent. An insurance agent is the intermediary for brokering insurance between the insured and insurer, deals with the collection of premiums and passes messages between the insurer and the insured In particular, does an agent act on behalf of the insurer or the insured? Who pays the agent s remuneration? To what kind of remuneration is the agent entitled? Under the Israeli Insurance Contract Law 1981 (the Contract Law ) paragraphs 33 35, the insurance intermediary will be regarded as the agent of the insurer in the following four matters: a) The negotiations towards the formation of the contract of insurance, the duty of disclosure at the inception of the insurance contract, the receiving premium, and giving notices. b) In all the abovementioned matters, the law provides that the actions and omissions of the insurance intermediary will bind the insurer due to the fact that he serves as the insurer s agent according to the specific statutory determination of the law. c) This statutory presumption considering the insurance intermediary as the agent of the insurer can be rebutted where the insurance intermediary was required by the insured, in writing, to act as the insured's agent, that is, where the insured appointed him in writing as his own agent. The legal presumption concerning the agency for the insurer will be cancelled and the legal relationship between the insured and the agent will be such whereby the principal would be the insured and not the insurer. d) As to any other matters, the question whether in any specific circumstances, the knowledge of the intermediary or his actions, will be attributed to the insurer or the insured is open to dispute; he may sometimes be considered as the insurer s and at other times the insured s agent. The intermediary is entitled to a commission, which is paid by the Insurer from the premium charged If an agent acts on behalf of the insurer, describe the type of work relationship with the insurer (eg, subordinate, para-subordinate or freelance, self-employed etc). Does the principal-agent model exist, that is, is one appointed by the insurer to manage a particular branch or subsidiary?

7 In cases where the insurance agent acts for the insured (in matters which are outside the abovementioned areas prescribed by the law), he owes a fiduciary duty towards the insured and has to prefer the interests of the insured over his own interests, or the interests of the insurer. According to an insurance expert, the late Professor Sasson, whenever the insured approaches an insurance intermediary in order to choose an insurer or a type of insurance, or where the insured approaches the insurance agent for advice or guidance regarding the insurance, or for the examination of the insurer s liability, and for settlements of claims with the Insurer, Professor Sasson believed that the insurance intermediary acts as the legal agent of the insured. Under Israeli Law, the Law of Agency 1965 applies to the relationship between the insurer and the agent in the cases where the agent acts on behalf of the insurer which means the relationship of principal-agent applies and all the fiduciary duties which emanate from the relationship apply to the relationship between the insurer and the agent. Accordingly, where the agent acts as the agent of the insured, the Law of Agency applies, and for these matters the fiduciary duties are owed by the agent towards the insured who will be considered as the principal What type of organisation does the agent have? Can he have staff working for him (eg, sub-agents)? Yes, the insurance agent can act through a company and may employ staff and sub-agents Is the relationship between the insurer and the agent regulated by a collective bargaining agreement? If yes, what does it mainly cover? Can the relationship be exclusive to a particular area? Is the remuneration established by the collective bargaining agreement? Can the provisions be waived by the parties mutual agreement? The Supervision Law includes a chapter regarding the regulation of insurance agents and their activities. Insurance brokerage between the insurer and insured can only be carried out by a person who holds a licence. The licence details the insurance branches for which the insurance agent is allowed to act and the Supervision Law limits the business of the licence holder only to those branches.

8 Does the termination of the work relationship between the agent and insurer provide for the agent s obligation to return the portfolio of contracts? In such a case would the agent be entitled to an indemnity? The termination of the relationship between the insurer and the agent, and the terms which will apply afterwards, are governed by the rules provided for in the contract between the parties The broker Please describe the broker s services. In general terms, do the services consist of intermediation or are they similar to consultancy/advisory activities? Is the broker an independent actor? The work of an insurance Intermediary is defined as activity which brought about a contract between an insurer and an insured. Such work entails, in many cases, consultancy work. The insurance broker s remuneration is paid always by the insurer. On the other hand, there are consultants who do not act as brokers. Their position is not regulated at all. The consultant s fees are paid by the insured, and they only owe a duty of care to the Insured Who pays for the broker s remuneration (please specify case by case for the different services, if any)? Is the broker allowed to retrocede a portion of his remuneration to the insurer or to the insured? The remuneration of a broker is paid only by the insurance company Banks, financial intermediaries, financial advisers and others allowed to act as insurance intermediaries Can banks, financial intermediaries and/or financial advisers act as insurance intermediaries? Banks, financial intermediaries and any other financial advisers are not allowed to act as Insurance Intermediaries. However, mortgage banks are allowed to hold shares in Insurance broker firms which have been established for one purpose only the issuance of life insurance policies to lenders who received mortgages from the bank, as well as the issuance of property insurance to the real estate for which the mortgage was extended. Please also refer to 1.3 above.

9 Please define a financial intermediary. Are there particular requisites for the profession of financial intermediary? Does the financial intermediary have to be enrolled in another register (eg, register of financial intermediaries)? Not applicable; as mentioned, financial intermediaries cannot distribute insurance products Please define a financial adviser. Are there particular requisites for the profession of financial adviser? Does the financial adviser have to be enrolled in another register (eg, a register of financial advisers)? Not applicable, as financial advisors cannot distribute insurance products Can financial intermediaries and/or financial advisers distribute any insurance and/or financial products? If yes, under what conditions or with what limitations? Not applicable; refer to above With reference to insurance intermediaries other than agents, brokers, banks, financial intermediaries and financial advisers, as indicated under question 2.1 above (if any), please describe what kind of products they can distribute and under what conditions. There are no other insurance intermediaries. Please refer to Rules of conduct and responsibilities 4.1 Are there rules of conduct that insurance intermediaries should comply with (eg, duties in relation to the obligation of utmost care, correctness, utmost good faith, information, adequacy, transparency, conflict of interests, filing of documentation, separate accounting or other accounting obligations)? Please describe the above duties specifying if they apply to all types of insurance intermediary (eg, agents, brokers, banks, financial intermediaries, financial advisers, etc) and whether the content differs with particular reference to responsibility according to the type of actor/activity and person (insurer or insured) receiving the activity.

10 4.1 As the Supervision Law determines that, in certain activities, the broker is the agent of the insurer, the law of agency applies to the relationship. The law of agency imposes duties of care, information, transparency etc on the agent. 4.2 Does the insurance intermediary represent the insurer? By way of example, is the agent also the insurer s representative vis-à-vis the customer, and if so, does this also apply during trial before a court?. Is there a matter of imputation of knowledge? What happens when a broker has information on matters relevant to the insurer s decision to insure which the broker fails to disclose to the insurer? Is the insured deemed to have breached its duty of disclosure in such circumstances? In which cases? Can the insurance intermediary be accountable for the contracts he executed on behalf of the insurer? See above regarding the status of the intermediary. 4.3 Is the insurer jointly liable for damages caused by the insurance intermediary, appointed by the same, when executing intermediary activities? Who is liable vis-à-vis the insured person? Is it always the intermediary or the insurer? In situations where the intermediary represents the insurer, the insurer is liable vis-à-vis the insured. In cases where the event occurred due to the negligence of the Intermediary, the insurer will usually file a claim against the intermediary. 4.4 Are there particular regulations or specific forms of compensation for damages caused to the insured person? The relevant law is the Tort Ordinance which prevails in cases of loss or damage due to negligence. 5. Supervision and sanctions 5.1. Regardless of the requirement of an authorisation and/or enrolment, are insurance intermediaries subject to the control of supervisory bodies? Does the supervisory body have powers/duties of prudential supervision on the insurance intermediary s activities, and if so, in what way does it act?

11 The insurance intermediaries are subject to the control and supervision of the Commissioner of Insurance who has authority, under the Control of Financial Services Law, to supervise the intermediaries actions, to deal with complaints against them, and to impose civil sanctions and fines for breach of duties. 5.2 Are there fines for violations of the insurance intermediaries obligations? If yes, please describe. The Commissioner of Insurance may impose a civil fine on any breach of the Control of Financial Services Law, hence not only insurers, but also intermediaries are subject to fines. In addition, the Commissioner of Insurance has the power to revoke the licence totally or for a specific branch of insurance, to suspend it for a period or set new conditions or change any of its conditions where the holder of the licence breached a material condition, the conditions of the licence or breached the law or a directive under the Control of Financial Services Law, which may harm his credibility or professionalism. These sanctions may also be applied where the insurance broker was convicted of a crime, the result of which in the Commissioner of Insurance s opinion, renders him unsuitable to act as an insurance intermediary, or where there are any specific circumstances which render him unsuitable to act as an insurance intermediary. The law also requires the intermediary to have a written agreement with the insurer according to which the intermediary should hold moneys collected from the insured, in a separate bank account, which will be managed as a trustee account for the insurer. In addition, the intermediary has to transfer to the insurer by the 15 th day of any month, all moneys collected from the insured in the prior month. For any breach of this duty, (separate bank account and regular transfer of moneys to the insurer) the Commissioner may suspend or revoke the licence. 5.3 Do sanctions also apply to foreign intermediaries who operate in your country? Being an Israeli resident is a legal requirement for a private person to obtain an insurance intermediary s licence. The licence for a legal entity which requests a licence as an insurance intermediary will be given only to an entity (company or partnership) registered under Israeli law. Therefore, the foreign

12 intermediary may operate in Israel only if he meets the above requirements and, if he does, he is subject to the same supervision and control as described above. 5.4 Is there a consultation procedure with the insurance intermediary before the fine is applied? Yes. A hearing with the insurance intermediary is held prior to imposing the fine. 5.5 Could the application of more fines, or the breach of particular regulations, result in the revocation of the authorisation or in the intermediary being struck off the register (if any), or in the prohibition to act as an insurance intermediary?. If yes, what are the most relevant circumstances. The revocation or suspension of a licence which results in the prohibition to act as an insurance intermediary is within the competence of the Commissioner of Insurance in the circumstances which are detailed above in 5.2.