From whom can I buy an Insurance Policy?
Certain insurance companies also distribute their products directly to clients. Accordingly, it is possible to purchase an insurance policy from the insurance company issuing the product itself. Such companies are required to abide by the relevant provisions in the Conduct of Business Rulebook which apply to persons who distribute insurance products, which mainly transpose the requirements of the Insurance Distribution Directive. This means that even when purchasing a policy directly from the insurance company issuing it, the latter is bound to make certain disclosures to the client and to ensure that it acts in the best interest of the client.
An introducer is a person or company that enters into an agreement with an insurer, an insurance agent or an insurance broker so that he introduces clients. This individual is not licensed by the MFSA and may only introduce you to the insurer/agent /broker that he is tied to. An introducer is not permitted to give advice to prospective clients, or give or collect documentation or any money from clients. This intermediary may only offer to give you a contact with an insurer, broker or agent i.e. he will normally provide your contact details to the insurer, broker or agent and they will do the rest.
An intermediary is an individual person or a company who brings together prospective clients and insurance companies for the purpose of issuing an insurance policy.
There are five types of intermediaries that offer a direct service to clients in the insurance market. These are:
- Ancillary Insurance Intermediary (AII)
- Tied Insurance Intermediary (TII)
- Insurance Agent
- Insurance Broker
All intermediaries, except for introducers, are licensed by the MFSA and regulated under the Insurance Distribution Act and the Rules issued thereunder. The introducer, TII, the AII and Insurance Agent are dependent insurance intermediaries because they are acting under an agreement with specific insurers but an Insurance Broker is independent.
The TII was previously known as a sub-agent or a salesman. This intermediary is appointed by one or more insurers but for different classes of insurance. This means a TII should not offer you a motor policy of two different insurers but he may offer you a motor policy of one insurer and a household policy of another insurer. The TII is licensed by the MFSA and is permitted to assess the insurance demands and needs of prospective clients and assist them in the completion of proposal forms and will normally deliver policy documents to the client and collect the premium from the client. The TII cannot accept the risk on behalf of the insurer. Only the insurer can decide whether the risk is acceptable or not and at what premium. The TII should always identify himself to the clients and inform the client of the identity of the insurer he is tied to. Moreover, if the TII collects money from the client, he should give the client a receipt immediately. This receipt should show the enrolment number of the TII, his name, address/identity card number and a reference to the policy in respect of which premium is being paid. Above all the receipt should show full details of the amount paid but not as one amount. It should show the premium separately from the relevant document duty and any fees charged by the insurer or the TII for the service. The fee charged by the insurer is normally a policy fee which is a charge for the cost of issuing the policy document. This fee may vary from one insurer to another. The client should always make sure he is aware of the name of the TII and his business address, the name of the insurer and the address of the insurer.
The TII may also be tied to the insurer through an insurance agent. This means that he will introduce the client to an agent of an insurer instead of directly to the insurer. In these cases the client should make sure he also knows the name of the agency and the relevant address. These details are important if the client requires any additional information at a later date or in the event of a claim. Should there be a claim, the TII may assist the client to obtain a Claim Form and deliver it to the insurer or the insurance agent. However the claim is then handled directly by the insurer or agent. The TII may also collect the excess relating to the claim and pass it on to insurers. Again a receipt should be provided for this excess. Once the claim is agreed, if there is a settlement due to the insured, the insurer may send the settlement, payable to the insured, with the TII. Otherwise the settlement is given directly to the client.
It is important to note that a TII is not permitted to introduce business to insurance brokers. TIIs may also be appointed by EU companies, i.e. companies that are authorised in another EU territory. So make sure you understand who the insurer is and where he is authorised. If the insurer is not authorised in Malta, he will not be regulated by the MFSA and in the case of insolvency of this insurer, there will be no compensation offered under the local Protection and Compensation Fund.
Sometimes banks offer insurance policies too. The bank is acting as a TII when it does so and is tied to an insurer or insurers. The banks may only introduce life policies and premium payment protection policies. Always make sure you know who the insurer is. In the case of life insurance policies and payment protection policies purchased for loan purposes, the bank must clearly explain that you may purchase such policies from other insurance companies that also satisfy the bank’s requirements and that you are free to choose from where to purchase your policy. In fact the bank should exhibit a notice that states this on the counters where you are served. You should also be given a copy of this notice for you to sign in acknowledgement.
An insurance agent is a professional that is tied to one or more insurers, even in the same classes of business. Therefore you may find insurance agents who are able to offer your two home policies of two different insurers, or two motor policies of two different insurers, after assessing your demands and needs. However most agents are only tied to one insurer. The insurer may be a locally authorised insurer or a foreign insurer who is authorised in an EU or non-EU territory. An insurance agent enters into an agreement with one or more insurers and is given the authority by that insurer to underwrite business on its behalf. Therefore an insurance agent may offer you policies in different classes of business that are issued by its principal/s, i.e. the insurer. The agent may decide to accept or refuse the risk on behalf of the insurer and issues the policy documents as well. Always make sure you have understood clearly who the insurer is. The agent is also authorised to collect premiums and also handles claims until settlement. All the activities of the agent are governed by the agency agreement between the agent and the principal and will vary from one insurer to another. The agent may give you advice on the product and cover chosen and should provide you with a receipt on collection of monies. This too should give details of the premium separately from the document duty and any fees charged by the insurer and by the agent.
The insurance broker is the only independent intermediary who may offer you the products of any insurer in the market. A broker is bound by Conduct of Business Rules issued by the MFSA its Conduct of Business Rulebook . The broker should be objective in his advice and should provide you with alternative quotations (at least three or four) so that you may choose the product best suited to your needs. Do not limit your choice to the price. There are other important aspects to consider, such as the claims handling service of the insurer. The broker will perform the preparatory work such as assisting you to complete a proposal form and get you different quotations from different insurers. The broker should assess your insurance demands and needs and act with complete freedom and inform you of the advantages of one policy over another, clearly identifying the relevant insurer. The insurer will issue the policy documents and send them to the broker who should check them to make sure they are in line with your negotiations. Once satisfied, the broker will forward the policy documents to you. The broker is also authorised to collect insurance monies and should also provide you with a receipt showing the premium separately from the document duty and any fees charged by the insurer and by the broker. In the unfortunate event of a claim, the broker should also assist you in the completion of a claim form and liaison with the insurer until settlement of a claim. Settlement may be channelled through the broker but the insurer may sometimes choose to settle directly to clients.
There are certain situations where the broker does not act with complete freedom in choosing the insurer. These are as follows:
- In some instances brokers may enter into what is called an underwriting agreement with an insurer for particular classes of business. This means that the insurer would allow the broker to accept risks on its behalf under that agreement for that specific class of business. In that case the broker would be able to issue the policy documents for those risks itself. This happens mostly with motor and travel insurance. If your broker accepts your risk under such an agreement, the broker is duty bound to inform you that he is placing your risk under an underwriting agreement with that specific insurer.
- The broker may also have a computer link arrangement with certain insurers. This means that he enters into an agreement with certain insurers for certain classes of business and will have a specific computer arrangement with the insurer to accept those risks and issue the policy documentation immediately from the system. This too is very common for motor and travel policies. Again, if the broker places your risk under such a computer link arrangement, he should inform you of this.
It should be noted that a broker may also introduce you to insurance companies that are not locally authorised. These may be companies registered in the EU or in any non-EU territory. In such instances the broker should explain clearly who the insurer is and that it is not regulated by the MFSA and in the event of insolvency would not be covered by the Protection and Compensation Fund. The broker also needs to explain possible difficulties that may be encountered in the event of a claim if there is no local representative. Moreover the policy may not be subject to Maltese law and you may not have the right to choose the applicable law. Therefore it is important that you ask questions and ensure you understand the implications. The language of the policy may also be an issue. If the insurer is in a non-EU territory check carefully where it operates and ask whether it is regulated in any way.
An insurance broker may also offer to place your business with Lloyd’s. In this case the broker should explain particular issues regarding Lloyds as regards its Central Fund, the Lloyds syndicates and possible compensation under the Protection and Compensation Fund amongst others. The client should be informed of the local Lloyd’s representative and the exact Lloyd’s syndicates that are insuring his risk
An Ancillary Insurance Intermediaries (AIIs) is a person whose main activity is not insurance distribution but who, for remuneration, on an ancillary basis, distributes insurance products which are complementary to a good or a service. The AII can only distribute products covering life assurance or liability risks, only if that cover complements the good or the service which the AII provides as its principal professional activity. An AII cannot be a credit institution or an investment firm.
AIIs may be appointed by insurance companies, insurance agents or by insurance brokers subject to certain restrictions with respect to the classes which they may distribute and must enrolled with the MFSA. The AII acts under the full responsibility of the insurance company or of the insurance broker which appoints them.
With respect to non-life insurance, an AII may be appointed by two separate insurance companies on condition that the products offered are different. Accordingly, for example, an AII may not offer the home policy of two different insurers. An AII may only be appointed by one insurance company or agent for the distribution of long term business such as life insurance products.
When an AII is appointed by a broker, such appointment may only relate to non-life business and may only be made in the context of one particular product.