Czech Republic: the new Insurance Distribution Act is changing insurance distribution

5 February 2019 — Marina MAGNAVAL
The new Insurance Distribution Act that became effective in the Czech Republic on 1 December 2018, and replaced the still effective Act on Insurance Intermediaries and Loss Adjusters (IILA) has introduced important changes on insurance distribution, as Schoenherr Journal wrote.

The Act reduced the number of categories of intermediaries, i.e. persons authorized to mediate insurance or reinsurance from the IILA's original 6 to 4. Besides, insurance agents and brokers fall into one category of individual insurance intermediaries. Existing insurance agents and brokers immediately become agents and brokers under the Act on 1 February 2019, unless they have announced to the Czech National Bank by the end of 2018 that they are unwilling to be independent intermediaries under the Act.

Increasing consumer protection is linked to more detailed rules relating to the remuneration of persons involved in the distribution of insurance. The Act maintains the rule of distribution or reimbursement of life insurance remuneration. The Act also newly prohibits remuneration similar to pyramid schemes or remuneration to the intermediary conditional upon the payment of an entry fee or similar payments. These rules were framed during the effectiveness of the IILA in the opinions of the Czech National Bank regulating remuneration of intermediaries.

The legislator has taken the opportunity and more strictly regulated, among others, professional liability insurance (it has raised minimum indemnity limits and deductibles for intermediaries) or the scope of life insurance information which the intermediary has to provide to the consumer. In addition the Act also contains a modified system of accredited tests for insurance intermediaries or the rules of group distribution insurance negotiated in a business manner (fleet).

The Schoenherr Journal, published in Czech Republic twice a year by Schoenherr's Prague office, examines the latest important legal developments in the Czech Republic. The latest edition can be found here (available in CZ language only).

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