Group insurance and self-funded group insurance provided contrary to regulation – policyholders may not provide insurance
The Financial Supervisory Authority (FIN-FSA) has in its supervision identified arrangements where insurance is offered publicly on websites, particularly to housing companies, as part of various ancillary service and benefit schemes in such a way that the insurance cover is a central or the only part of the service. The assessment of these arrangements has raised significant questions relating to legal compliance concerning the manner in which insurance is provided, the differences between group insurance and self-funded group insurance, the determination of the type of insurance, and the use of group structures.
The FIN-FSA points out that, under the Act on Insurance Distribution, the provision of insurance is permitted only to an insurance company, its agent or an insurance broker (insurance providers). The same party may not act both as an agent for an insurance company and as an insurance broker due to a conflict of interest.
Differences between group insurance and self-funded group insurance must be recognised
The regulation laid down in the Insurance Contracts Act on group insurance and self-funded group insurance is based on the premise that the insurance can be either group insurance or self-funded group insurance. Legislation does not recognise a “hybrid form of insurance” falling between these two, nor can insurance be both group insurance and self-funded group insurance at the same time. The FIN-FSA considers that arrangements containing features of both types of insurance are not permitted.
Based on supervisory observations, there have been circumstances where insurance cover has been incorporated in a service package in such a way that the service fee paid by the customer effectively corresponds to the risk premium of the insurance taken out as group insurance by the service package provider, and the service has no other meaningful content. In such a case, the arrangement may be assessed as individual insurance regardless of how the service has been formally presented.
The assessment focuses on the actual content and manner of implementation of the insurance. If the customer has the possibility to decide on joining the insurance and it also actually pays the fee related to the insurance, the arrangement meets essential characteristics of self-funded group insurance. Hence, regulation concerning self-funded group insurance applies to it, even if the arrangement has been named or formulated otherwise.
The provision of insurance as policyholder is not permitted
Due to regulation applicable to group insurance, the policyholder may not resell insurance cover. Regulation concerning individual insurance cannot be circumvented by establishing a group whose primary purpose is to provide insurance. Traditionally, group insurance is taken out by employers for their employees or by associations for their members, and the group in group insurance therefore exists for some other purpose than the provision of insurance.
In addition, the FIN-FSA refers to section 34 of the Act on Insurance Distribution and emphasises that restrictions apply to the activities of an insurance broker in respect of the marketing of insurance. An insurance broker may not market the insurance of a particular insurance undertaking or particular insurance providers to the public, and group arrangements may not be used as a means of offering insurance openly on the market. It is therefore also not permitted to use group arrangements to offer insurance openly, for example on websites.
The FIN-FSA has intervened in the types of operating models described above and observed on the market, and has required corrective actions.
The FIN-FSA also draws the attention of insurance companies to refraining from renewing insurance contracts in which the above-described characteristics contrary to regulation have been identified.
The FIN-FSA has previously issued a statement on group insurance and self-funded group insurance: Group insurance and self-funded group insurance - 2020 - www.finanssivalvonta.fi/en
For further information, please contact
Antti Lampinen, Senior Supervisor, antti.lampinen(at)fiva.fi or telephone +358 9 183 5518