In some jurisdictions other terminology such as “authorisation” or “registration”, are used in place of “licensing”. For the purposes of this ICP these terms are collectively referred to as “licensing”.

The supervisor may choose to license intermediaries at the entity level or the individual level, or both. In some jurisdictions insurance intermediation activities carried out by the insurer’s direct sales staff or its authorised representatives are covered by the insurer’s licence; in others these may require separate intermediary licensing.

Where licensing is at the entity level the supervisor may consider whether the entity has in place procedures to ensure that the individuals who conduct insurance intermediation under its responsibility meet appropriate standards of professionalism and competence. The supervisor may also wish to set its own requirements for approval of individuals, within an insurance intermediary, who conduct intermediary business.

Different types of insurance business involve different levels of complexity and risks and may require different levels of skill and experience in their intermediation. The supervisor may wish to specify in the licence the range of intermediation activities that it permits the insurance intermediary to undertake, taking into account, for example, the intermediary’s proposed business plan and areas of expertise.

• details of ownership, including all information necessary to provide a full understanding of the insurance intermediary’s ownership and control structure;
• a business plan, including details of proposed business and financial projections;
• the proposed sources and method of capitalisation;
• information on personnel, in particular on proposed holders of key functions;
• details of any significant third party service providers;
• details of the proposed auditor, where applicable;
• details of professional indemnity insurance cover, including amount and limitations, or comparable guarantee, where applicable;
• business continuity plans;
• if incorporated, relevant information on incorporation such as memorandum and articles of association and certificate of incorporation;
• details of policies, procedures and controls in key areas such as:
  • new business;
  • client money;
  • complaints;
  • conflicts of interest;
  • compliance;
  • combating financial crime (including AML/CFT and fraud); and
• a copy of the policy and supporting documents that govern the insurance intermediary’s conduct of business, or confirmation of agreement to conduct of business rules published by the supervisor.

The supervisor may set minimum financial resource requirements, for example, to discourage market entrants with insufficient financial resources and to help ensure that existing licensees have sufficient financial resources for business continuity purposes. Where this is the case, such requirements might take into account factors such as the nature of the business to be intermediated, whether the intermediary operates client accounts, the level of any professional indemnity insurance and the level of operating expenses, to ensure that an appropriately risk-based financial resource requirement is set.

The supervisor should only issue a licence if the applicant meets the initial licensing conditions.

In specific and limited circumstances, the supervisor may have the power  to make exceptions to certain licensing requirements. The supervisor should ensure that any such exceptions do not encourage regulatory arbitrage or increase the risk to consumers.

The supervisor should consider what licensing requirements are applicable to intermediaries operating on a cross-border basis from outside the jurisdiction. These requirements should be transparent to consumers, as well as to intermediaries, so that they can make an informed decision when choosing to deal with intermediaries from other jurisdictions.

The supervisor may consider the possibility of issuing periodically renewable licences. An advantage of doing so would be to ensure formal periodic reassessment of compliance with the regulatory licensing requirements.

In addition to disclosing matters relating to intermediaries themselves, intermediaries are required to disclose information on insurance products offered to customers (see Standards 19.5 and 19.6).

• the nature of different insurance products;
• the level of sophistication of different customers; and
• the way in which different types of insurance are transacted (for example, differences between commercial and personal (retail) lines).

• by whom they are licensed and supervised;
• the type of business for which they are licensed;
• whether they are independent or act on behalf of one or more insurers;
• information on the basis on which they are remunerated;
• the services provided, including whether they offer products from a full range of insurers, from a limited range or from a single insurer;
• charging arrangements for the intermediation services;
• cancellation rights in respect of the intermediation services;
• notification of complaints;
• client money arrangements, including treatment of interest;
• confidentiality of information provided; and
• the relevant law governing the agreement.

Insurance intermediaries should provide information on terms of business to customers and do so prior to an insurance contract being entered into. Where there is an ongoing business relationship between an intermediary and a customer, or once terms of business information has initially been provided in the case of policy renewals, the intermediary should review whether reiterating this information is necessary. Further information on terms of business might only be necessary where there are changes to the terms.

When insurance cover needs to be arranged immediately it may not be possible to provide documentation of terms of business at the point of arranging the contract. In such situations the information may be provided orally and followed up with written documentation within a reasonable period of time.

The supervisor may recommend, or require, that a copy of the terms of business, signed by the customer, is retained as part of the insurance intermediary’s records. Where insurance is intermediated over the internet, the customer may be required to acknowledge the terms of business before a policy can be proceeded with. Electronic records should also be retained by the intermediary.

An insurance intermediary’s status may provide information to a customer on the extent of products from which recommendations are made and provide an indication of potential conflicts of interest. Where the insurance intermediary is only able to select products from a single insurer or from a limited range, the customer may wish to carry out their own research to see whether they can obtain better terms or a more suitable product elsewhere in the market.

It is particularly important that insurance intermediaries provide customers with information on their relationship with the insurers with whom they deal, specifically whether they are independent or act for one or more insurance companies, and whether they are authorised to conclude insurance contracts on behalf of an insurer or not.

Potential conflicts of interest can arise for some intermediaries if the intermediary is part of a wider group or if the intermediary has a financial interest, such as a shareholding, in an insurer or insurance group. Such relationships should be disclosed to customers.

Information on the insurance intermediary’s status may be provided as part of a terms of business agreement or separately. Because of its importance, this information may also be highlighted verbally to the customer.

• fees paid directly by the customer;
• fees or commissions paid indirectly by the customer, by way of deduction from premiums or funds invested; or
• fees or commissions paid by the insurer.

Where insurers’ direct sales staff carry out insurance intermediation as employees of the insurer, they may be salaried as well as receive any applicable commission.

Information on charging structures may be important information to customers. For example, for insurance products with an investment element, information on any fees or other costs deducted from the initial amount invested, as well as on fees or commissions deducted from the investment thereafter will be important.

Information on charging may be provided as part of a terms of business agreement, or separately. As fees and commissions vary by product and between product providers, they may need to be provided separately for each product recommended, often by inclusion in product documentation. Given their significance to some types of product, this information may also be highlighted verbally to the customer.

The supervisor may also require that, upon a customer’s request to the intermediary, the customer is provided with further information on fees and commissions, including the level of fees and commissions. The intermediary should make the customer aware of his/her right to request information on fees and commissions. Communication should be clear and not misleading. In view of the impact of fees and commissions upon insurance products with an investment element, the supervisor may require that disclosure of fees and commissions is provided to customers prior to contracts being entered into in respect of all such products.

Some forms of remuneration of insurance intermediaries potentially lead to a conflict of interest. For example, an intermediary may be tempted to recommend a product which provides higher fees or commissions than another. Potential conflicts of interest for intermediaries may exist in a variety of circumstances (see ICP 19 Conduct of Business).

The supervisor should be satisfied that the intermediary has robust procedures in place to identify and avoid, or manage, conflicts of interest, and deliver outcomes aligned with customers’ best interests. Where they cannot be avoided, or managed satisfactorily, this would result in the intermediary declining to act. Conflicts of interest may be managed or avoided in different ways depending on the nature and severity of the conflict of interest (see Application Paper on Supervising the Conduct of Intermediaries).

Additionally, circumstances in which conflicts of interest may arise may be covered in the codes of conduct issued by SROs or other professional bodies.

• receive monies from a client for the payment of premiums to an insurer; and/or
• receive monies from an insurer in respect of claims or refunded premiums for onward payment to a client.

Some jurisdictions have specific legal requirements in respect of the cash flows where monies are transferred via an intermediary from the customer to the insurer, and vice versa, including in determining whether the customer or the insurer is at risk in respect of such funds.

Where funds are held at the risk of the client, they may be referred to as “client monies” or “client’s money”. The intermediary should have adequate policies and processes in place for the safeguarding of such funds in the interests of their customers.

In some jurisdictions, premiums are deemed to have been paid to the insurer as soon as the customer pays premiums to the intermediary. In these circumstances the insurer, rather than the customer, bears the risk of allowing intermediaries to collect premiums on its behalf.

• client accounts are separate and clearly distinguishable from the intermediary’s own bank accounts;
• client accounts are held with licensed banks within the jurisdiction, or specified other jurisdictions;
• disallowing monies other than client monies within the account, except in specific circumstances such as to achieve or maintain a minimum balance, to receive interest, or to receive commission due to the intermediary;
• monies are paid into the account promptly;
• adequate financial systems and controls are maintained, including authorisation of payments from the account;
• adequate books and records are maintained and subject to audit;
• reconciliations are performed on a regular basis and reviewed;
• discrepancies on the account are followed up promptly and resolved satisfactorily;
• for each client, payments from a client account are not made before sufficient monies paid into the account have cleared, thus ensuring that any balance held in respect of each client is not negative; and
• the treatment of interest.

In the interest of safeguarding clients’ money, it is important that client accounts cannot be used to reimburse creditors of the insurance intermediary.

Where insurance intermediaries operate client accounts, the supervisor may require that the terms and conditions of such accounts are disclosed to their customers, including whether funds held in such accounts are at the risk of clients or at the risk of the insurer.

The supervisor should review the results of measures that it has required of an intermediary and the effectiveness of the actions taken.

Supervisory measures should be escalated in line with the supervisor’s concern about the intermediary and the risk to consumers.