Change in the supervisory approach regarding group insurances

Recently a resolution was published on the website of the Central Bank of Hungary (hereinafter: Supervisory Authority) analyzing the elements of distinction between the insurance mediation and the activity of getting insureds to join to a group insurance policy. Although the Supervisory Authority had already published resolutions concerning similar matters in the past, it has revised its preceding interpretation concerning group insurances on several matters in this new resolution in the light of inter alia the new rules of the new Civil Code. We review in the followings shortly the most important conclusions of the resolution.

Insurable interest and qualifying criteria of groups

One of the novelties of the resolution is that, according to the interpretation of the Supervisory Authority, the contracting party too must have at least indirect insurable interest in case of group insurances. According to the Supervisory Authority’s interpretation the insurable interest in group insurances is established by the relationship between the group and the contracting party: for example the employer is the contracting party, taking out a group life insurance policy for its employees; or a public transport company taking out a group accident insurance policy for its passengers. Accordingly the conclusion of the Supervisory Authority is that in case of a group insurance policy the qualifying criteria for groups cannot be the fact itself that the insured is subject to a group insurance policy, which means that a relationship independent of the group insurance policy must exist as well between the contracting party and the insureds in order to establish the insurable interest of the contracting party.

However according to the Hungarian Civil Code, as a general rule, the relationship between the contracting party and the insured, and the reason for taking out the insurance policy for the insured is indifferent, for the validity of the contract only the insured needs to have insurable interest, i.e. the insurance policy must be taken out for a person with insurable interest. The contracting party therefore does not have to have either direct or “indirect” insurable interest; however it is of course typical that the contracting party has some kind of interest in taking out the insurance policy.

The rules of the Civil Code regarding the group insurances do not contain any deviating provision from the above mentioned with regard to the insurable interest, Section 6:442 paragraph (1) of the Civil Code only lays down the criteria to define the insureds (the group). (This kind of criteria could be the membership of an organization, a legal or other kind of relationship between the insureds and the contracting party.) In fact from the first phrase – the membership of an organization – it does not even follow that the group insurance policy could be taken out only by the organization in question, as a matter of fact it could be taken out by anybody for the insureds belonging to the organization.

On the basis of the above, the approach of the Supervisory Authority that the contracting party should be able to establish “insurable interest” for the subject or the insureds of the insurance policy in order to be able to take out the insurance policy is not certainly correct. The question whether the contracting party is able to take out a group insurance policy for a certain group of insureds should be decided on the basis of Section 6:442 paragraph (1) of the Civil Code instead, which means the establishment of any of the mentioned three qualifying criteria of groups with regard to the group to be organized should be examined.

Intermediation of insurance policies and recruiting insureds to join

The Supervisory Authority in its resolution confirmed again that the “recruitment” of insureds to join to an already existing group insurance policy is subject to the same rules as the traditional intermediation of insurance products, therefore the requirement of equal treatment of intermediaries and the protection of consumers require that the conclusion of a group insurance policy and the assistance in concluding insurance policies is treated the same way in public insurance law. Accordingly the activity aiming to create insured statuses (i.e. practically being the contracting party) can be considered as insurance mediation, if the recruitment of the insureds is operated for business purpose.

Business purpose

The other important novelty of the resolution is that the Supervisory Authority adapts the practice of interpretation regarding the concept of business purpose that it developed on the basis of the Credit Institutions Act, for the insurance contracts as well. Accordingly the interpretation of the element of the concept of business purpose that is fulfilled if the purpose of the service is consideration, profit, or acquisition of any asset, has changed as well. According to the interpretation of the Supervisory Authority if the service is provided in return of any additional cost, fee, or any other indirect economic benefit, then the acquiring profit or assets motive can be established. According to the interpretation of the Supervisory Authority it is considered to fulfil the profit or acquisition of assets criteria if the motive for providing a quasi-free service is to increase the efficiency of or the income from the other (main) activity that is performed for business purposes. Until now this interpretation has not been part of the practice of the Authority.

The effect of the resolution

For those operators in the market that are planning to create a group insurance arrangement, or already managing one (primarily contracting parties and insurance companies) a legal revision of these arrangements is advised in the light of the resolution of the Supervisory Authority, because the Supervisory Authority may sanction the arrangements contrary to this resolution (either in civil or public law regard) with supervisory fines.

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