For an insurance intermediary, does assisting in the administration and performance of insurance contracts (see Article 2(1) point 1 IDD) comprise the activity of portfolio management for customers holding insurance-based investment products? In this context, portfolio management would be understood to mean making investment decisions on an ongoing basis (by sending investment instructions to the insurance undertaking) for customers holding insurance-based investment products in accordance with mandates given by such customers on a discretionary customer-by-customer basis.
The question is asked in in light of the judgment in Case C-542/16, point 54, where the Court considered financial advice (comparable to investment advice under Directive 2014/65/EU (“MiFID) II”) to be "work preparatory to the conclusion of that insurance contract".
The answer to this question is provided by the European Commission.
Article 2(1)(1) IDD defines the concept of ‘insurance distribution’ in a broad way. It covers not only the activities of advising on, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, but also “assisting in the administration and performance of such contracts”. The latter activity includes, for example, assistance to customers in preparing insurance claims or in the management and renewal of insurance contracts. In the case of insurance-based investment products, assistance in the administration and performance of the contract can also occur with regard to investment-related elements of the contract, such as transferring investment instructions to the insurance undertaking or providing advice for investment decisions made by the customer during the term of the contract (for example, decisions to switch between underlying investment assets for a unit-linked insurance policy).
The concept of ‘portfolio management’ referred to in the question is defined in MIFID II for the purposes of that directive and means “managing portfolios in accordance with mandates given by clients on a discretionary client-by-client basis where such portfolios include one or more financial instruments” subject to MiFID II (Article 4(1) point 8 MiFID II). Portfolio management is an on-going investment service provided by an investment firm for its clients. It involves acting as a third-party manager for the assets of the client where discretion has been delegated to the manager.
Although the concept of ‘portfolio management’ has not been included in the IDD, it is possible that, in individual cases, a customer entrusts an insurance intermediary with a mandate to make on-going investment decisions related to an insurance-based investment product on a discretionary basis. In such a case, the intermediary would, for example, be entitled to make decisions on the switching between underlying investment assets on behalf of the client. In view of the definition of insurance distribution in Article 2(1)(1) IDD and in the light of the judgment in Case C-542/16, such an activity would have to be considered as ‘assisting in the administration and performance’ of insurance contracts and would therefore qualify as insurance distribution.
Disclaimer provided by the European Commission:
The answers clarify provisions already contained in the applicable legislation. They do not extend in any way the rights and obligations deriving from such legislation nor do they introduce any additional requirements for the concerned operators and competent authorities. The answers are merely intended to assist natural or legal persons, including competent authorities and Union institutions and bodies, in clarifying the application or implementation of the relevant legal provisions. Only the Court of Justice of the European Union is competent to authoritatively interpret Union law. The views expressed in the internal Commission Decision cannot prejudge the position that the European Commission might take before the Union and national courts.