It is quite common for Spanish insurance companies to design Insurance Based Investment Products (IBIP) for retail clients with a pricing setup which include all costs the insurance undertaking is bearing. Among such costs they normally include any distribution costs to compensate their internal or external network of employed salesmen or tied agents.

When an independent insurance broker provides advice to its clients and recommends one of those IBIP products, insurance undertakings do not normally offer any “discounted” or “net” product which does not include such distribution fees embedded in the product. 

There is no legal obligation in Spanish insurance distribution laws nor in IDD and its delegated regulation for an insurance undertaking to offer “distribution free costs” IBIP products to independent brokers, so independent brokers must negotiate individually with insurance undertakings the reimbursement of such fees to the end client.

Such reimbursements could take two forms: either the charged distribution fees are returned by the insurance undertaking to the individual policy mathematical reserves, or such fees are returned directly to the client.

If such fees are returned to the policy reserves, the portfolio performance figures of such products can be misleading, as two different clients subscribing the same product through a company agent or through an independent broker will see two different results. The fund industry found a solution to this problem by creating different “share classes” with different distribution commissions in it, but this solution does not seem currently feasible for IBIP products. 

For this reason, Insurance undertakings prefer then to return those fees directly to clients instead of returning such fees to the policy reserves.

EIOPA Q&A number 2100 confirmed that “insurance undertakings providing an IBIP product are to be considered as third parties within the meaning of Article 29(3), second sentence IDD when they are not involved in the distribution and provision of insurance advice to the customer”.

I would like to consult EIOPA on the following scenario:
-    An insurance broker negotiates their insurance advisory fees with a potential client, for example at 0.20% per annum of the policy value
-    After analysing client needs and requests, and available products in the market, the insurance broker advises the client to subscribe an IBIP product with an insurance undertaking which includes a distribution fee of 0.50% per annum.
-    the insurance broker asks the insurance undertaking to refund such 0.50% to end client
As Spanish Insurance Distribution Law (RDL 3/2020) has implemented the full prohibition of payments from third parties, the insurance broker cannot accept or keep commissions or fees from the insurance company. Only the client can pay the insurance broker’s services, directly or through others acting on his/her behalf.
Under Spanish Civil Code (articles 1158 and 1162) any customer is entitled to authorize a payment on his/her behalf, and can authorize anyone to receive a payment due to him/her “on his/her behalf”
Accordingly, if the client entitled to a fee refund from the insurance undertaking would mandate such undertaking to pay the insurance broker, “on his/her behalf” the amount of their feed advice as agreed between them and invoiced by the insurance broker (in the case described, 0.20%), such payment would be made not as a “third party”, but as “a person on behalf of the customer”.
I would like EIOPA to confirm if, in this scenario of clear and written client mandate to the insurance undertaking to pay a client’s debt for services provided to him/her, the insurance undertaking executing such payment can be considered acting as a “person on behalf of the customer” under article 29(2) of IDD.

The answer to this question is provided by the European Commission.

Article 29(2) IDD sets out the rules for the payment of fees, commissions or other monetary or non-monetary benefits (hereafter “inducements”) to or by insurance intermediaries or insurance undertakings in connection with the distribution of Insurance-Based Investment Products (IBIPs). It refers to the payment or receipt of inducements “to or by any party except the customer or a person on behalf of the customer”. Such payments are only in compliance with the obligations under Articles 17(1), 27 and 28, IDD if they:
(a) do not have a detrimental impact on the quality of the relevant service to the customer, and 

(b) do not impair compliance with the duty to act honestly, fairly and professionally in accordance with the best interests of the customers. The question received asks whether it is possible to interpret the term “a person acting on behalf of the customer” in Article 29(2) IDD as meaning that a customer can instruct the insurance undertaking providing the IBIP to make a payment of an amount due by the customer to an intermediary for the provision of a distribution activity, such as advice, directly to the insurance intermediary, acting on behalf of the customer. A payment by a third party can only be deemed to have been made ‘on behalf of the customer’ if there is full clarity that (1) the amount paid represents a debt owed by the customer to the intermediary on the basis of the legal relationship between the customer and the intermediary (such as, for example, a fee for an independent advice or a reimbursement of expenses), and (2) the person making the payment is acting solely as a mandatory agent for the customer in paying the customer's debt and is not fulfilling any obligation of its own towards the intermediary. Such an arrangement for the facilitation of a payment may, in principle and subject to the applicable civil law provisions, be possible between the insurance undertaking and the customer provided that the above conditions are met and there is full transparency for all parties on the role of the insurance undertaking as a pure payment facilitator acting in the name and on behalf of the customer. However, it has to be noted that Article 29(2) IDD is subject to clear reservations that explicitly allow for stricter rules in national legislation. 
First, Article 29(2) IDD states explicitly that it is without prejudice to Article 22(3), IDD which allows Member States to “limit or prohibit the acceptance or receipt of fees, commissions or other monetary or non-monetary benefits paid or provided to insurance distributors by any third party, or a person acting on behalf of a third party, in relation to the distribution of insurance products”. Moreover, Article 29(3) IDD provides that Member States may impose stricter requirements on distributors and, in particular, “additionally prohibit or further restrict the offer or acceptance of fees, commissions or non-monetary benefits from third parties in relation to the provisions of insurance advice”. Q&A 2100 clarifies that the term “third parties” in Article 29(3), second sentence, IDD has to be understood as meaning any party outside the relationship between the customer and the insurance intermediary or insurance undertaking distributing the IBIP and providing insurance advice. Having that in mind, insurance undertakings providing the IBIP are to be considered as third parties within the meaning of Article 29(3), second sentence, IDD when they are not involved in the distribution and provision of insurance advice to the customer. Where a Member State has made use of the option to prohibit or further restrict the payment or receipt of inducements, the relevant national rules take precedence over the provisions of Article 29(2) IDD. Such national rules may, in particular, include a prohibition of payments from the insurance undertaking to the intermediary, including in a role as payment facilitator. If this is the case, there is no room for an assessment of a possible payment “on behalf of the customer” within the meaning of Article 29(2) IDD.
 

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.