Active commission transparency from 1 July 2024

From 1 July 2024, advisers and intermediaries in the private non-life insurance sector will be required to be actively transparent about the commission amounts they receive from insurers. This means that from that date they must proactively disclose not only how they must be compensated but also, where insurer-paid commissions are concerned, how much they are paid. This latter requirement is new as regards such commissions.

The purpose of this new scheme is to encourage consumers to discuss the services they can expect from non-life insurance advisers and intermediaries. 

Passive transparency is not enough to achieve the intended goal

At present, non-life insurance intermediaries and advisers are only required to disclose the commission amounts received from insurers upon request. In the view of the legislature, this passive commission transparency is not enough to ensure that consumers discuss the services they receive. Research by the Dutch Authority for the Financial Markets (AFM) and the Dutch Consumers' Association has shown that consumers would like to know whether any commission is being paid and, if so, how much. Consumers often do not know that they can request this information.

Active provision transparency can achieve this goal

• that their insurance premiums also pay for their advisers or intermediaries;
• that they can call on the intermediary's or adviser's services; and
• the specific services they can expect for the commission amount.

There is a good chance that consumers will start asking questions about services and that intermediaries and advisers will be forced to explain more regularly what the added value of their services is compared with taking out insurance directly from the insurer.

Transparency is mandatory before concluding the insurance agreement 

To enable consumers to compare an intermediary's or adviser's rates and services with those of a direct provider, it is important to inform them of the commission amount before they conclude the insurance agreement. However, it can be difficult for intermediaries and advisers to estimate the commission amount at an early stage, as it often depends on the premium. The premium, in turn, is affected by aspects including:

• the risk to be insured;
• the insurance selected; and
• the cover selected.
  
  

To address this problem, the legislature has opted for a 'finely tuned average'. Intermediaries and advisers must base their calculation on the average commissions for similar products with similar cover. In doing so, they must approximate the commission amount as closely as possible by giving an 'accurate indication'. The indication is considered accurate if it falls within a narrow margin of the commission to be ultimately received. If the indication significantly changes during the advisory or intermediary process, the intermediary or adviser must notify the consumer accordingly.

Good to know

• The commission must be expressed as an amount in euros, not as a percentage.
• The active commission transparency requirement applies only to non-life insurance taken out on or after 1 July 2024. Passive commission transparency remains applicable to current non-life insurance policies. This is also relevant to existing agreements under which an adviser or intermediary receives regular commissions.
• The active commission transparency requirement does not extend to the corporate market, as corporate clients are expected to be better informed of the rules applicable to them. Passive commission transparency remains in effect for these clients.

Houthoff has extensive experience with commission rules applying to insurers, advisers and intermediaries and has close contacts with the industry. We will be pleased to provide you with more information on this scheme and any best practices to be developed.