Insurance Intermediaries Regulation
Part 1: Introduction
Purpose:
1- This regulation presents the general principles and minimum standards that should be met by insurance agents and (re)insurance brokers when dealing with insurance companies and their existing and potential clients.
2- The objective of this regulation is to promote appropriate standards in the business of insurance services provision.
3- This regulation must be read in conjunction with the Law on Supervision of Cooperative Insurance Companies and its Implementing Regulations, as well as Saudi Central Bank’s Market Code of Conduct and any other regulation issued by Saudi Central Bank.
Definitions
4- The term “Intermediaries” in this Regulation is intended to include insurance agents and (re)insurance brokers.
An Insurance agent is defined as a juristic entity that for compensation represents the insurance company to solicit, procure and negotiate insurance contract.
An Insurance broker is defined as a juristic entity that for compensation negotiates with the insurance company in order to conduct insurance services for policyholders.
A Reinsurance broker is defined as a juristic entity that negotiates contracts of reinsurance between an insurance company and a reinsurance company on behalf of the insurance company, receiving commission for placement and other services rendered from the reinsurance company.
The term “Clients” is defined as the existing and potential recipients who request or acquire an insurance product or service.
The rest of terms which are not mentioned above and used in this regulation shall have the same meaning as per article one of the Implementing Regulations.
Compliance Measures:
5- Intermediaries must establish appropriate internal controls and procedures to ensure and monitor compliance with this regulation, including controls and procedures of their contracts with insurance companies, with other insurance service providers and with Clients.
6- Intermediaries must maintain adequate records to demonstrate compliance with this regulation, including, but not limited to, compliance reports, policy records, claims records and complaints records.
Non-Compliance:
7- Non-compliance with the conditions and requirements set forth in this regulation will be deemed a breach of the Law on Supervision of Cooperative Insurance Companies and its Implementing Regulations and licensing conditions and may subject Intermediaries to enforcement action.
Part 2: Rules of professional conduct.
8- Intermediaries shall comply with the rules of professional conduct by fulfilling the following requirements:
a) Act in an honest, transparent and fair manner, and fulfill all of their obligations towards Clients and insurance and reinsurance companies, as stipulated by Saudi Arabian laws and regulations. Where these obligations have not been fully codified, intermediaries should abide by internationally accepted best practices.
b) Act within reasonable competence when dealing with Clients and insurance and reinsurance companies. For this purpose, competence shall be acquired through training, experience, and consulting with experts when needed.
c) Keep the employees’ skills and knowledge about the insurance business up-to-date and be informed of the products and services available on the market.
d) Take reasonable care in maintaining adequate managerial, financial, operational, and human resources to carry out their business and serve Clients.
e) Communicate all relevant information including coverage details, conditions, exceptions and restrictions of the insurance policy to Clients in a timely manner, and ensure that Clients are aware of the commitment they are about to make to enable them to make a suitable decision.
f) Take reasonable measures to ensure the accuracy and clarity of the information provided to and from Clients and make such information available in writing.
g) Treat all data and information acquired about the insurance company and Clients with utmost confidentiality, and take appropriate measures to maintain the secrecy of confidential documents in their possession. This means that the data:
- Must be obtained and used only for specified and lawful purposes.
- Must be kept secure and up-to-date.
- Must commit to provide data about insurance coverage to Clients upon their written request.
- Must not be disclosed to any third party without prior authorization from Saudi Central Bank, with the exception of the companies’ external auditors.
h) Must not motivate Clients to revoke a valid insurance policy, and must not motivate Clients to refuse a quotation given by a competitor using false or unfair evaluation in order to merely increase commissions.
i) Ensure that Clients fully understand the services provided by the Intermediaries and the nature of the relationship between both parties.
j) Notify the insurance company of any information or documents related to Clients which might affect the decision of the insurance company to provide the coverage and at which rates and conditions.
k) Immediately notify Clients about the acceptance or rejection of the coverage by the insurance company.
l) Explain to Clients the mechanism of paying the insurance premiums and any other additional proceeds the insurance company is entitled to.
9- In addition to the general rules, brokers shall comply with the following:
a) Take reasonable measures to identify and address conflict of interest to ensure fair treatment to all Clients. Where conflict of interest arises, brokers must not unfairly place their interests above those of their clients.
b) Present to each client a comparison between the prices and coverage of insurance policies tailored to the client’s needs and offered by different insurance companies, then recommend an insurance policy and explain to the client the reason for choosing it and the conditions, benefits, and exclusions it includes.
c) Do not favor companies they are associated with.
d) Do not choose or recommend insurance coverage from an insurance company based on the commissions granted to the broker.
Part 3: Requirements for Opening Branches
10- Brokers shall not have more than one branch in each province in the Kingdom, and shall not exceed a total of five branches within the Kingdom.
11- Agents shall have a maximum of five branches when their capital is of SR 500,000. Agents must increase their capital by SR 100,000 for every additional branch.
12- Agents must obtain the approval of the represented insurance company for their branch expansion plan. Insurance companies, in turn, must regularly oversee and review the operations of these branches, and are held accountable in case of the agent’s non-compliance with the professional standards, requirements and criteria set forth in this regulation.
13- In addition, Intermediaries looking to open new branches must meet the following requirements:
a) Obtain Saudi Central Bank’s approval for the location of the new branch.
b) Provide Saudi Central Bank with a list of addresses of all branches to be opened, the names of the employees that will work at these branches, their qualifications, and experience.
c) Provide Saudi Central Bank with the objectives and reasons behind opening the new branch.
d) Complete all regulatory licenses, records, and certifications required to open a new branch, e.g., license from the municipality, the Civil Defense, the Ministry of Commerce and Industry and any other licenses required.
e) Meet the Saudization requirements, stipulated in the Implementing Regulations, in each branch.
f) Have an information system at the branch that is connected to the intermediary’s IT system.
g) Have internal control measures to oversee the operations of each branch.
h) Have an adequate and secure system to retain money at the branch.
i) Have a system to document and maintain data related to the insurance policies underwritten by the branch, e.g., policyholders’ names, addresses, as well as, insurance policies’ dates, durations, premium rates and conditions.
j) Ensure that branch employees possess adequate qualifications to deal with, combat, and report financial crimes.
k) Ensure that the branch customer service employees apply the required customer due diligence in knowing their clients.
Part 4: Requirements for Bancassurance activities
14- Bancassurance activities must be conducted through licensed insurance agents, i.e., Bancassurance agents, which are subject to all applicable regulations thereof.
15- The Bancassurance agency and the bank must sign a distribution agreement. Prior approval on the distribution agreements must be obtained from Saudi Central Bank. The agreement must include but is not limited to:
a) Insurance products to be marketed.
b) Allocation of expenses to the agency.
c) Trainings of bank staff.
d) Cash collection procedures.
16- The Bancassurance agency should submit a request to Saudi Central Bank for obtaining an approval on its insurance products that will be sold in Banks.
17- The bancassurance agency must obtain Saudi Central Bank’s approval before introducing an approved insurance product to any new bank branch.
18- Insurance products must be sold and marketed independently from banking products, as such:
a) Insurance products must not be marketed or sold by staff involved in selling or marketing banking products.
b) Insurance products must not be bundled with banking products for marketing and selling purposes.
19- All bank staff involved in selling insurance products must pass the Insurance Foundation Certificate Exam.
20- The Bancassurance agency must submit to Saudi Central Bank, on a yearly basis, a training plan for the Bank’s staff involved in selling insurance products. The plan should cover as a minimum the following:
a) Selling techniques trainings.
b) Product specific trainings.
c) Anti-money laundering and combating terrorism finance.
d) Applicable laws and regulations.
21- The Bancassurance agency must appoint a Bancassurance supervisor. The roles and responsibilities of the supervisor should include as a minimum:
a) Supervise Bancassurance sales activities in bank branches by conducting regular visits to branches.
b) Conduct ongoing trainings to bank staff on insurance products and sales.
c) Put in place all the proper controls, and validation to ensure delivery of insurance products in an honest, transparent and fair manner.
22- The bancassurance agency is fully responsible to:
a) Ensure compliance with controls, policies and procedures in bank branches in order to sell insurance products in an honest, transparent, and fair manner.
b) Ensure that the insurance company’s copy of client records is delivered securely and in a timely manner
c) Prepare and review monitoring reports for the bancassurance activities.
d) Follow up on cash collection.
Part 5: Requirements for Dealing With Insurance and Reinsurance Companies.
Section A: General Requirements
Documentation:
23- Intermediaries shall document in books and records all data, information and documents related to the business they conduct with (re)insurance companies and policyholders including the following:
a) Name and address of the represented party:
- Insurance company in the case of an agent and reinsurance broker.
- Client in the case of a broker.
b) A copy of the agreement executed with the represented party:
- Agency agreement in the case of an agent.
- Broker client agreement in the case of a broker.
c) Copy of Clients’ insurance policies.
d) Business related memorandums and correspondences.
e) Insurance proposal forms received on behalf of insurance companies.
f) Clients names as well as the date of issuance of the insurance policy and the collection of premiums.
g) Book keeping related to premiums received or claims paid or any other financial transaction related to the insurance business.
h) Bank accounts related to the insurance business.
24- Intermediaries shall keep the books and records for a period of no less than ten years from the date of termination or end of the concerned insurance policy.
Premium Collection and Segregation of Accounts:
25- Insurance companies are considered to have received the premiums once the premiums are received by their agents.
26- Intermediaries must ensure the security of clients’ assets held on their behalf. Any premiums collected by Intermediaries must be either placed in a separate bank account (the premium account) that has been established for that purpose, or passed directly to the insurance company. Cash payments must generate a receipt to the client and must go immediately into the premium account.
27- Intermediaries must not treat the premiums account as their own in any sense; in particular, as security for any loan.
28- Intermediaries shall remit all the premiums collected from insurance contracts concluded on behalf of the insurance company, to the insurance company's account in a period not exceeding 7 working days from the date of collection from Clients, as well as, providing the insurance company with a detailed report of these premiums.
29- The intermediary is responsible to carry out all necessary efforts to collect premiums from policyholders. In case the policyholder fails to pay, the intermediary must immediately notify the insurance company.
Agreements Between Intermediaries and Insurance Companies:
30- The agency or brokerage agreement concluded between the intermediary and the insurance company shall determine the rights and obligations of each of them, including the following:
a) Type and classes of insurance in which the intermediary is allowed to practice the insurance business.
b) Duration of the agreement and possible causes of termination.
c) Means for calculating the commission of Intermediaries for the service provided.
d) The limit per insurance policy that the agent is allowed to sell.
e) The standards to be followed and complied with by the intermediary.
f) The rights of the insurance company to review the intermediary’s books and records related to its accounts.
Section B: Requirements for agents
Obligations of an Agent Towards the Represented Insurance Company:
31- Agents shall:
a) Note on all official papers, correspondences and documents their license number, as well as the name of the represented insurance company.
b) Comply with the insurance policy limits that they are authorized to sell as set in the contract binding the agent to the represented insurance company.
c) Not represent more than one insurance company without obtaining the prior approval of Saudi Central Bank.
d) Provide to the insurance company their compliance and internal control manuals if requested to do so.
e) Obtain the approval of Saudi Central Bank for any changes occurring on the agency agreement with the represented insurance company.
32- Agents must request Saudi Central Bank’s prior approval to terminate the agency agreement with a represented insurance company and sign a new agency agreement to represent another insurance company. To request such approval, agents must provide Saudi Central Bank with:
a) Reasons for terminating the agency agreement with the current insurance company.
b) Insurance company that the agent plans to sign an agreement with and a draft of the agency agreement.
c) Commissions rates to be received from the insurance company.
33- After obtaining Saudi Central Bank’s approval to terminate the agency agreement, the agent shall:
a) Sign a financial settlement of accounts with the current insurance company.
b) Inform the public of ceasing the agreement through announcements in local newspapers.
c) Stop selling insurance products for a transitory period of 60 days and take all necessary measures to terminate the association with the insurance company, including: removing the company’s signboards from its branches, delivering sales registers, and names of users and passwords of electronic systems related to the company and settle all pending financial matters between both parties.
Section C: Requirements for Brokers
Obligations of a Broker Towards the Insurance Company:
34- Brokers shall:
a) Note their license number on all papers, correspondences and documents.
b) Provide the insurance company with information that enables it to assess the risk to be insured or renew its insurance with the knowledge and approval of Clients.
c) Be knowledgeable about insurance markets, insurance law and prevailing regulations, and follow-up on the developments occurring therein.
d) Provide assistance in negotiations between the insurance company and Clients concerning claims arising from the risk insured.
h) Obtain written approval from Saudi Central Bank prior to placing risks with foreign insurance companies to cover risks that cannot be covered through a licensed company in the Kingdom.
Part 6: Requirements for Dealing With Policyholders.
Section A : Pre-Sale Client Contact
Advertising:
35- Intermediaries shall:
a) Ensure that advertisements are not misleading, over-stated or offensive.
b) Ensure in the case of an insurance broker that advertisements are not restricted to the policies of one insurance company.
c) Ensure that advertisements neither contain anything which is in breach of the law nor omit anything which the law requires.
d) Ensure that advertisements do not abuse the trust of Clients or exploit their lack of experience or knowledge.
e) Proper written approval should be obtained from the relevant insurance company if the advertisement has any reference to that insurance company.
Advice:
36- Intermediaries shall provide advice on the matters within their field of expertise and seek or recommend specialists if necessary.
37- Insurance brokers shall provide advice, technical consultation and the most suitable policy conditions and prices for Clients by contacting a number of insurance companies.
Client Service:
38- Intermediaries shall:
a) Understand the terms and conditions of all policies offered to Clients.
b) Understand Clients’ profile, coverage needs, and appetite for risk.
Legal Requirements:
39- Intermediaries shall ensure that any documents issued comply with all statutory and regulatory requirements.
40- Brokers shall obtain a written approval to represent Clients with the (re)insurance company.
Documentation:
41- Intermediaries shall:
a) Ensure that all written terms and conditions are fair in substance and that the Clients' rights and responsibilities are set out, clearly and in plain and understandable language.
b) Send policy documentation to Clients without avoidable delay.
c) Send a written advice along with the policy documentation stressing on the importance of reading it carefully.
d) Ensure that instruction letters, policies and renewal documents contain details of complaints handling procedures.
Reinsurance:
42- Reinsurance brokers shall:
a) Maintain proper records of the insurance company's business to be used by reinsurance companies.
b) Render advice based on knowledge of the reinsurance coverage available in the reinsurance markets.
c) Maintain a database with the ratings of (re)insurance companies.
d) Select and recommend a (re)insurance company or a group of (re)insurance companies.
e) Assist in the update of (re)insurance contracts.
f) Exercise due care and diligence with the selection of (re)insurance companies taking into consideration their respective ratings.
Section B: Sale of Insurance Products and Services
Sales Practices:
43- Intermediaries shall:
a) Ensure Clients understand the type of service being offered.
b) Ensure that the policy proposed is suitable for the Clients’ needs.
c) Provide Clients with comparisons in terms of price, coverage and services offered when choice among several products is available.
d) Notify Clients promptly if unable to obtain the requested insurance.
e) State the period for which the quotation remains valid if the proposed contract is not entered into immediately.
f) Explain to Clients their obligation to notify claims promptly and to disclose all material facts relevant to the coverage.
Information Furnishing:
44- Intermediaries shall:
a) Request Clients to make true, fair and complete disclosure and ensure that the consequences of non-disclosure of information and inaccuracies are pointed out to clients.
b) Avoid influencing and pressuring Clients and make it clear that all the answers or statements given are his/ her own responsibility.
c) Require Clients to carefully check the information given in the documents.
d) Explain to Clients the importance of disclosing all subsequent changes that might affect the coverage throughout the duration of the policy.
e) Disclose on behalf of Clients all material facts within their knowledge and give a fair presentation of the risk profile of Clients to the insurance company.
Contract Explanation:
45- Intermediaries shall:
a) Explain all the essential provisions of the coverage provided by the policy to Clients.
b) Quote terms exactly as provided by the insurance company.
c) Draw attention to any warranty imposed under the policy, major or unusual restrictions, exclusions, and explain how the contract may be cancelled.
d) Provide a list of insurance companies participating in the coverage and advice of any subsequent changes thereafter. (Applicable for brokers only)
Remuneration:
46- Intermediaries must obtain Saudi Central Bank’s approval to receive a commission rate that exceeds the rates specified in Appendix A (Maximum Commission Rates Permitted) of this regulation.
47- Intermediaries shall:
a) Disclose to Clients the amount of proceeds and commissions they are receiving for the policy being contracted by Clients.
b) Inform Clients in writing of any additional fees or charges for any related services.
48- (Re)insurance brokers who have established a business relationship with an insurance company and have identified potential clients are entitled to receive their commission proportionally to the paid premiums once the contract is entered into. Any attempt by the insurance company to bypass the broker and deal with the client directly is considered an act of unauthorized disintermediation and is strictly prohibited. Such act should be reported to Saudi Central Bank directly with supporting evidence.
Section C: Post-Sale Client Servicing
Data Confidentiality:
49- Intermediaries shall:
a) Ensure that Clients data and confidential documents are stored safely with restricted access.
b) Ensure that Clients data is transferred only to relevant stakeholders (e.g., insurance companies, Intermediaries’ auditors).
Client Notification:
50- Intermediaries shall:
a) Promptly notify Clients, using a written confirmation that the insurance contract has been entered into.
b) Notify Clients with the changes made to the terms and conditions of an insurance contract and give reasonable notice before any change takes effect.
c) Inform Clients of any termination of coverage or potential problems within the duration of policy coverage.
Policy Renewal:
51- Intermediaries shall:
a) Ensure that renewal notices include Clients’ duties to disclose changes affecting the policy, which have occurred since the policy inception or the last renewal date.
b) Ensure that renewal notices contain a requirement for keeping records, including copies of letters, of all information supplied to the insurance company for the purpose of renewal of the contract.
c) Ensure that Clients are aware of the expiry date of the insurance contract even if no further coverage is granted.
d) Ensure that Clients receive insurance company's renewal invitations well in time before the expiry date.
Claims Handling:
52- Intermediaries are not allowed to approve and settle claims but shall:
a) Respond to claims filing in a prompt manner.
b) Provide claims forms showing all the information or steps required by Clients to file a claim.
c) Provide adequate guidance to Clients in filing the claim and information on the claims handling process.
d) Acknowledge to Clients the receipt of the claim and any missing information and documents within seven (7) calendar days from the reception of the claim application form.
e) Inform Clients of the progress of filed claims, at least every fifteen (15) working days.
f) Notify Clients in writing of the claim acceptance or refusal.
g) Explain the complaints and disputes process if the settlement is not accepted by Clients.
53- Intermediaries must transfer claims amounts to policyholders within a period of 3 working days from the date of receipt from insurance companies.
Client Complaints:
54- Intermediaries shall:
a) Accept complaints either by phone or in writing (e.g., letters, emails, and fax).
b) Explain the procedures to be followed when filing a complaint.
c) Provide Clients with the contact reference to follow up on the filed complaint.
d) Inform Clients on the progress of the filed complaint.
e) Respond to policyholder’s complaints within fifteen 15 calendar days from the reception of correspondence.
f) Have in place an electronic system for recording and monitoring complaints.
Financial Reporting:
55- Intermediaries shall complete and submit the set of intermediaries’ financial reporting forms to Saudi Central Bank according to the financial reporting forms guidelines.
Appendix A: Maximum Commission Rates Permitted
Classes of Business Commission Rate Accident & Liability Insurance 15% Personal Accident 15% Work Related 15% Employer's Liability 15% Third Party Liability 15% General Liability 15% Product Liability 15% Medical Liability 15% Professional Liability 15% Theft & Burglary 15% Fidelity 15% Safe Burglary 15% Any Other Liability 15% Motor Insurance - Compulsory 2%* Motor Insurance - Compulsory + Others 15% Property Insurance 15% Fire Insurance 15% Marine Insurance - Hull 15% Marine Insurance - Cargo 15% Aviation Insurance 15% Energy Insurance 15% Engineering Insurance 15% Other General Insurance Classes 15% Health Insurance - Compulsory 8% Health Insurance - Compulsory + Other 10% Protection Insurance 15% Protection & Savings Insurance 15% Other Protection & Savings Insurance 15%