How to become an isurance broker: All you need to know

How to become an isurance broker: All you need to know

Law 3/2020 applies to the development of the professional activity of insurance and reinsurance distribution by natural and legal persons, the conditions under which it must be carried out, and the applicable regulation, supervision and sanctioning regime, with the main purpose of guaranteeing the protection of the rights of policyholders, insured parties and beneficiaries under insurance contracts, as well as promoting freedom in the contracting of insurance products.

In this respect, Law 3/2020 affects all types of natural and legal persons who carry out any activity related to the distribution of insurance and reinsurance in a professional manner.

What does an insurance broker do?

An insurance broker is a natural or legal person who is an expert in the insurance sector and acts as an intermediary between insurance companies and the insured (their client).

The function of the insurance broker is to inform, advise and facilitate the process of selecting and contracting any type of insurance policy, as well as the management and claim in the event of a claim.

In accordance with the above, insurance brokers carry out the activity of private insurance mediation without maintaining contractual links with insurance companies, and offer independent, professional, and impartial advice.

Difference between an insurance broker and an insurance agent

The main difference between these two figures is their independence. While the insurance broker carries out insurance mediation independently without being linked to the insured entities, insurance agents are insurance intermediaries who carry out their activity linked to an insurance entity by means of an insurance agency contract.

In addition to the above, insurance brokers are linked to one or more insurance companies for which they carry out mediation activities. However, brokers are independent mediators who exclusively represent the interests of their clients vis-à-vis those of the insurers.

Consequently, the figure of the insurance broker is more impartial than that of the agent, as the latter is not contractually bound to any insurance entity.

What is required to become an insurance broker?

Article 133 of Law 3/2020 establishes the requirements for registration in the administrative register of insurance and reinsurance distributors (the processing of which will depend on the Directorate General of Insurance and Pension Funds (“DGSFP”) or, where applicable, on the competent body of the Autonomous Community), to be able to start and develop the activity of insurance or reinsurance distribution:

• Insurance intermediaries, natural persons, must have the legal capacity to carry on business, and in the case of legal persons, they must be commercial companies or cooperatives registered in the Commercial Register.
• Mediators, natural persons, must prove that they meet the requirement of commercial and professional repute, as defined in Article 128 of Law 3/2020.
• A programme of activities must be submitted, indicating the branches and types of risks to be mediated, the guiding principles and territorial scope of action and the structure of the organization, the personal and material resources to be made available, the conflict resolution mechanisms and the three-year income and expenditure plan.
• Similarly, insurance intermediaries must prove that they have the appropriate knowledge and skills by passing training courses, which must be modulated according to the products distributed, the function performed, and the activity carried out.
• In view of the foregoing, insurance intermediaries must also submit a continuous training programme, considering the general guidelines and basic principles laid down by the DGSFP by means of resolution.
• They must also have the financial capacity, evidenced by a guarantee or surety insurance, to protect customers against the risk that brokers may not be able to transfer the premium to the insurer or the indemnity or reimbursement of the premium to the insured.
• Liability insurance or other financial security must be taken out to cover the intermediary throughout the EU, with the minimum amount, per annuity, currently laid down in Delegated Regulation (EU) 2019/1935.
• They must also have an internal whistleblowing channel or ethical channel in accordance with article 199 of the Law.
• Finally, they may not incur in any cause of incompatibility of article 159 of Law 3/2020.

If you have any doubts about the process and requirements of the insurance broker activity, do not hesitate to contact us!