The Czech National Bank (CNB) is considering stricter regulations on the sale of add-on insurance products, frequently sold with electronic devices, household appliances or holiday packages at the time of purchase, announced CNB Vice-Governor Tomáš Nidetzký.
The current practice came under review after it became clear customers often do not understand exactly what is covered by complementary insurance products and rarely get the opportunity to become familiar with the terms and conditions of policies since these are usually sent to them by email or post after the contracts' execution.
Critics have also pointed out that sellers serve as a contact point for customers and are rarely motivated to pursue insurance pay-outs on a customer´s behalf.
As it stands, the problem is a common one. The sale of add-on insurance products with insurance premiums of EUR 600 and less occurs frequently in the Czech Republic. Czech Act No. 170/2018 Coll. on the distribution and redistribution of insurance (Czech IDD Act) allows a natural person or legal entity who is selling non-insurance goods or services to intermediate insurance contracts without holding the appropriate CNB licence if the policy relates to any of the following: defects, damage or loss of the goods; non-use of or defects in the services provided; damage or loss of luggage; claims related to travel; and if the insurance amount does not exceed EUR 600 on a pro rata annual basis (or the equivalent of EUR 200 if the term of the insurance, including its extension, does not exceed three months).
As a result of these issues and criticisms, the CNB is now considering tightening regulations on the sale of add-on insurance products. One proposal is to require intermediaries to be registered and pass relevant exams (comparable to those completed by insurance agents) and to keep records of client communications. Such communication would certainly lead to a greater administrative burden for insurance companies.
CMS will continue to track the developments and keep you informed. For more information right now, contact your usual CMS representative or one of the following local CMS experts: Tomáš Matĕjovský and Petr Beneš.