Group (or “affinity”) insurance models are well-known and widely used in the Lithuanian insurance market. They are particularly popular in the case of travel insurance, payment protection insurance and purchase protection insurance products offered by banks along with credit cards. Group insurance contracts are also commonly used for personal accident and health insurance, which employers typically provide to their employees as an additional benefit package. Practically any insurance product can be distributed under group insurance models, as insurable interest is justified.

There are various reasons for the popularity of group insurance models. On the one hand, insurance models of this kind are very convenient for the insurer from a policy administration perspective—one insurance contract, one insurance premium—and less of a burden at the pre-contractual stage because specific duties of the insurer, such as introducing the insureds to the terms and conditions, collecting insurance premiums, etc., can be placed on the policyholder’s shoulders. It is also convenient for the insureds because it means that someone has already done all the work necessary to conclude the insurance agreement. Additionally, the insurance premium or insurance coverage granted under a group insurance contract is more favourable than what could be offered for an individual policy. Therefore, group insurance contacts can be a win-win arrangement for both parties.

Regulatory perspective

From a regulatory perspective, the most important reason for choosing a group insurance contract has been the understanding in the market that the policyholder is allowed to avoid the obligation of acquiring the status of an insurance intermediary or insurance distributor. However, as explained below, this is not a correct understanding of the regulation.

Regulation and changes

Until 2023, group insurance models were not regulated by law in Lithuania. However, the Bank of Lithuania has been addressing this issue since 2019. The Lithuanian financial market supervisory authority has issued a position (the Position) requiring the insured persons who join the group insurance contract to be treated as if they were actual policyholders under individual policies (i.e., granting a right to bring a complaint against the insurer, the right to the full pre-contractual information package, etc.). This Position did not explicitly require policyholders under group insurance contracts to obtain the status of insurance intermediaries; however, this is the interpretation of the Position that has always been supported by the Bank of Lithuania.

This interpretation of the Position was enshrined in law in 2023 when the Law on Insurance of the Republic of Lithuania (the LoI) established a clear statement that, in the case of a collective (group) insurance contract, a policyholder who offers third parties for a fee to join the insurance contract, use the insurance coverage provided by this contract and benefit from the insurance indemnity is subject to the requirements set for distributors of insurance products under Lithuanian law. In other words, such a person must be registered as an insurance intermediary (unless they benefit from the regulatory exemption).

The incentives to supplement the LoI were mainly driven by Decision C-633/20 of 29 September 2022 (the Decision) of the European Court of Justice. The court ruled that the definition of an insurance intermediary or insurance distributor also includes a legal person whose activity consists of offering its customers voluntary membership, in return for payment that it receives from them, of a group insurance policy to which it has subscribed previously with an insurance company, where that membership entitles those customers to insurance benefits.

Impact on rights and protections

The main idea behind the Decision was that insured persons (consumers) joining the group insurance contract would have the exact same scope of rights as policyholders who have concluded individual insurance contracts, and the same level of protection, despite the differences between the distribution channels. The latter principle has been transferred to the LoI by directly requiring the group policyholder to acquire the status of a distributor and granting the protection of rights and interests to the insureds as if they were indeed policyholders.

It should be recognised that, overall, nothing has changed in Lithuanian regulation of group insurance business models after the changes of the LoI because essentially the same rules were already established in the Position.

Other opinions on how the group business model can be structured

In addition, other opinions exist on how the group business model can be structured. For example, the role of the policyholder under the group insurance contract can be construed so as not to trigger the status of an insurance distributor (ensuring that all insurance distribution functions are performed by a professional insurance broker, not assigning any active offering of the insured contract, assistance in concluding insurance contracts or other intermediary actions to the policyholder, not paying any remuneration to the policyholder, etc.). However, if this model is chosen, it should be structured very carefully because the definition of insurance distribution is very broad and includes a wide range of actions. In addition, the definition of remuneration under the LoI is not limited solely to the direct monetary fee but also includes other economic benefits, and even non-financial advantages or incentives.

Conclusions

To sum up, Lithuania has implemented norms directly regulating group insurance models at the level of laws; however, it has yet to make significant regulatory changes that were previously aimed at ensuring the minimum protection of insured persons. Nevertheless, insurance market participants should prudently structure their planned business models, considering the regulations and market practices that are in force.

Also, according to the recent interpretations of the Bank of Lithuania, agency structures do not necessarily require the right of establishment notification for EU insurers; hence, the model where a group policyholder becomes an agent of such insurer will be possible using freedom of services notification.

The Sorainen Finance and Insurance team is ready to advise you on any questions concerning group insurance models.