In this article, we attempt to address, based on Act no LX of 2003 on Insurance Companies and Insurance Activities (the "Act"), the legal issues of (i) whether an individual or business organization authorized by a licensed independent insurance mediator is allowed to carry out activities of independent insurance mediation, and (ii) if the answer to this question is in the affirmative, whether the individual or business organization may carry out such activities based on the authorization of the licensed mediator and registration with the Authority or whether a license is required to engage in such activities.

Statutory Background

Under the Act (Article 33 Paragraph 1), the activity of insurance mediation is an activity aimed at the execution of insurance contracts on a regular basis and in a business-like manner. Thus, such activity comprises of the preparation of conclusion of insurance contracts, the marketing of and providing information on insurance products, the conclusion of insurance contracts, making arrangements for the sale of insurance products as well as of assisting in the performance of obligations set forth in the relevant insurance contracts.

Activities of insurance mediation may only be carried out by either a so-called "dependent insurance mediator" or an "independent insurance mediator". A dependent insurance mediator (or agent) is authorized to mediate (i) the insurance products of a single insurance company or (ii) the non-competing insurance products offered by different insurance companies. As a rule, all other insurance mediators qualify as independent insurance mediators. An independent insurance mediator carries out his activities based on the authorization of his client (in this case, the mediator is called broker) or simultaneously mediates, in accordance with the contracts concluded with the insurance companies, competitive products of different insurance companies (in which case, the mediator qualifies as a multiple agent).

Pursuant to Article 57 Paragraph 1c of the Act, the carrying out of activities of independent insurance mediation is subject to a license issued by the Hungarian Financial Supervisory Authority (the "Authority").

According to Article 41 Paragraph 1 of the Act, an independent insurance mediator is required to make sure that the individual employed or authorized by such mediator for pursuing activities of insurance mediation is registered with the Authority. If the independent insurance mediator employs or authorizes a business organization for carrying out activities of insurance mediation, the independent insurance mediator is under the obligation to ensure that an individual working for such business organization is registered with the Authority. Furthermore, pursuant to Article 41 Paragraph 4 of the Act, an insurance mediator is entered in the Authority's registry on the basis of the report of the insurance company or independent insurance mediator to which the insurance mediator mediates insurance. However, the Act is silent on whether the individual or business organization reported by the licensed mediator to the Authority qualifies as dependent or independent insurance mediator.

Arguments

On the one hand, Article 57 Paragraph 1c of the Act provides that the activities of independent insurance mediation may only be carried out by having a license, i.e., registration is insufficient. On the other hand, it flows from Article 41 Paragraphs 1 and 4 that an individual or business organization authorized by an independent insurance mediator may carry out activities of insurance mediation to the extent of the scope of authorization granted by the licensed independent insurance mediator. Consequently, based on the latter provision of the Act, no license is required for an individual or business organization carrying out activities of independent insurance mediation in accordance with the authorization given by the licensed mediator.

Furthermore, if the individual or business organization authorized by the independent insurance mediator qualified as a dependent insurance mediator, they could not mediate insurance for the independent insurance mediator in accordance with the instructions of and the license held by the latter. The reason for this is that, as stated above, a dependent insurance mediator does not have the same standing as, and has less power than, an independent insurance mediator. At the same time, the individual or business organization cannot be regarded as an independent insurance mediator given the absence of a license (Article 57 Paragraph 1c).

Conclusion

In the interpretation of the Authority, the statutory contradiction in the Act is to be resolved in favour of Article 41 Paragraph 4, i.e., an insurance mediator that has been registered with the Authority based on the report made by an independent insurance mediator is authorized, without holding a license, to carry out activities of independent insurance mediation in line with, and pursuant to, the license granted by the Authority to the independent insurance mediator making the report.

The opinion of the Authority is supported by the argument pursuant to which the main purpose of authorizing an individual is to empower him to take any action that can otherwise be taken by the authorizing party. If the authorizing party holds a valid license for carrying out activities of independent insurance mediation, he may, within the scope of the license, fully authorize another entity to act on his behalf. Thus, the authorized entity may take any action the licensed mediator is permitted to take.

Although this interpretation is, in the strict sense of the provision of the Act, contrary to Article 57 Paragraph 1c (since the individual or business organization carrying out activities of independent insurance mediation does not hold a license), it seems to be the only conclusion that corresponds to Article 41 Paragraphs 1 and 4 of the Act and the intention of the law-maker.

The Hungarian statutory anomaly might be the consequence of the legal regime established by Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation (the "Directive"), which Directive contains provisions that are more liberal than those of the Act, namely, the Directive is silent on licensing and only requires that insurance mediators be registered with the competent national authority.

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