Providing insurance on a commercial basis requires authorisation from DNB. DNB's supervision of insurers aims to protect the interests of the insured.
Service contracts: insurance or not?
Service contracts may qualify as insurance under the Dutch Civil Code, if they includes all of the following four elements of insurance.
- An agreement
- An obligation to pay one or more premium amounts
- A commitment to provide a benefit
- Uncertainty about premium payments or the benefit
If these four criteria apply and the provider of the product or service provides it on a commercial basis and for its own account, the warranty qualifies as insurance and the provider pursues the business of an insurer.
Whether or not service contracts qualify as insurance depends crucially on whether there is uncertainty involved as to the benefit provided. At the time the agreement is entered into, there must be uncertainty as to whether, when or how frequently the provider of the service or product will be obliged to provide the benefit.
Example – In the case of a regular maintenance service contract, for instance, repairs are related to damage caused by normal wear and tear or regular use. This means there is no uncertainty as to whether, when or how frequently the service must be provided. Examples include oil changes for cars at predetermined regular mileage intervals or annual central heating service contracts. Such cases do not qualify as insurance.
Example – A service contract may also cover the repair of damage from causes other than normal wear and tear. This involves uncertainty about the performance of services, i.e. when and how often. Such cases qualify as insurance, provided that the other criteria are met.
Example – Service contracts may be limited to the provision of administrative services in the event of “damage”. This means the "uncertainty" criterion is met, as the timing and frequency of the services are uncertain. However, the service involved is not regarded as an "obligation to provide a benefit", given that it is of an administrative nature only. Such cases do not qualify as insurance.
Example – Service contracts may also provide for representation of a customer's interests in the event of "damage". For example, an insurance intermediary discusses the extent of the cover or the amount of damage with the insurer on behalf of the customer holding the service contract. The timing and frequency of the services involved are then uncertain, and the services also go beyond mere administrative services. Such cases qualify as insurance, provided that the other two criteria are met.
How to avoid qualification of a service contract as insurance
This may be illustrated by the service contracts that financial intermediaries use. Intermediaries wanting to offer service contracts without qualifying as non-life insurers must ensure that their contracts do not meet all of the criteria listed above. This may be achieved in several ways. Here are some examples.
- Not meeting the "undertaking to provide a benefit" criterion
Intermediaries may choose to restrict the scope of the contract to administrative services only, so that there is no commitment to provide a benefit. These administrative services for instance include portfolio management services, or assistance in submitting insurance claims. Such actions must have marginal content-related significance.
- Not meeting the "uncertainty" criterion
Intermediaries may choose not to include services in the contract that ensue from circumstances unknown at the time. In the above example of the central heating service contract, this means that only the services specified in the contract may be provided on a periodic basis. For financial intermediaries this means that no services other than administrative services may be provided in respect of events whose occurrence were uncertain at the time of closing the contract.
Providing insurance on a commercial basis requires authorisation from DNB, but exemption from the authorisation requirement can be issued subject to specific conditions. DNB's supervision of insurers aims to protect the interests of the insured. If you are unsure whether your service contract qualifies as insurance, please feel free to contact us.
- Authorisation requirement under conduct supervision of financial undertakings
Even if you are not required to hold authorisation from DNB, you may need authorisation under Part 4 of the Wft on Conduct of Business Supervision. Please contact the Netherlands Authority for the Financial Markets (AFM) for more information.