More and more companies structure their group health insurance so that the employee bears part of the premium: the company pays for the basic package, while the employee reimburses the difference for a higher level, or the cost of a family member joining, out of their salary. The question of whether the company is thereby crossing a regulatory line is raised less often: the Act on insurance activity (the Insurance Act, Bit.) also treats facilitating enrolment in a group contract as insurance distribution, and anyone who does this on a business basis may qualify as an insurance intermediary. The employee contribution, passing on the family-member premium and, in particular, charging a “handling fee” on top of the premium are all elements where it is worth knowing where the line lies.
- Under Section 4(1) point 123 of the Insurance Act (Bit.), insurance distribution is the business activity aimed at preparing and facilitating the conclusion of an insurance contract or joining a group insurance contract – the key to classification as an intermediary is whether the activity is carried out on a business basis.
- According to the January 2023 position statement of the MNB (Hungary's central bank and financial supervisor), the policyholder of a group insurance can also qualify as an insurance distributor, and the profit may also be an indirect economic advantage; at the same time, an employer taking out cover for its own employees is not necessarily an intermediary.
- In practice the line is drawn by profit: sharing or passing on the premium without a mark-up is assessed differently from a “handling fee” charged on top of the premium – it is worth clarifying your own scheme with the company's lawyer.
What does the Bit. call insurance distribution – and where does the group contract come in?
Section 4(1) point 123 of Act LXXXVIII of 2014 (Bit.) defines insurance distribution as a distribution activity carried out on a business basis, covering the preparation and facilitation of the conclusion of insurance contracts and of joining a group insurance contract – in particular by new insured persons – as well as advice, making offers and administering contracts. Under point 14 of the same subsection, insurance intermediary activity is the business activity carried out by an insurance intermediary that comprises insurance distribution, its organisation and independent insurance-intermediary advisory services. On the one hand, the Act treats as distribution not only the conclusion of individual contracts but also enrolling people in a group contract – in other words, who enrols the insured persons and on what terms is also a regulatory question. On the other hand, the key to the classification is the business basis: the rules in the Bit.'s chapter on intermediaries – registration, professional requirements, information duties – apply to those who carry out this activity regularly and with the aim of making a profit.
The MNB's position: when does the group policyholder “distribute” insurance?
In its position statement No. 24134-3/2023 dated 25 January 2023, the Magyar Nemzeti Bank (MNB, Hungary's central bank and financial supervisor) summarised the supervisor's considerations in connection with a group accident insurance scheme, and these are instructive for group health insurance too. According to the position statement, the distribution of group insurance must not aim to circumvent the rules of the Bit., and, referring to the 2022 amendment of the Insurance Act, it states that the policyholder of a group insurance can also qualify as an insurance distributor. On the question of profit, the MNB takes a broad view: an intention to make a profit can be established not only where there is direct, financial consideration, but also where the aim is an indirect economic advantage – for example, where the group contract makes the insured persons accessible for the sale of other products or for customer retention. At the same time, the position statement also states that not every group policyholder necessarily qualifies as an intermediary: the example given is precisely the employer that takes out insurance automatically extending to its employees. The MNB weighs the circumstances as a whole, focusing on the client's interest and the possibility of harm to that interest; anyone whose operation meets the criteria of insurance distribution must comply with the related requirements. The MNB's earlier supervisory position pointed in the same direction: according to it, enrolling insured persons on a business basis – in return for a fee or an indirect economic advantage – may qualify as insurance intermediation. The position statement is not binding and does not replace a legal review of your own scheme.
The practical line: employee contribution, family members, handling fee
In a group contract for its own employees, the employer acts as the policyholder: its insurable interest lies in the health and capacity to work of its employees, joining is linked to the employment relationship, and the company bears the premium as a cost – this is the classic situation in which, according to the supervisor too, there is no question of intermediation. The question arises when the company passes part or all of the premium on to the insured person. As brokers, we see three typical schemes existing side by side, and they are not assessed in the same way.
- Employee contribution to their own package. The company pays for the basic level, and the employee reimburses the difference for a higher level, or a portion of the premium, out of their net pay. If the company deducts exactly as much as it transfers to the insurer, makes no profit on it, and joining is tied to the employment relationship, the scheme is a sharing of the premium, not distribution – even so, the legal assessment is worth clarifying with the company's lawyer.
- Passing on the family-member premium. Schemes typically have the employee pay the premium for adding a spouse or child, through the company's accounts; for this, insurers typically provide their own enrolment declaration and information sheet. The key is the same: the company passes on the premium set by the insurer, without any mark-up of its own. The tax side – an increased tax base or reimbursement by the employee – is discussed in a separate article of ours, and the process of adding family members in our article on including family members.
- “Handling fee”, mark-up, administration fee. If the company charges the joining employee or family member any amount on top of the insurer's premium – even if it cites its own administration – then, following the logic of the Bit. and the MNB, the scheme moves towards a business activity: profit appears, and with it the question of whether the company is carrying out insurance distribution without registration. As brokers, we do not recommend this solution; if it does come up, only after a legal review.
An indirect economic advantage rarely comes up with an employer, but it cannot be ruled out: if the company also opens the group contract to customers of its own products or services, to a membership programme or to its business partners, and gains a customer-retention or sales advantage from this, then under the MNB's criteria this is no longer the classic employer situation. Membership-based group solutions without an employer are covered in a separate article of ours.
Insurable interest: why it matters who the policyholder is
The MNB's position statement also draws attention to a second, civil-law risk, referring to Section 6:440 of the Hungarian Civil Code (Ptk.): an indemnity insurance contract or a group fixed-sum insurance contract concluded without an insurable interest is null and void, irrespective of the insured person's consent. The employer has an insurable interest in the health of its own employees – this is the basis of group health insurance. The further the group of insured persons moves away from the employment relationship (family members, external partners, customers), the more it is for the insurer and the company's lawyer to clarify whether the policyholder has an insurable interest, or whether the conditions establish the insured-person relationship on another basis. The supervisor regards this question not as falling within its own remit but as the responsibility of the parties – in other words, the risk stays with the company.
A tax side effect: the employee contribution and the undivided premium
The employee contribution may also have tax consequences, which are worth thinking through together with the regulatory question. Under a genuine group contract with an undivided premium – where the part attributable to one insured person cannot be determined even proportionally – the premium borne by the company is taxed as a so-called “specific defined benefit” (egyes meghatározott juttatás), and the tax burden falls on the company (Personal Income Tax Act (Szja tv.) Section 3 point 89 b) bb), Section 70(6) b)); the calculation is set out in our article on the 33.04%. If, however, the scheme sets the premium attributable to the employee individually – and this is often exactly what is needed to calculate the employee contribution – the premium may be the employee's employment income and is taxed as wages. The employee contribution therefore raises not only a regulatory but also a tax question: whether the undivided character of the premium is preserved, and how the part reimbursed by the employee should be booked – the specific accounting is worth clarifying with your accountant.
What should HR do?
First: record in the benefits policy that the employee contribution is a sharing of the premium – the amount deducted equals the premium transferred to the insurer, and the company charges neither a mark-up nor a handling fee. Second: the Labour Code (Mt.) strictly restricts deductions from wages, so it is advisable to obtain the employee's written consent to the contribution and to show the legal basis of the deduction on the payslip as well. Third: according to the MNB's position statement, if the premium is passed on to the insured persons, it is justified to give those concerned detailed written information that precisely specifies the amount of the premium and the method of payment – so for joining and for adding family members, use the insurer's declarations and information sheets, not your own “sales” material. Fourth: if you wish to extend the group to anyone beyond your employees, first a legal review, and only within a scheme designed by the insurer for this purpose. Fifth: the information and record-keeping tasks are listed in our article on employer obligations. If you get in touch about the scheme you are planning, we help where we can – the legal classification, however, is for the company's lawyer to give.
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Sources
- Act LXXXVIII of 2014 on insurance activity (Insurance Act, Bit.) – Section 4(1) point 14 (insurance intermediary activity) and point 123 (insurance distribution, joining a group contract)
- MNB (Hungary's central bank and financial supervisor) position statement 24134-3/2023 (25 January 2023) – Distribution of a group accident insurance product by an independent insurance intermediary (the group policyholder as insurance distributor, indirect economic advantage, the example of the employer, insurable interest under Ptk. Section 6:440, information when the premium is passed on)
- Act V of 2013 (Hungarian Civil Code, Ptk.) – Section 6:440 (insurable interest; nullity of a group fixed-sum insurance contract in the absence of an insurable interest)
- Act CXVII of 1995 (Personal Income Tax Act, Szja tv.) – Section 3 point 89 b) bb), Section 70(6) b) (group insurance premium, proportional allocation, specific defined benefit)
- Act I of 2012 on the Labour Code (Mt.) – rules on deductions from wages (protection of wages)
