This country-specific Q&A gives a pragmatic overview of the law and practice of insurance & reinsurance law in the Norway.
It addresses topics such as contract regulation, licensing, penalties, policyholder protection, alternative dispute resolution as well as personal insight and opinion as to the future of the insurance market over the next five years.
This Q&A is part of the global guide to Insurance & Reinsurance. For a full list of jurisdictional Insurance & Reinsurance Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/insurance-reinsurance
How is the writing of insurance contracts regulated in the jurisdiction?
The regulatory framework for writing insurance contracts in Norway is governed by the Insurance Contract Act (1989:69). The Insurance Contract Act establishes the fundamental principles of insurance contracts, and consists of three main parts:
- Section A, which regulates non-life insurance (including liability insurance);
- Section B, which regulates personal insurance (including life- and health insurance);
- Section C, which sets out certain common requirements relating to resolution of disputes, calculation of deadlines and the use of electronic communications.
Sections A and B are structured similarly, and contain in large part the same provisions, but with certain variations in section B due to the special nature of personal insurance contracts. Certain chapters are specific to each of the two sections, such as the chapter on liability insurance in section A and the chapter on the life insurance registry in section B.
The Insurance Contract Act applies to all insurance contracts governed by Norwegian law, other than guarantee insurance contracts and reinsurance contracts. As a rule, the provisions of the Act are mandatory, and many have been drafted to protect the policyholders from unfavorable and unreasonable terms. However, insurers can freely design their own products and determine their own terms and conditions for their policies, within certain outer limits.
The mandatory nature of the provisions does not apply in relation to business insurance covering large risks (where the policyholder meets certain criteria in relation to annual turnover, balance sheet and/or number of employees) and in certain specific trades, including shipping, aircraft insurance and the international transport of goods. In certain trades in which the Insurance Contract Act is not mandatory, specific agreed documents have been prepared by the insurers' and the policyholders' associations, most notably the Nordic Marine Insurance Plan which covers most aspects of marine insurance in the Nordic countries.
Are types of insurers regulated differently (i.e. life companies, reinsurers)?
All insurers (and reinsurers) in Norway are regulated in accordance with the Insurance Activity Act (2005:44) and the Financial Institutions Act (2015:17). With some minor exceptions they are all regulated in the same way. The Ministry of Finance and the Financial Supervisory Authority of Norway (FSAN) have granted minor exemptions from the regulations to some insurers on a case-by-case basis.
Foreign insurers operating in Norway on a cross-border basis or through a Norwegian branch mostly follow their home state requirements, except that all companies are subject to certain statutory Norwegian requirements, including, among other things, with respect to:
- Terms and conditions.
- Duties of disclosure towards policyholders.
- The keeping of accounts.
- Rights to profits accumulated in life insurance.
Are insurance brokers and other types of market intermediary subject to regulation?
Insurance mediation in Norway is governed by the Act on Insurance Mediation (2005:41), which is based on Directive 2002/92/EC on insurance mediation. The Insurance Mediation Act governs two kinds of insurance mediators, insurance brokers and insurance agents. Insurance brokers act as true brokers on behalf of the clients (policyholders) whereas insurance agents act for and on behalf of an insurance undertaking.
Insurance broking is subject to a soft licensing requirement in Norway. The main conditions are that:
- The company is established as a public/private limited company, general partnership, limited partnership or sole proprietorship.
- The company is not subject to bankruptcy proceedings or debt negotiations.
- The company has taken out statutory liability insurance.
- The person(s) being in charge for the insurance brokering activities are fit and proper to hold such position(s).
EEA-based and licensed insurance broker undertakings can provide the same activities in Norway through a branch or on a cross-border basis, subject to a notification procedure. There is also a limited possibility for non-EEA based insurance brokers to establish a branch in Norway, although to date this has not been used.
Insurance agent activities are not subject to license requirements but shall be registered in a publicly available register that shall be held by the principal insurance undertaking. Fit and proper requirements apply. The FSAN requires that insurance agents representing EEA-based insurance companies must be registered with the FSAN, not with the foreign insurance company, unless the insurance company's home state legislation itself requires that local insurance companies register their insurance agent with a publicly available register.
The Norwegian legislation regarding insurance intermediaries applies to direct insurance mediation as well as reinsurance mediation, save for certain disclosure requirements which do not apply for reinsurance intermediaries.
Is authorisation or a licence required and if so, how long does it take on average to obtain such permission?
Norwegian insurance legislation does not grant personal licenses and instead the insurance undertaking itself must be authorised. An insurance license is granted for one or more classes of insurance, as defined in the regulation on separation in insurance classes (based on Directive 73/239/EEC on direct insurance):
- Life insurance.
- Non-life insurance
- Guarantee insurance.
The Ministry of Finance grants authorizations to conduct insurance activities in Norway, with the FSAN as the preparatory body. An application must include:
- A business plan for the company's first three years of operation
- An overview of the insurances to be offered by the company.
- Details of the company's capital.
- A budget for establishment and administration expenses.
- Details of the principles to be applied for calculating premiums.
- Details for the plan regarding reinsurance arrangements.
- A forecast of financial position after three years' operation.
In practice, the FSAN requires far more detailed analyses from the applicant's side, not least with respect to solvency capital, capital adequacy, actuarial and organizational matters. The level of detail depends on the complexity of the applicant's planned product range, that is, if it will offer conventional insurance products or more complex products such as various longevity products, defined benefit products and so on.
The application must also be accompanied by particular documentation, including the company's articles of association, certified copies of the company's memorandum of association and minutes of the first general meeting.
Provided that the applicant provides all required documentation, the permission shall as a main rule be granted within 6 months.
An insurance license may be revoked in the event of certain irregularities, including irregularities relating to the company's management or if the company no longer has an adequate financial basis.
Insurance and reinsurance companies that are established in the EEA can operate in Norway on a right of establishment or freedom of services basis under the applicable EU insurance directives. Norwegian branches of such foreign companies can commence their activities two months after the FSAN has received a notification from the home state regulator of the foreign insurance company. An EEA-based insurer or reinsurer who wants to operate on a freedom of services basis can commence its activities in Norway once the company has received confirmation from its home state regulator that the latter has filed the notification of the insurer's intention of providing cross border activities in Norway with the FSAN.
Non-EEA based insurance/reinsurance companies can also establish a branch in Norway, provided that the FSAN has entered into an agreement on supervisory activities with the home state regulator of the foreign insurance company. Non-EEA based insurance/reinsurance companies must apply the Ministry of Finance for a license to conduct insurance activities, and cannot make use of a simplified notification procedure.
Are there restrictions over who owns or controls insurers (including restrictions on foreign ownership)?
An entity who wants to become owner of a qualified holding of an insurance company's shares or votes must obtain permission from the Ministry of Finance, pursuant to chapter 6 of the Financial Institutions Act. Qualified holdings are shareholdings that represent 10% or more of the insurance company's shares or votes, with further thresholds at 20%, 30% and 50 %.
The evaluation of whether permission shall be granted is based on a number of criteria, where an important factor is whether the entity is regarded as fit and proper to own such holdings (see also question 13 below).
Owners of a qualified holding, who want to reduce the holding, or reduce a qualified holding to a level below a threshold, must notify the FSAN in advance. If the sale will take place outside a regulated market (stock exchange), the FSAN must also receive specified information on the new owner of the shareholding.
There are no specific restrictions on foreign ownership under Norwegian law.
Is it possible to insure risks without a licence or authorisation? (i.e. on a non-admitted basis)?
Yes, provided that the insurer did not solicit the policyholder in the first place but was contacted by the policyholder or an entity acting for the policyholder, e.g. a broker.
What penalty is available for those who operate without appropriate permission?
The penalty stipulated in the Financial Institutions Act for violation of the permission requirements is fines or imprisonment of up to one year. A fine in accordance with the corporate penalty provisions may be set at a considerable amount viewed in light of the gravity of the relevant circumstances.
Stricter reactions on a personal level might apply dependent on an evaluation of the scope and extent of the illegal business, pursuant to regulations in the penal act.
The penal sanctions for intermediaries are similar to those for insurance providers, fines or imprisonment of up to one year. Corporate penalties may also apply.
How rigorous is the supervisory and enforcement environment?
The FSAN is generally active in its role as a market supervisor, working both proactively (by informing and educating insurance companies) and reactively by sanctioning unlawful behavior. The supervisory environment has become generally tougher following the implementation of the Solvency II-directive on 1 January 2016.
Withdrawal of insurance companies’ licenses is still very unusual in Norway, but several insurance intermediaries have had their authorisation withdrawn over the last few years due to i.e. unlawful sales methods and/or breach of the “fit and proper” requirements (see question 13).
How is the solvency of insurers (and reinsurers where relevant) supervised?
The regulatory framework for dealing with distressed or insolvent insurance or reinsurance companies is found in chapter 20 of the Financial Institutions Act. These regulations determine certain obligations for the board of directors and the CEO if the insurer enters into financial difficulties. If the directors and/or CEO become aware of such difficulties, they each have a personal responsibility to notify the FSAN, which may initiate further investigation based on this information. The FSAN can also initiate investigations without a notice, if it has reason to believe that the company's financial position is weak or threatened.
If this is the case, the FSAN consults the insurance company to determine the necessary measures to rectify the situation, if possible. The FSAN supervises the implementation of such measures and may order the company to wind-up its business if the management does not act accordingly. If the insurance company becomes insolvent, and the FSAN considers that the company cannot secure a financial basis for satisfactory operation, the Ministry of Finance must be informed immediately. This information to the Ministry shall include an assessment from the FSAN as to whether the institution should be placed under public administration.
The Ministry can then order the initiation of a public administration, which is announced at the earliest possible opportunity. An administration board is then appointed to draw up possible arrangements enabling continued operations of the institution's activities on a sufficient financial basis. This may imply that the insurer merges with, or transfers its activities to, another institution. If a restructuring scheme is not accomplishable, the administration board must prepare to wind-up the institution. As a rule, liquidation proceedings must be initiated if another arrangement is not in place within a year after the public administration was begun. On 17 February 2017 the Ministry of Finance put the Norwegian life insurer Silver Pensjonsforsikring AS under public administration as Silver did not comply with the capital requirements under Solvency II.
What are the minimum capital requirements?
The minimum capital requirements for Norwegian insurance companies follow from section 3-4 of the Financial Institutions Act, which is based on the Solvency II Directive (2009/138/EC). The minimum requirements are as follows:
- Life insurance companies: MEUR 3.7
- Non-life insurance companies: MEUR 2.5, or MEUR 3.7 in case the company is covering certain liability insurance products or credit or guarantee insurances
- Re-insurance companies: MEUR 3.6 (limited to MEUR 1.2 for companies which only covers risks on behalf of a limited number of clients as defined in its statutes)
In addition to the minimum capital requirements, more specific capital requirements are stipulated in chapter 14 (II) of the Financial Institutions Act.
Is there a policyholder protection scheme?
If a non-life insurance company becomes insolvent, the policyholders are protected by the non-life insurance companies' guarantee scheme, which is an independent legal entity established and financed by the non-life insurance companies which operates in Norway. Membership in the guarantee scheme is mandatory for all non-life insurance companies covering risks in Norway, including branches of foreign insurers. The guarantee scheme is only applicable to direct insurance contracts.
A guarantee scheme in relation to life insurance has not yet been established, although the Financial Institutions Act opens up the possibility of regulations in this regard.
How are groups supervised, if at all?
Groups of financial institutions, including insurance companies, are regulated pursuant to specific regulations in chapter 17 of the Financial Institutions Act. A financial institutions group may only be established subject to an authorisation from the FSAN, provided that the organisation of the group is in accordance with the regulations of chapter 17.
The FSAN supervises financial institution groups as part of its regular supervision mandate, and may issue an order to the effect that circumstances in contravention of the regulations shall cease. The FSAN may also, based on its discretion, impose a coercive fine on the group in case the unlawful circumstances have not been corrected within its stipulated deadline.
Do senior managers have to meet fit and proper requirements and/or be approved?
“Fit and proper" requirements apply to the CEO of an insurance company, to any other factual leader, and to the board of directors. In addition, owners of qualified holdings of the company's shares or votes must be fit and proper to own such holdings (see question 5).
“Fit and proper” requirements also apply to the CEO and any factual leader of an insurance intermediary, and for any broker or insurance agent who practices through an intermediary entity.
Are there restrictions on outsourcing parts of the business?
Yes, there are restrictions on outsourcing parts of the insurance business. These partly follow from the Financial Institutions Act, partly from the Financial Supervisory Authority Act of 1956. It is common for insurers to outsource parts of their services such as marketing, sales and claims handling. The core work in relation to underwriting and risk assessment may not be outsourced, as these services are strongly linked to the insurance companies’main obligations.
How are sales of insurance supervised or controlled?
Sale of insurance is regulated in the Insurance Contract Act, which determines relevant requirements in relation to disclosure etc. Cooling-off rights also apply to sales to consumers by telephone or online.
Marketing and sales activities are subject to relevant general legal requirements, such as unfair contract terms legislation under the Marketing Act. A part of the FSAN’s mandate is to ensure compliance with these requirements. The FSAN may issue an order to the effect that sales activities in contravention of the regulations shall cease. The FSAN may also, based on its discretion, impose a coercive fine on the insurer in case the unlawful circumstances have not been corrected within a stipulated deadline.
Are consumer policies subject to restrictions? If so, briefly describe the range of protections offered to consumer policyholders.
The Insurance Contract Act includes detailed regulations which determine relevant requirements in relation to non-disclosure and so on, which are mainly intended for consumer policyholders (see question 1, third paragraph). These requirements do however apply generally (with the exception of policies covering larger risks), and are therefore not of specific relevance to consumer policies.
Marketing and sales activities are also subject to relevant general legal requirements, such as unfair contract terms legislation under the Marketing Act. Cooling-off rights also apply to sales to consumers by telephone or online.
Are the courts adept at handling complex commercial claims?
Generally, Norwegian courts are considered adept at handling complex commercial claims. This may however vary based on geography and other factors. Most complex commercial disputes are handled by the district courts in Oslo, Bergen and Stavanger, which are all highly reputed courts. Choice of venue clauses are usually included in larger commercial contracts, entailing that a vast majority of such disputes are handled by the most reputable district courts (except the disputes which are handled through arbitration).
The parties are free to choose between arbitration or civil court proceedings, save of course that both parties must agree on arbitration (either when entering into the insurance agreement or after the insurance event took place). Arbitration clauses are frequently found in insurance of large risks (including marine insurance) and reinsurance. Arbitration clauses are not binding for consumer policyholders unless the arbitration clause itself is agreed after the insurance event took place.
Is alternative dispute resolution well established in the jurisdiction?
Yes, alternative dispute resolution is well established in Norway although most insurance and reinsurance claims and disputes are handled by the ordinary courts.
The Norwegian Financial Services Complaints Board, which is an out-of-court dispute resolution panel, may be elected to handle complaints in relation to non-life and life insurance in the first instance. The complainants in these cases are in most if not all cases the policyholder, the insured, or another beneficiary, and are typically consumers or smaller business enterprises. The panel's decision is not binding for the insurer if notice is given to the panel within 30 days that the insurer will not comply with the decision. The panel's decision is followed in most cases. If one of the parties disagrees with the panel’s decision, or if the panel refutes to decide on the matter due to a complicated evidence situation or similar reasons, the case may be tried before the ordinary courts.
What are the primary challenges to new market entrants?
The Norwegian insurance market is considered well-functioning and on paper there are no substantial challenges to new market entrants. The last few years have seen a number of new insurers establishing themselves in the market. The main challenge for new market players have traditionally been distribution. Most Norwegian insurance companies are bank-owned and these distribute their products through the bank office network, which traditionally has given them a huge advantage particularly in rural Norway. As more and more of the bank offices are being shut down and the more and more of the business is being transferred to the cloud, we have also seen a shift in distribution of insurances as well, which have made it easier for new players to penetrate the insurance market.
To what extent is the market being challenged by digital innovation?
The market is certainly being challenged by digital innovation. Retail and plain vanilla insurance products have been underwritten online for many years, and various price matching engines make it easier than ever to find the right price for a given plain vanilla product. As the development of computer software and hardware continue, we will likely see a similar trend for more sophisticated and complex insurance products.
Over the next five years what type of business do you see taking a market lead?
Since 2012 M&A Insurance products have become increasingly popular in the Norwegian market, both relating to real estate and industry related transactions. This insurance product is expected to continue to increase its footprint in the market over the coming years. Additionally, we foresee that different types of liability insurance products, especially directors and officers’ liability insurance, will become even more in demand, as a result of an increasing number of liability cases for directors and officers in Norwegian courts.