Spain: Insurance & Reinsurance

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This country-specific Q&A gives a pragmatic overview of the law and practice of insurance & reinsurance law in Spain.

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

  1. How is the writing of insurance contracts regulated in the jurisdiction?

    The writing of insurance in Spain is regulated by various Acts of Parliament: (i) the Ordination
    Supervision and Solvency of Insurance and Reinsurance Companies Act 2015 regulates the
    activity of insurers and reinsurers and also certain aspects of the insurance contract; (ii) the
    Insurance contracts are regulated in the Insurance Contract Act 1980, which is mandatory for all insurance contracts with few exceptions; and (iii) the Insurance and Reinsurance Mediation Act 2006 regulates the activities of insurance brokers, agents and bank-assurance operators.

    Insurers writing business in Spain are not under the duty to register its policies with any registry nor to obtain the approval of the General Directorate of Insurance. In this respect, the Ordination Supervision and Solvency of Insurance and Reinsurance Companies Act 2015 provides that all insurance entities shall keep records of policies, premiums tariffs and technical bases in its registered office. However, the General Directorate of Insurance) is entitled to demand submission of this documentation at any time in order to check whether they are in compliance with the Spanish law.

    On a separate issue, the Spanish Insurance Contract Act 1980 provides that the general
    conditions and the schedule of the policy must be drafted in clear and precise terms.

    In addition, pursuant to the Ordination Supervision and Solvency of Insurance and Reinsurance Companies Act 2015, insurers are obliged to provide policyholders with certain pre-contractual information in relation to terms of the prospective policy, details of the insurer, details of the regulator supervising the insurer, internal and external instances to bring claims and complaints, applicable laws and competent jurisdiction, etc.

  2. Are types of insurers regulated differently (i.e. life companies, reinsurers)?

    The Ordination Supervision and Solvency of Insurance and Reinsurance Companies Act 2015
    regulates insurers and reinsurers. Insurers and reinsurers are to be registered with the General Directorate of Insurance.

    The Act provides for the following type of insurer formats: a) limited company, b) European
    limited company, c) mutual insurance company, d) cooperative, e) European cooperative, d)
    welfare mutual insurance company. The Act establishes specific provisions and rules mutual
    insurance companies, cooperatives and welfare mutual insurance companies.

    Reinsurers are also regulated by the Act 2015. This provides that reinsurers shall adopt the form of a limited company or a European limited company.

    If it further stated that insurance and reinsurance business may also be written by any public
    entity aimed at conducting the said insurance and reinsurance in conditions equal to the
    conditions applicable to private insurers and reinsurers.

  3. Are insurance brokers and other types of market intermediary subject to regulation?

    Yes. Insurance intermediaries are regulated in the Insurance and Reinsurance Mediation Act
    2006, which generally regulates insurance mediation activities of insurance brokers, agents
    bank-assurance operators, as well as those of "external collaborators" (third parties other than intermediaries assisting the latter in the distribution of insurance products).

    It should be noted that, in Spain, there are basically two types of insurance intermediaries
    (insurance agents –which includes bank-assurance operators- and insurance brokers). Whilst
    agents are linked to the insurer (to which they represent) through the agency contract, brokers are independent and cannot enter into contracts with Insurers which may hinder such obligation of independency.

    The law mentioned before regulates access requirements (training, knowledge and skill, financial and other requirements) for intermediaries (brokers and agents) to be licensed/registerd in Spain and their mediation activities (both for local and EU intermediaries operating in Spain).

  4. Is authorisation or a licence required and if so, how long does it take on average to obtain such permission?

    Yes. Basically, there three options for an insurer to write business in Spain, which are:

    • Setting up a Spanish limited company, i.e. the full incorporation of a new Spanish company. This means the need to comply with all the legal and capacity requirements in accordance with the Spanish Law, not only from the insurance but also from the corporate point of view. Once the Spanish company is fully incorporated, the Ministry of Economic must grant the license to write insurance business in Spain.
    • Setting up a branch of a EU insurance company. Under the relevant EU Directives, this is the freedom of establishment. Opening a branch means that tan EU Insurer has a permanent presence in Spain. The branch shares the legal personality of the Insurer, its assets and structure. Even, the directors of the Insurer are the directors of the branch. This requires the filing of an application with the regulator of the member State and a procedure of notification from the regulator of the member State to the Spanish regulator, rather than approval by the Spanish regulator.
    • Writing business from EU insurance company on freedom of services basis, which means the direct writing of insurance in Spain from a EU member state without any permanent presence in Spain. This also requires an application with the regulator of the member State and a procedure of notification from the regulator of the member State to the Spanish regulator, rather than approval by the Spanish regulator.

    With regards to timelines to get the relevant license/authorization, please note that if a
    local/Spanish entity applies for a new license (in which case the law provides for a 6 month term – but experience tells it can take more- for the Spanish Insurance Regulator to issue a resolution as from the date when the application and documents required was submitted). In case of EU companies operating either on a FOE or FOS basis in Spain, this is a formality to be dealt with by the company with its Home State Regulator (single license principle) and, in our experience, registration in Spain is normally granted within one month as from the date when such application was first submitted.

  5. Are there restrictions over who owns or controls insurers (including restrictions on foreign ownership)?

    The Ordination Supervision and Solvency of Insurance and Reinsurance Companies Act 2015
    requires that the directors and officers of insurance and reinsurance companies and of the parent of insurance or reinsurance groups shall have a recognized commercial and professional reputation and be in possession of adequate knowledge and experience for a healthy and prudent management of the company.

    Further, in respect of shareholders, the Act states that the individuals or companies that directly or indirectly have a relevant participation in an insurer or reinsurer shall be adequate, so that the management of this be healthy and prudent.

  6. Is it possible to insure risks without a licence or authorisation? (i.e. on a non-admitted basis)?

    No.

  7. What penalty is available for those who operate without appropriate permission?

    The Ordination Supervision and Solvency of Insurance and Reinsurance Companies Act 2015
    provides that insurance contracts entered into by a non-admitted insurer, or beyond the scope of the licence granted, shall be null and void, and that in these cases the policyholder shall not be required to pay the premium. It is further provided that if the premium was paid, the policyholder shall be entitled to the refund of the same, but if a loss covered under the policy takes place before the premium is refunded, the insurers shall be bound to pay the relevant indemnity and any damages which could have caused. The senior management of the insurer shall be jointly and severally liable for this debt.

    In addition, writing insurance without appropriate licence may amount to a very serious
    regulatory infringement under the Act 2015, and the following sanctions may be imposed: a)
    cancelation of the licence, suspension of the licence for a period ranging between 5 and 10 years; a fine for an amount up to 1% of the turnover of the company.

  8. How rigorous is the supervisory and enforcement environment?

    This has to be checked on a case by case basis but, generally speaking:

    • For non-admitted insurers the Spanish regulator has been very rigorous in the
      application of the relevant measures/penalties.
    • For local / Spanish and EU insurers operating in Spain, penalties are imposed taking
      into account the type of infringement concerned, such as the continuous nature of the
      infringement and existence of previous requirements / warnings from regulators, the
      degree of intention, whether this or other infringement was committed in the past, the
      extent of the loss or damage caused and number of policyholders affected, etc. Also, in
      case of EU insurers, the law provides that, before imposing any penalty, the Spanish.

    Regulator would have, among other issues, to notify the Insurance supervisory and
    regulatory authority of the home Member State in the EU so that this authority may
    adopt the necessary measures to have insurer rectifying its conduct.

  9. How is the solvency of insurers (and reinsurers where relevant) supervised?

    As regulated by the Ordination Supervision and Solvency of Insurance and Reinsurance
    Companies Act 2015 and its developing regulation (Royal Decree 1060/2015), solvency
    of local/Spanish insurers (and reinsurers) is mainly supervised through:

    • The regular submission of the relevant information (i.e. mainly accounting, financial
      and other statistics) within the periodicity, format, and content set out by law. This
      said, the Spanish regulator is also entitled to demand submission of any such
      information to local entities at any time.
    • In addition, supervision is made through inspections by the Spanish Insurance
      Regulator, following a specific procedure set out by law where, for instance, the
      entity under inspection is able to submit allegations/clarifications to the regulator.
  10. What are the minimum capital requirements?

    In terms of shareholding capital, the Act 2015 requires the following minimum ones depending on the class of business: € 9,015,000 for life, surety, credit, liability and reinsurance; € 2,103,000 for accident, illness, legal expenses, assistance and funeral insurance; € 3,005,000 for the rest of classes.

    In addition, the Act 2015 provides that insurers and reinsurers shall have net equity sufficient to cover the minimum required capital, which shall be the amount of admissible basic equity under which policyholders and beneficiaries would be exposed to an unacceptable level of risk. The Act 2015 establishes certain parameters in order to calculate the minimum required capital, and states that such minimum required capital shall not be lower than 25% of nor higher than 45% of the required solvency capital, subject to the following absolute minimum: € 2,500,000 for insurers, including captives, writing non-life except for liability, surety and credit where the minimum shall be € 3,700,000; € 3,700,000 for insurers, including captives, writing life insurance; €3,600,000 for reinsurers, except for captives, in which case the minimum shall be €1,200,000. The minimum required for insurers writing life and non-life insurance shall be addition of the abovementioned required capitals.

  11. Is there a policyholder protection scheme?

    Yes. The Consorcio de Compensación de Seguros (CCS) is a public insurance company
    belonging to the Spanish Ministry of the Economy, Industry and Competitiveness.

    In respect of the so called “extaordinary risks” (natural disasters, terrorism, etc), the purpose of CCS is to indemnify, by way of compensation and on the basis of a policy taken out with any private insurer, for losses caused by extraordinary events that occur in Spain and cause personal injury or property damage within Spanish territory.

    Further, the Ordination Supervision and Solvency of Insurance and Reinsurance Companies Act 2015 assigned CCS the function of supporting the General Directorate of Insurance where it orders special measures for insurance companies in case of solvency issues. The CCS will be a key player in the liquidation of insurance companies. It may act as liquidator in administrative proceedings, or it may act as insolvency administrator in insolvency proceedings of an insurer. In these cases, the CCS may agree the acquisition of the credits related to the insurance policies by paying the insureds the relevant indemnities. In other words, the CCS will indemnify losses under the policies issued by the insolvent insurer.

  12. How are groups supervised, if at all?

    The Ordination Supervision and Solvency of Insurance and Reinsurance Companies Act 2015
    establishes that groups formed by the following will be subject to supervision: (i) insurers or
    reinsurers which participate in at least an insurer or a reinsurer, even of a third country; (ii)
    insurers or reinsurers whose parent is an insurance holding company or a mixed financial holding company domiciled in the EU or in a third country.

    The Act 2015 provides that the Spanish General Directorate of Insurance shall be competent to supervise the entire group when all the entities of the group are domiciled in Spain and also in other cases such as where the head of the group in an insurance or reinsurance undertaking domiciled in Spain. In these cases, the Spanish General Directorate of Insurance shall have the following faculties and powers: coordination of the gathering and publication of information in relation to normal and emergency situations; supervision and assessment of the financial solvency of the group; supervision of compliance with solvency regulations; supervision of the corporate governance systems; etc. It is further stated that the General Directorate of Insurance shall have access to all the information required to conduct the supervision of the group and will be competent to inspect the entities forming the group.

  13. Do senior managers have to meet fit and proper requirements and/or be approved?

    The Ordination Supervision and Solvency of Insurance and Reinsurance Companies Act 2015
    requires that the directors and officers of insurance and reinsurance companies and of the parent of insurance or reinsurance groups shall have a recognized commercial and professional reputation and be in possession of adequate knowledge and experience for a healthy and prudent management of the company.

  14. Are there restrictions on outsourcing parts of the business?

    The Ordination Supervision and Solvency of Insurance and Reinsurance Companies Act 2015
    states that insurers or reinsurers may externalize relevant functions or operative activities except if this sensibly impairs the quality of corporate governance or unduly increases the operational risk, limits the insurance regulator’s ability to supervise the company or interferes with the service offered to policyholders. It is also stated that with a view to avoid such negative effects, an employee of the insurance company with sufficient knowledge and experience shall be appointed to monitor the performance of the service providers. The insurer is required to notify in advance to the General Directorate of Insurance the outsourcing of critical functions or activities and the regulator may object.

  15. How are sales of insurance supervised or controlled?

    The General Directorate of Insurance is in charge of control and supervision of insurance sales. To this end, the regulator conducts routine inspection on insurers to verify that insurers follow and comply with the required market practices.

    This would apply not only to local/Spanish insurers but also to EU insurers operating in Spain on a FOE/FOS basis, as they must comply with market conduct rules set out by Spanish law and, more generally, with Spanish General Good Provision; and the Spanish General Directorate of Insurance will be competent to inspect / supervise compliance with these market practices.

    The Spanish General Directorate of Insurance will also deal with customer claims and
    complaints addressed to the so called "Claims Service" where customers can bring claims and complaints which were previously rejected or not dealt with within the relevant period (i.e. 2 months) by the Customer Service/Department of the insurance company. From our experience, one of the main reasons why a Spanish regulator decides to conduct an inspection or focus on a product, distribution chain or insurer is when there is a significantly increased or large number of claims and/or complaints.

  16. Are consumer policies subject to restrictions? If so, briefly describe the range of protections offered to consumer policyholders.

    Except for large risk insurances, the provisions of the Insurance Contract Act 1980 are mandatory and shall prevail over the policy terms and conditions unless these are more favourable to the insured. The Act is considered as protective of the insured’s rights. Some of the protections offered to consumer policyholders are the following.

    Under the Spanish Insurance Contracts Act, the clauses which limit the rights of the insured have no effect whatsoever if they have not been properly highlighted and specifically accepted in writing. A general form of acceptance by signature at the end of the contract may not suffice. These rules are not mere formalities. They are an absolute requirement in Spanish Law.

    The only competent court to hear an action under the policy is the court of the domicile of the insured, and any agreement to the contrary shall be null and void.

    The insurer is obliged to pay over the indemnity on completion of the investigations and
    adjustments necessary to establish the existence of the loss. However, in the event it is not
    possible to complete the adjustment quickly, the Insurer is still obliged to make, within forty
    days from receipt of notification, an interim payment of the minimum sum which is likely to be due, according to the information available at the time.In addition to this, and in any event, if the Insurer fails to pay the indemnity within 3 months as from the date of the loss or fails to make an interim payment within 40 days, the Court will impose penalty interest equal to one and a half times the legal interest rate. This will be calculated on a daily basis. However, if two years have elapsed since the date of the loss without payment having been made, the annual penalty interest rate rises to at least 20%. The penalty interest also applies in favour of the prejudiced third party in civil liability insurance.

  17. Are the courts adept at handling complex commercial claims?

    Insurance coverage disputes are heard by civil courts. Civil courts hear a wide range of disputes
    and are not particularly experience in insurance commercial issues.

  18. Is alternative dispute resolution well established in the jurisdiction?

    The Mediation in Civil and Commercial Matters Act 2012 entered into force in July 2012. The
    Mediation Act incorporates the European Union Directive 2008/52/EC into Spanish law and
    establishes a general regulation for mediation. The Act provides that the general principle that mediation is voluntary. If there is a mediation clause in the contract, parties must attempt to mediate in good faith, but none of the parties are obliged to continue with the mediation or to reach a settlement. Meditation is recognised by the Ordination Supervision and Solvency of Insurance and Reinsurance Companies Act 2015 as one of the systems for dispute resolution, but it is not common so far.

  19. What are the primary challenges to new market entrants?

    From a commercial point of view, the excess of capacity is the main challenge.

    From the legal point of view, it is essential to become aware of the Spanish insurance
    regulations, which may differ from the regulations of other countries. Conducting business in
    Spain exactly in the same manner as in other counties may be a fatal mistake.

  20. To what extent is the market being challenged by digital innovation?

    In our view, this challenge applies the same way in Spain than in any other country. Insurers
    must be prepared to adapt to new distribution channels (mainly internet) so that sales of their
    products (including traditional products) can be concluded through the new channels. Players
    that cannot invest on developing this may lose substantial business opportunities.

  21. Over the next five years what type of business do you see taking a market lead?

    As in many other jurisdictions, cyber is expected to be the new source of business.