How is the writing of insurance contracts regulated in the jurisdiction?
Insurance & Reinsurance
The Financial Services and Markets Act 2000 (FSMA) establishes a system for the regulation of various ‘regulated activities’, as set out in the Financial Services and Markets Act 2000 (Regulated Activities Order) 2001. Underwriting and claims handling, included on the list of regulated activities as ‘effecting’ and ‘carrying out’ contracts of insurance, both require authorisation. Permission for authorisation is granted by the two UK financial market regulators under a ‘twin peaks’ approach. The Prudential Regulation Authority (PRA) manages the applications of insurers and reviews applicants for financial soundness, while the Financial Conduct Authority (FCA) reviews the applicant from the perspective of conduct of business risks. Before permission is granted, the applicant must meet various ‘threshold conditions’ for authorisation set by both the PRA and FCA. Permission is granted under Part 4A of FSMA.
The PRA supervises insurers to protect the interests of policyholders and the wider financial system in the UK and seeks to ensure that insurers have sufficient capital to meet liabilities. The PRA also requires insurers have certain individuals approved to take up positions on the board and in senior management. The FCA seeks to ensure that products meet customer expectations, policy terms are fair, claims are paid promptly and pre- and post-contractual information is clear, fair and not misleading.
Freedom of contract is part of the foundation of Swedish contract and insurance contract law, meaning that two parties are free to enter a contract of their own wording, without interference from the legislator. However, there are numerous exceptions to this rule; especially so within the field of insurance law. Generally speaking, though, exceptions target the parties’ general obligations towards each other, and does not interfere with the insurers’ right to construct insurance products, which follows from the product freedom principle.
As often is the case, the regulation targeting consumer relationships is the most strongly biased towards using mandatory law and control over policy wordings; one notable exception to the freedom of contract principle is the insurers’ duty to accept consumer insurance and personal insurance contracts. Even if freedom of contract is stronger in commercial insurance relationships, numerous exceptions, such as mandatory law requiring the policyholder to provide certain information to the insurer or mandatory law preventing insurers from precluding indemnification except for certain situations, still apply.
Freedom of contract and product freedom aside, insurance contracts are regulated in the Insurance Contracts Act (SFS 2005:104), unless they are deemed null because they, for example, cover a non-insurable interest, such as a criminal act. In contrast, there is no specific law that regulates the content of reinsurance contracts, which instead falls under the more general Contracts Act (SFS 1915:218) and other general principles of Swedish contract law.
Following the product freedom principle, insurers are free to construct insurance products without the legislator’s interference, unless such interference is necessary to protect a special social concern. This means that there are no prohibitions on coverage, except those regarding illegal interests, and that there, for example, are no minimum coverage provisions in the Insurance Contracts Act, though there are specific mandatory insurances that are governed by special legislation, such as patient insurance and motor vehicle liability insurance. However, in practice, insurers usually mirror the wording of the Insurance Contracts Act, since the said act will apply instead of any contractual provisions that are less favourable to the insured than those of the said act.
The insurance and reinsurance activities of insurance (and reinsurance) undertakings headquartered in Germany, e.g. underwriting and claims handling, are mainly regulated by the German Insurance Supervisory Act (VAG), which contains provisions for, among other things, the licensing, continuous supervision and solvency capital and competency requirements for insurance providers.
Insurance and reinsurance undertakings headquartered in Germany as well as the German branch of a third country insurer or reinsurer are supervised by the German Federal Financial Supervisory Authority (BaFin). Insurance or reinsurance undertakings, which have their registered office in another EU or EEA member state and which conduct business in Germany under the freedom to provide services are primarily subject to supervision by their home country regulator. But BaFin may identify breaches of German mandatory (general good) provisions and take certain regulatory actions in consultation with the home state regulator, for example with regard to market conduct.
Against the background of the implementation of the Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II Directive) in German law, the VAG has been amended with effect from 1 January 2016. The provisions of the VAG have to be construed in accordance with the Solvency II Directive. Furthermore, the provisions of the Commission Delegated Regulation (EU) 2015/35 supplementing the Solvency II Directive are applicable directly in Germany.
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.
Mexican insurance contracts are governed by the Insurance Contract Law (“LCS”). The LCS applies to all insurance contracts, except for maritime insurance governed by the Navigation and Maritime Commerce Law (“LNCM”) published in the Official Gazette of the Federation (Diario Oficial de la Federación) (“DOF”) on 1 June 2006.
The insurance contract is formed through the consent of the parties. According to Article 21.1 of the LCS the insurance contract comes into effect when the insured receives a confirmation that the insurance company accepted his request for insurance coverage, regardless of whether any written evidence such as an insurance policy or certificate is issued. The effectiveness of an insurance contract may not be subject to the condition that the respective insurance policy or any other document evidencing its acceptance is issued nor to the condition that the respective premium is paid.
Compared to many mature markets, the regulation of specific policy language in the UAE is somewhat limited. Firstly, it must be understood that the UAE is a federal entity, with both a central government, and the governments of the several Emirates that comprise the UAE, exercising concurrent regulatory authority. Additionally, there are various “free zones” in the UAE that operate pursuant to different laws, with the discussion regarding such beginning under Query 3.
Insurance Law in “onshore” UAE – that being the UAE exclusive of certain free zones - is primarily regulated pursuant to UAE Federal Law No. 6 of 2007, known and referred to as the Insurance Law, but greater specifics of the differing classes of insurance and required contractual language are found in Insurance Authority (hereinafter, the “IA”) Resolution No 2 of 2009 and Resolution No. 3 of 2010.
Resolution No. 2 of 2009 establishes, among other things, the different classes of insurance cover that may be offered, and specify which classes are denominated as life insurance and fund accumulation operations on one hand, and property and liability insurance on the other.
Resolution No. 3 of 2010 sets forth requirements as to clarity of language, terms, policy period, and any exclusionary clauses. All policies must be drafted in the Arabic language, although an insurer may provide translations into other languages; however, the Arabic text will prevail in the case of any inconsistency. All insurance policies issued in the UAE must also be first submitted to the IA, who has the discretion to refuse to permit such to go to market, as per both Article 38 of the Insurance Law and Article 11 of Resolution No. 3 of 2010.
Certain lines of business, however, such as motor insurance, have greater levels of required specificity as to the extent of cover and allowable rates set forth by the IA from time to time. Note that health insurance is mandatory in both Abu Dhabi and Dubai, and these Emirates each have separate governmental health authorities that also strictly regulate the contents and set mandatory elements of included care provided under the health cover issued within those Emirates. These agencies are the Health Authority of Abu Dhabi (HAAD) and Dubai Health Authority (DHA).
The insurance business in the United States is regulated primarily by each of the 50 states, the District of Columbia and Puerto Rico. There are federal laws that apply to insurance and annuities that are part of federally covered retirement plans, and the federal securities laws (in addition to state insurance laws) regulate variable insurance and annuity products. Virtually all other aspects of insurance – including formation and licensing, solvency requirements, approving the contents of insurance contracts, setting or approving insurance rates and responding to consumer complaints – are regulated by the individual states. The state-based system of insurance regulation has been in place in the U.S. since the 1800s and was strengthened in 1945 with the enactment of the McCarran-Ferguson Act, which expressly provides that the business of insurance is to be regulated by the states and exempts the business of insurance from many federal laws (subject to exceptions).
The chief insurance regulator in each state, called a commissioner, director or superintendent, leads the state agency responsible for insurance regulation, which is often called an insurance department. Most commissioners are appointed by the governor of the state, but many are elected.
U.S. insurers are primarily regulated by the insurance department in their state of domicile. However, insurers must also be licensed in all states where they sell their products and are also subject to some laws and regulations in those states as well. State laws govern the permissible kinds of insurance contracts that may be offered in the state, the contents of policy forms and, for certain insurance contracts, the rates that may be charged. State insurance laws also regulate insurer solvency and reserving requirements, financial reporting and corporate governance, insurer sales practices, liquidation and rehabilitation of insolvent or impaired insurers, and licensing and educational requirements for agents, brokers and others who interact with insurers and consumers.
State insurance commissioners regularly meet through the National Association of Insurance Commissioners (NAIC) to develop model laws and regulations. The NAIC is not a regulator and the models it develops are not binding unless enacted or adopted by a state. The NAIC produces publications that contain standards (e.g., statutory accounting principles) that are incorporated by reference in state laws or regulations.
The regulation of insurance by the states is primarily focused on the legal entity (the insurer) that is incorporated and/or licensed in such state rather than the group or holding company system as a whole. Although certain state insurance laws authorize the insurance regulator to seek information from, and approve transactions with, non-insurer affiliates, they generally do not provide insurance regulators with the same broad oversight powers with respect to non-insurer members of an insurance group.
The writing of insurance contracts is regulated by the Insurance Contract Act (Versicherungsvertragsgesetz; VersVG), which governs the rights and duties of both the insurer and the insured. The general sections of the VersVG are set out in Articles 1 to 49 and cover every type of insurance contract. In addition, the VersVG sets out specific rules for different insurance branches such as indemnity insurance, fire insurance, personal liability insurance, legal protection insurance, life insurance, private health insurance and casualty insurance. Maritime insurance and reinsurance contracts are explicitly excluded by the scope of application of the VersVG.
However, the VersVG does not regulate every single aspect of insurance contracts. Rather, it is supplemented by the provisions of the Austrian Civil Code (Allgemeines Bürgerliches Gesetzbuch; ABGB). Matters such as conclusion, transferability, conversion and termination of contracts are (partly) regulated by the ABGB. When insuring consumers, certain provisions of the Consumer Protection Act (Konsumentenschutzgesetz; KSchG) have to be borne in mind as well. Moreover, special laws for certain types of insurance contracts exist, as is the case with motor third party liability insurance (Kraftfahrzeug-Haftpflichtversicherungsgesetz; KHVG).
In addition, certain provisions of the Insurance Supervision Act (Versicherungsaufsichtsgesetz; VAG) may be of relevance when writing an insurance contract, e.g. the insurer’s information obligations towards the insured.
The underwriting (and commercialisation) of insurance and reinsurance policies in Chile is mainly regulated by the Code of Commerce and Decree with Force of Law Nr. 251 [Insurance Act], which are both complemented by administrative regulations issued by the Chilean Insurance Regulator, the Superintendencia de Valores y Seguros, the [Insurance Regulator]. All such regulations set forth that the writing of insurance contracts may only be carried out by local insurance companies and brokers, duly registered and authorised by the Insurance Regulator.
Insurance contracts are consensual, and can only be contracted: (a) directly with authorised insurance companies; (b) through insurance companies’ sales agents; or (c) via independent insurance brokers. Foreign insurance companies willing to commercialise insurance policies in Chile are required to incorporate an insurance company or agency in Chile. Such incorporation is subject to the Insurance Regulator prior authorisation, process in which compliance of the relevant laws and regulations applicable to Chilean insurance companies must be evidenced.
As a general rule, the general terms and conditions of insurance policies that are commercialised in Chile must be previously deposited in the Insurance Regulator’s Policies Deposit. General terms included in deposited policy models may be amended by the policy’s particular terms and conditions, inasmuch as they set forth conditions more favourable to the insured party. Exceptions to this obligation are: (i) individually contracted property insurance contracts where the insurer and the insured party are legal entities and with an annual premium greater than 200 Unidades de Fomento (Unidades de Fomento or [UF] – a Chilean unit of account indexed to inflation, approximately USD 8,000); and (ii) hull and maritime and air transport insurance.
Before they can start insurance business in or from Switzerland, insurance companies have to be authorised by the Swiss Financial Market Supervisory Authority (Eidgenössische Finananzmakrtaufsicht – FINMA). The FINMA has the competency to supervise the activities of insurance companies in or from Switzerland in accordance with the Financial Market Supervision Act (Bundesgesetz vom 22. Juni 2007 über die Eindgenössiche Finanzmarkaufsicht, Finanzmarktaufsichtsgesetz, FINMAG- FINMASA).
The Insurance Supervision Act (Bundesgesetz betreffend die Aufsicht über Versicherungsuntermen vom 17. 12. 2006, Versicherungsaufsichtsgetz, VAG- ISA) sets down the regulatory requirements that have to be met by insurance companies in order to obtain a license and the business rules that have to be respected in the proper course of the conduct of their business up until run-off. The ISA is relatively lean when compared with the more detailed and more technical Insurance Supervision Ordinance (Verordnung betreffend die Beaufsichtigung von Versicherungsunternehmen, Aufsichtsverordnung AVO- ISO), which complements it. The ISA and ISO are further complemented by Circulars of the FINMA that give details concerning the FINMA’s supervisory practice. Such Circulars are binding on the FINMA so far as supervisory practices described in its Circulars are concerned.
The relationship between an insurance company and its policyholders is predominantly regulated by the Insurance Contract Act (Bundesgesetz über den Versicherungsvertrag of 1908, Versicherungsvertragsgesetz, VAG- ICA). The provisions of the ICA are themselves complemented by the general principles of the Code of Obligations (Obligationenrecht, OR-CO).
According to the General Banking and Insurance Law, Law No. 26702 ('General Law') and the Insurance Contract Law, Law No. 29946 ('LCS'), the insurers are free to set the conditions of their policies, its rates and other conditions. Notwithstanding the foregoing, the LCS establishes that the minimum requirements that, among others, the policies must contain are the following:
- Complete personal data of the insurer and the contractor;
- Specification of the insured person, asset or insured benefit;
- Risks covered and exclusions;
- Date and term;
- Declared value, sum assured or scope of coverage;
- Franchises and deductibles agreed;
- Schedule of installments of the premium;
- Official registration of the broker and the commission to be received, if applicable;
- In cases of life insurance and personal accidents with death or incidental death coverage, the policy must expressly state that the contract is part of the National Information Registry of Life Insurance Contracts and Personal Accidents with coverage of death or accidental death;
- In cases of property damage insurance, the policy must contain the indication of the performance of the contractor if two policies cover the same risk.
The content of the policies has a greater regulation in the matter of personal, compulsory and mass insurance. In these cases, the policies must be subject to the minimum conditions and/or clauses that will be approved by resolution of the Superintendent. Moreover, in said matters, the Superintendence of Banking, Insurance and AFP ('SBS') expressly approves and prior to its application, the minimum conditions and/or clauses of the insurance contracts. In other cases, policies should only be made known to the SBS before use and application.
Likewise, the LCS has a declarative list of prohibited clauses that, if included in the insurance policies, are null and void.
All insurance contracts are required to be filed with the Insurance Development and Regulatory Authority of India (IRDAI), ie, the Indian Insurance Regulator, in accordance with the applicable product filing guidelines issued by the IRDAI.
Insurers are permitted to market group health insurance products and commercial general insurance products without the prior approval of the IRDAI, subject to compliance with applicable laws. However, life insurance products, retail general insurance products and individual health insurance products can only be offered if the terms and conditions of these products have been approved by the IRDAI.
Further, there are extraneous rules that impact policy terms. For example, the Insurance Act 1938 gives the policyholder a right to override contrary policy terms in favour of Indian law and jurisdiction, and Indian policyholders cannot be stopped from approaching the Consumer Courts.
As the central bank of Singapore, the Monetary Authority of Singapore ('MAS') administers the Insurance Act (Cap. 142 ('IA') and regulates the insurance industry in Singapore. The IA has provisions governing the regulation of insurance business, insurers/ reinsurers, insurance intermediaries as well as related institutions in Singapore. MAS is also responsible for the supervision and regulation of insurance and reinsurance companies, including captives, and insurance and reinsurance brokers.
In general terms, and according to consumer protection legislation, all contracts involving consumer relations – including insurance contracts – must be drafted in a clear and precise manner, especially the clauses that may impose limitation on consumer rights. Specifically with regard to insurance contracts, the Law (Decree 73/1966) confers on the regulating and market supervision bodies, respectively, the National Council of Private Insurance (CNSP) and the Superintendence of Private Insurance (SUSEP) the power to establish the general characteristics of insurance contracts and also the policy conditions to be mandatorily used.
The Insurance Contract Law, 1981 (hereinafter: The Contract Law) regulates the content of insurance contracts. In addition, the Commissioner of Insurance issued several regulations which dictate wording of certain private line policies and which refer to condition that should be included or that should not be included in insurance contracts.
In addition According to the Control Over Financial Services (Insurance) Law, 1981 (hereinafter: the Control Law) any new insurance program or any change in the terms of an existing program must be notified in advance to the Commissioner of Insurance. According to the Supervision Over Insurance Business (New Insurance Programs and Changes in Programs) Order, 1981 in several insurance fields (such as life insurance, employers liability insurance etc.), a new insurance program or change in an existing program requires the approval of the Commissioner.
The Act of 13 March 2016 on the statute and the supervision of insurance or reinsurance undertakings (‘Supervision Act’) sets out the legal framework for the writing of (re)insurance contracts by (re)insurers. The Supervision Act distinguishes (i) Belgian (re)insurers, (ii) (re)insurers from another EEA member state, and (iii) (re)insurers from third countries. A licence is necessary for every (re)insurer wishing to be active in Belgium, depending on its home country (see question 4 below).
The Insurance Act of 4 April 2014 (‘Insurance Act’) deals with the mediation and distribution of insurances by insurance intermediaries. The Insurance Act sets out three categories of insurance intermediaries which are subject to the Act: (i) insurance brokers, (ii) insurance agents, and (iii) insurance subagents. A registration is necessary for every insurance intermediary wishing to be active in Belgium, depending on its home country (see question 4 below).
The writing of insurance contracts is a regulated activity. It is regulated through the legal framework governing insurance activities generally, which is mainly found in the French Insurance Code (FIC), the French Monetary and Financial Code (FMFC) and the French Mutual Code (FMC) for certain specific mutual insurance companies.
This legal framework deals with (i) the licensing of regulated entities (types of licences, permitted classes of business, approved persons requirements), (ii) prudential and financial requirements (valuation of assets and liabilities, prudential technical provisions, own funds, solvency capital requirement, minimum capital requirement and investment rules), (iii) governance, internal control, accounting and reporting requirements, (iv) conduct of business and (v) rules applicable to insurance contracts generally and to certain types of insurance products.
Canada’s ten provinces and three territories each have authority over the writing of insurance contracts in their respective jurisdictions. All of Canada’s provinces and territories other than the province of Québec follow the Common Law but have each enacted Insurance Acts or equivalent statutes and regulations which prescribe additional local requirements. The principles relating to the writing of insurance contracts in the province of Québec are set forth in the Civil Code of Québec while the activities of insurers in the province are governed by an Act respecting insurance and the distribution of insurance by another statute. Provinces and territories all have statutes and regulations that prescribe rules pertaining to the licensing of insurance companies insuring risks in their jurisdictions.
The law in relation to insurance contracts in Ireland is primarily governed by common law principles, the origins of which can be found in case law. There is no statutory definition of a contract of insurance under Irish law, nor are there specific rules for the formation of an insurance contract beyond the general principles of contract law and the duty of utmost good faith. Irish legislation does not specify the essential legal elements of an insurance contract and the courts have considered it on a case-by-case basis.
The Central Bank of Ireland (the “Central Bank”) is responsible for the prudential regulation of insurance and reinsurance undertakings and intermediaries operating in Ireland. The European Communities (Insurance and Reinsurance) Regulations 2015 (the "2015 Regulations") transposed Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (“Solvency II”) into Irish law. The 2015 Regulations set out the regulatory framework within which insurance activity may be carried on by insurers and reinsurers in Ireland.
Generally speaking, the Central Bank has no involvement in supervising the writing of insurance contracts and insurers retain significant freedom of contract. However, the Central Bank may, from time-to-time, request that an insurer provides its general and special policy conditions, scales of premiums and other documents which the insurer uses in its dealing with policy holders. The Central Bank may request such information in respect of an insurance contract in order to verify its compliance with applicable requirements, namely the Unfair Terms in Consumer Contracts Directive, the Distance Marketing of Financial Services Directive, the Consumer Protection Code and the Consumer Protection Act 2007. The Sale of Goods and Supply of Services Act 1980 is also applicable to insurance contracts.