Is there a policyholder protection scheme?
Insurance & Reinsurance
Many provisions of TCC and IA are set forth for the benefit and protection of policyholders. Also, one of the main points to be considered, the main principle of “interpretation for the benefit of policy holder” is valid in insurance contracts.
TCC provide mandatory rules that might be amended only in favour of the policyholder, for instance; the implied approval of the insurer in case of silence at the time of conclusion, scope of the insurance cover, termination of the insurance contract, payment and refund of the premium, pre-contractual information of the policyholder, obligation to deliver the insurance policy, insurer’s obligation to pay expenses obligation to pay the indemnity, obligation to pay the premium, duty of disclosure.
The Insurance Compensation Fund (the “Fund”) provides compensation to eligible policyholders of an Irish-authorised non-life insurer or an EU-authorised non-life insurer, which carries on business in Ireland, and which has gone into liquidation or administration. Non-life insurance companies writing business in Ireland are required to contribute 2% of gross written premium in respect of Irish situate risk to the Fund. The Central Bank is responsible for assessing the financial position of the Fund and determining the appropriate contribution to be paid.
The approval of the High Court of Ireland is required for a payment to be made out of the Fund. Where an insurer is in administration, at least 70% of its entire business in the preceding 3 years must relate to Irish situate risk in order to gain access to the Fund. Payments out of the Fund are capped at 65% of the sum due to the policyholder or €825,000 whichever is the less. Health, dental and life policies are excluded from the scope of the Fund.
The Financial Services Compensation Scheme protects policyholders (including consumers and small businesses) should the insurer become insolvent. Compensation is only available for financial loss. In the event of insolvency 100% of a claim is protected in respect of a compulsory insurance policy, professional indemnity insurance or life and long-term sickness policies. In all other cases, 90% of the claim is protected.
There are no general policyholder protection schemes in Sweden. However, there are, in addition to preventive rules, such as the capital requirements and the management’s experience and knowledge requirements, protective measures available. Two examples of such protective measures are 1), rules stating that a life insurance company that is the subject of insolvency proceedings, is put into liquidation or is otherwise in a state of insolvency, shall try to transfer the insurance portfolio to one or several other insurance companies; and 2), that policyholders’ claims are given special preferential treatment in insurance companies’ assets.
Policyholder protection schemes are established for life and health insurance covers.
Pursuant to section 221 (1) of the German Insurance Supervision Act, the statutory guarantee fund for life insurance protects all insurance contracts of insurance classes 19 to 23. The purpose of the statutory guarantee fund for health insurance is to protect substitutive health insurance. Health insurance is referred to as substitutive when it either in part or wholly covers the same type of risks as health insurance provided by social security carriers for employees and their families earning salaries below a certain threshold.
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.
The National Commission for the Protection and Defence of Users of Financial Services (“CONDUSEF”) is the governmental body created to protect the interests and the rights of the consumers. It is regulated by the Law for the Protection and Defence of Financial Services Users (“Condusef Law”) (1999). Since the protection of the consumers is considered to be a matter of public concern, the rights set forth in the CONDUSEF Law may not be waived.
The main purposes of the CONDUSEF are: the promotion, assistance, protection, and defence of the rights and interests of users of financial services against financial institutions, dispute resolution in an impartial manner, and the promotion of equity in the relationship between consumers and providers of financial services.
Claims may be submitted within one year from the date on which the occurrence that gave rise to the claim took place. Upon filing a claim, the statute of limitations is suspended.
Upon a presentation of a claim, CONDUSEF shall issue a notice to the insurance company within five business days following the receipt thereof, attaching to the notice, and a copy of the claim submitted by the user, and copying the claimant on the notice. If the insurance company does not respond or fails to attend the hearing on the day and hour set forth in the notice, CONSUDEF may impose a fine to the insurance company. The insurance company shall deliver a response prior to or at the time of the conciliatory hearing, answering each of the items cited by the insured. Such response must be signed by a legal representative of the insurance company.
The failure to present the response from the insurance company will not cause the suspension or adjournment of the conciliatory hearing, and it will be deemed as concluded, considering the facts claimed by the insured as true, regardless of the penalties that may be imposed to the insurance company.
In addition to the protection of users of financial services through the CONDUSEF, the LISF and its regulation require all insurance companies to form a special insurance fund (fondos especiales de seguros) for life, non-life and annuities, respectively, that may be used in case they need financial support to comply with their obligations with contracting parties, insureds, and beneficiaries under insurance policies.
There currently is no Policy Protection Scheme in the UAE, which would protect policyholders in the event of a failure of their insurer.
Policyholder protection schemes in the U.S. – state guaranty funds or security funds – are established and regulated by each of the states. States may have a separate guaranty fund for different kinds of insurance (life, health, property), as well as security funds for specialized insurance, such as title insurance. All states have a life insurance guaranty fund, which includes coverage for annuity contracts.
A state guaranty fund provides coverage for the payment of an insolvent insurer’s policyholder obligations and is usually established and operated by a nonprofit association, as set forth in the state’s insurance law. The members of the “guaranty association” are insurance companies doing business in the state and membership in the guaranty association is a condition of licensure. The member insurance companies appoint a board of directors to operate and manage the guaranty association, which is generally under the authority of the state insurance regulator. In some cases, the state insurance commissioner or another state official may be an ex officio member of the board.
The guaranty association establishes a guaranty fund through assessments on the member insurance companies, the amount of which is usually based on the premiums written in that state by the insurer. The amount of coverage provided to policyholders by state guaranty funds varies among the states and depends on the kind of insurance covered by the fund.
Although there is no insurance guarantee scheme in place, Austria has a mechanism of protecting policyholders through which life as well as certain health and accident insurance policies are protected by earmarking assets.
Policyholder protection is also paramount to the new regulatory regime introduced by the implementation of the Solvency II Directive. It aims at striking a balance between offering a high level of protection for policyholders and at the same time refraining from overburdening insurers with regulatory requirements.
Solvency (see Question 9) and minimum capital requirements (see Question 10) strengthen the viability of insurance undertakings. As soon as an insurance undertaking’s equity capital falls below the threshold set out in the VAG, the FMA is required to take action. Although not a zero-failure regime, it is now certainly more improbable that an insurer will run into serious financial trouble.
Yes. Among the relevant principles, note that in case of doubt regarding the interpretation of an insurance policy’s clause, insurance law sets forth that such clause must be construed in the manner most favourable to the insured/policyholder, and that losses reported by the insured to the company, are presumed to have occurred, placing the burden of proof on the insurance company which must prove otherwise.
A new Insurance Contract Act entered in force in 2013. This act was conceived considering the insured as a consumer in a disadvantageous position vis-à-vis an insurance company. Consequently, it includes certain mandatory provisions that as a general rule cannot be amended, even with the insured’s consent, e.g.: (i) the existence of an insurance contract can be proven by any written means; (ii) it is the insurance company’s obligation to request the insured party to provide all information regarding the risk (i.e., the insured party is only obligated to truthfully and accurately answer all such questions); (iii) it is the insurance company sales agent or broker’s obligation to inform the insured of the content of the insurance contract and to assist the insured during the term of the insurance, etc. Nevertheless these provisions may be amended in cases in which the insured and beneficiary of the relevant policy are legal entities and the annual premium is more than UF 200, and in the case of hull and maritime and air transport insurance.
The Consumer Protection Act [CPA] provides regulations regarding the contracting of adhesion contracts. Considering that insurance policies are – as a general rule – adhesion contracts (except when the insured has a position which allows him/her to negotiate with the insurer), insurance policies will generally be subject to the CPA’s provisions.
According to Art 55 ISA, life insurance contracts for which particular “restricted assets” have been established (these are particularly life insurance contracts that also provide endowment benefits) are not terminated in the case of the bankruptcy of the insurance company. Instead FINMA may temporarily restrict cancellation rights for such policies. This has the aim of giving FINMA the possibility of finding another insurance company that is prepared to assume the portfolio of the bankrupt insurance company and to duly fulfil the obligations under the respective insurance contracts. If FINMA finds such other insurance company it can request that a portfolio transfer to such company takes place.
Legislation on the reorganisation of insurance companies is currently under discussion with the aim to improve the policyholder’s position.
Yes. Even though insurers are free to fix the content of their policies, in matters of personal, compulsory and mass insurance, the policies must be subject to the minimum conditions and/or clauses approved by the SBS. This Entity includes, within its attributions, the faculty to prohibit the use of policies that avoid the law or the minimum conditions approved. It also has the authority to order the inclusion of clauses or conditions in policies that promote the strengthening of the technical and economic bases of insurance and the protection of the insured.
The IRDA (Protection of Policyholders’ Interests) Regulations 2002 (Policyholders’ Regulations) issued by the IRDAI are the primary regulations on the protection of policyholders in India.
The Policyholders’ Regulations prescribe the practices that are required to be undertaken by the insurers and insurance intermediaries at the point of sale of the insurance policy to ensure that the policyholder understands the terms of the policy properly.
In addition to the above, the Policyholders’ Regulations prescribe the claims procedure that is required to be followed by the insurers to ensure expeditious processing of claims. Insurers are required to pay interest at the rate of 2% above the prevalent bank rate, in cases where there is delayed payment of the claim amount.
Insurers are also required to put in place proper grievance redressal procedures and mechanisms in accordance with the applicable provisions for the resolution of grievances of the policyholders.
The Policyholders’ Regulations are set to be amended to bring them in line with the recent amendments under applicable law. In this regard, the IRDAI has issued the Exposure Draft on IRDAI (Protection of Policyholders’ Interests) Regulations 2017 to obtain comments from various stakeholders.
Singapore has a Policy Owners Protection ('PPF') Scheme, which provides 100% coverage of the guaranteed benefits of life insurance policies (including riders) in the event that the insurer concerned is unable to meet its obligations / insolvent. Policies issued by overseas branches of a registered direct life insurers incorporated in Singapore are not covered under the PPF.
The PPF also provides coverage to insureds under compulsory general insurance policies, and Singapore policies of specified lines (e.g. personal travel insurance policies, personal property insurance policies, and individual and group short-term accident and health insurance policies) issued by registered general insurers which are PPF Scheme members. A policy is regarded as a "Singapore policy" if it insures risks arising in Singapore or the insured is a Singapore resident or has a permanent establishment in Singapore.
There is no specific policyholder protection scheme in Brazil. The policyholder represents a group of insured parties and has the duty to defend them vis à vis the insurer. In legally obligatory insurance and in some specific fields such as D&O and surety, for example, the policyholder is equated to insured persons for the purpose of contracting and maintaining insurance. In voluntary insurance, the policyholder is the insured's agent. Moreover, the insurer may assert against the insured any defense that it has against the policyholder. The non-payment to the insurer of the premiums received from the insured, within the due periods, subjects the policyholder to a significant financial penalty and possible criminal liability. Under Brazilian Law, the term policyholder might also cover a person or a company that contracts insurance in favor of another person or company.
The Contract Law is a pro consumer law. The courts adopted the spirit of the law and the tendency of the courts is to prefer the Insured over the Insurer’s interests.
Yes, there is. The Guarantee Fund for financial services aims at intervening in the case where an insurance undertaking which is a member of the Fund can no longer comply with its obligations. However, only insurance undertakings under Belgian Law which are recognized as life insurers under class 21 (life insurance not related to investments funds) are protected. The Fund’s compensation is limited to a maximum amount of 100,000 EUR per person and per institution.
In case of insolvency of an insurance company, the ACPR may organise a transfer of the insolvent insurance company’s portfolio to other insurer(s), in order to preserve the policyholder’s/insured’s interests.
The FIC provides for different compensation schemes which guarantee the commitments of an insurance company, if such insurance company were to become insolvent and in the event the above mentioned portfolio transfer has not been authorised.
These schemes vary depending on the insured risks:
- Compensation scheme for mandatory non-life insurances: the Mandatory Third Party Liability Insurance Guarantee Fund (“Fonds de garantie des assurances obligatoires de dommages”) is entrusted, in the event (i) the person liable (usually of a road accident) remains unknown or is not insured or (ii) his/her insurer is completely or partially insolvent, to compensate the victims for bodily injury or property damage suffered. In such case, the Fund is subrogated in the rights of the creditor of the compensation against the person liable or his/her insurer.
Please note that this Fund also manages the Guarantee Fund for Victims of Terrorist and Other Criminal Acts (“Fonds de Garantie des Victimes des actes de Terrorisme et d'autres Infractions”).
- Compensation scheme for life assurances: the Guarantee Fund for Insureds Against the Insolvency of Life Assurance Companies (“Fonds de garantie des assurés contre la défaillance des sociétés d’assurance de personnes”).
Every life insurance company authorized to sell insurance policies in Canada is required, by the federal, provincial and territorial regulators, to become a member of Assuris, a not-for-profit organization that protects Canadian policyholders if their life insurance company should fail. Similarly, the industry-funded, non-profit Property and Casualty Insurance Compensation Corporation (PACICC) responds to claims of policyholders under most policies issued by P&C insurance companies in the event that a member insurer becomes insolvent. Both protection funds work with regulators to minimize the loss of benefits and ensure a quick transfer of their policies to a solvent company.
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.