This country-specific Q&A provides an overview to insurance and reinsurance laws and regulations that may occur in Peru.
This Q&A is part of the global guide to Insurance & Reinsurance (3rd edition). For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/insurance-and-reinsurance-3rd-edition
How is the writing of insurance contracts regulated in your jurisdiction?
According to the General Banking and Insurance Act, Law No. 26702 ('General Law') and the Insurance Contract Act, Law No. 29946 ('ICA'), the insurers are free to set the conditions of their policies, its rates and other conditions. The insurance contract is concluded with the consent of the parties, although the policy has not been issued nor the premium payment has been made. Notwithstanding the foregoing, the ICA establishes that the minimum requirements that, among others, the policies must contain are the following:
(a) Complete personal data of the insurer and the contractor;
(b) Specification of the insured person, asset or insured benefit;
(c) Risks covered and exclusions;
(d) Date and term;
(e) Declared value, sum assured or scope of coverage;
(f) Franchises and deductibles agreed;
(g) Schedule of instalments of the premium;
(h) Official registration of the broker and the commission to be received, if applicable;
(i) 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;
(j) 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 before 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 apply.
Likewise, the ICA has a declarative list of prohibited clauses that, if included in the insurance policies, are null and void.
Are types of insurers regulated differently (i.e. life companies, reinsurers?)
The General Law regulates in a similar way the different types of insurers: insurance companies of a single branch (general risks), insurance companies of both branches (general risks and life) and reinsurance companies. The main regulatory difference between the different types of insurers is the minimum capital requirement, which varies according to the type of company in the insurance system. The General Law also regulates insurance intermediaries (insurance and reinsurance brokers) and insurance auxiliaries (adjusters and loss experts).
Are insurance brokers and other types of market intermediary subject to regulation?
According to the General Law, the SBS authorizes and regulates the activities of insurance intermediaries and keeps a record of them. The registry specifies the services of the branches of insurance in which each one can operate, as appropriate. The denomination of insurance intermediaries comprises insurance and/or reinsurance brokers.
The SBS previously authorizes the accomplishment of the intermediation and other activities complementary to these in the contracting of insurance.
Is authorisation or a licence required and if so how long does it take on average to obtain such permission?
All the activities of the insurance system require an enabling title, called 'operation license'. In the case of insurance intermediaries and auxiliaries, the SBS manages a registry where are established the branches of insurance in which these companies are authorized to operate.
Obtaining an operating license to provide insurance services can take between four (04) and fourteen (14) months, depending on the license requested. The given terms take into account the time to gather the requirements, their formalization to be valid in Peru and the term established for the SBS to resolve the request.
The aforementioned deadlines do not include the process of incorporation of the company, in the case of legal entities, which could take approximately two (2) months.
Are there restrictions or controls over who owns or controls insurers (including restrictions on foreign ownership)?
Regarding the restrictions, according to the current Peruvian Constitution, national and foreign investments are subject to the same conditions. Therefore, there is no prohibition for foreigners from holding shares in an insurance company.
Notwithstanding the foregoing, the General Law provides that shareholders must meet requirements of moral suitability and economic solvency, that is to say, they should not be involved in the scenarios of the impediments established in said Law. Therefore, a shareholder cannot be someone who has been convicted of felony crimes, has been expressly prohibited by their functions in public office, has been involved in insolvency proceedings, has exceed the maximum percentage of shares in two companies of the financial system of the same nature, among others.
Regarding the means of control over the owners of insurance companies, the article 50° of the General Law states that any natural or legal person who acquires shares, directly or indirectly, in the amount of one percent (1%) of the stock capital, in the course of twelve months or, who reaches a participation of three percent (3%) or more, is obliged to provide the SBS with the information requested, in order to identify its main economic activities and the structure of its assets. Moreover, the article 57° of the General Law provides that for the transfer of shares for more than ten percent (10%) of the stock capital in favour of a single person, authorization from the SBS will be required.
Is it possible to insure risks in your jurisdiction without a licence or authorisation? (i.e. on a non-admitted basis)?
It is not possible. The General Law provides that any natural or legal person engaged by its own granting insurance coverages, insurance intermediation and / or other complementary activities must have prior authorization from the SBS and must follow the established conditions for its constitution and functioning. Nonetheless, residents in Peru can engage insurance and reinsurance abroad. However, there are activities that foreign companies cannot perform in Peru without a licence or authorization (e.g., commercialization).
What penalty is available for those who operate in your jurisdiction without appropriate permission?
Those operating without the appropriate authorization will be subject to administrative sanctions up to 200 Tax Unit (UIT, £193,594.80 approx.) and criminal penalties (which are considered crimes against the economic order - performance of unauthorized activities, article 243°- B of the Criminal Code).
How rigorous is the supervisory and enforcement environment?
Quite rigorous. The SBS is a solid entity in terms of audit, supervision and sanction. The General Law contains a development of its attributions and specific functions, providing the SBS with an appropriate control system over natural and legal persons under its supervision. Likewise, this is strengthened by the complaint mechanisms at disposal of insurance services users: the SBS claims portal (called “Defensoría del Asegurado”) and INDECOPI (consumer protection authority).
How is the solvency of insurers (and reinsurers where relevant) supervised?
The solvency supervision of insurance and reinsurance companies constituted in Peru is carried out through the use of two concepts: The Effective Equity and the Solvency Capital. The Effective Equity is obtained through a formula in which, among others, capital accounts are added and the amounts invested in subordinated bonds and in shares in insurance companies dedicated to other branches are deducted. The Solvency Capital is determined by the SBS based on the annual amount of the premiums, the average annual claim load or the minimum capital required for the specific type of company in the insurance system.
Using both concepts, the equity requirement for insurance and/or reinsurance companies is that these companies must have at all times an Effective Equity that cannot be less than the Solvency Equity.
Other specific requirements related to indebtedness and constitution of guarantee funds and reserves may be added to this equity requirement.
Finally, it should be noted that in the development of the supervision of the solvency of insurance companies, the SBS will review the information sent monthly, together with its financial statements, in relation to (i) the effective equity, (ii) the surplus or deficit of the effective equity, (iii) the effective equity destined to cover credit risk, (iv) information on solvency margin, and (v) information on debt limit.
What are the minimum capital requirements?
The SBS provides by means of a general rule of quarterly update the minimum stock capital of insurance companies and other companies in the financial system. As of the date of issuance of this questionnaire (March, 2019), the last update corresponding to the period January - March, 2019 is in force, the same that provides the following:
Companies operating in a single branch (general risks or life risks)
Companies operating in both branches (general risks and life risks)
Insurance and reinsurance companies
Is there a policyholder protection scheme in your jurisdiction?
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. In general terms, the ICA has a protective regulation for the insured and also provides that the relevant insurance information (coverage, exclusions, how to file a claim, among other provisions) is always at their disposal in a clear and transparent manner.
How are groups supervised if at all?
Yes, the economic groups are monitored. Among the attributions of the SBS is to establish the existence of economic groups and exercise consolidated supervision of them. To carry out this supervision, the SBS may request the information that it deems relevant on all the companies that make up the economic group.
One of the most important aspects related to the supervision of economic groups is the application of limits to investments carried out by related natural and/or legal person which cannot exceed twenty percent (20%) of the technical reserves, the minimum solvency capital and the guarantee fund of the insurance company. This limit is halved when the issuer or issuers belong to the same conglomerate of which the insurance and/or reinsurance company is part of.
Do senior managers have to meet fit and proper requirements and/or be approved?
Executive or senior staff must meet several moral and technical requirements. To this extent, directors, managers, and senior officials (such as the heads of risk management areas) may have no negative managerial records, or sanction, whether administrative or criminal. Likewise, there must be no evidence of their non-compliance with any commercial, financial or tax duty, or of whichever actions involving dishonesty and/or wilful misconduct. Moreover, they must hold good professional credentials satisfying the requirement for a professional career that is suitable for the position; that is to say, having carried out career-related specialized or managerial activities within the financial system, and/or having completed specialized training attested by a university or postgraduate degree.
Are there restrictions on outsourcing parts of the business?
Insurance companies must set appropriate policies and procedures to test, manage and track the subcontracted processes for managing the operational risks associated with outsourcing, Such policies and procedures must consider:
- Selection process of the service provider;
- preparation of the outsourcing agreement;
- management and monitoring of the risks associated with the subcontracting agreement;
- implementation of an effective control environment;
- establishment of continuity plans;
- Outsourcing agreements must be formalized through a duly executed contract, which must include service level agreements, and clearly define the responsibilities of the supplier of the company.
Insurers assume full responsibility with any third party for the results of the outsourced processes, and may be penalized for the non-compliance. They must also ensure the maintenance of secrecy and confidentiality of the information that might be provided to them.
For any significant outsourcing, a formal analysis of the associated risks must be carried out and reported to the Board for approval. It is understood under 'significant' any subcontracting that may expose the company to a significant risk, in case of failure or suspension of the service, by affecting its income, solvency, or operational continuity. The outsourcing of one or more risk management functions shall be considered significant.
Moreover, in the case that a company intends to outsource the processing of data to such a significant extent that the service is rendered overseas, it shall be subject to prior express authorization by the SBS.
How are sales of insurance supervised or controlled?
Placement of insurance products is only regulated in respect of massive insurance. The SBS has approved a framework regulation for the marketing of insurance products (SBS No. 1121-2017) that governs the modalities available for insurance companies to place massive products. Its key provision is that insurance companies are responsible for any action performed on its behalf by any individual or entity, without regard to the marketing method applied.
Are consumer policies subject to restrictions? If so briefly describe the range of protections offered to consumer policyholders
Regulations on protection and defence of consumers prioritize the consumers’ interests because of the disadvantaged relationship resulting from the particular circumstances of the financial products, in terms of the latter.
Provisions for financial products or services, as well as the Regulation for Transparency of Information and Insurance Undertaking are applicable to contractors, insureds, and/or beneficiaries with consumer’s status, as provided by the Consumer’s Defence and Protection Code (approved by Law No. 29571).
The abovementioned regulations provide on the expected suitability of the contractual conditions, in particular as regards clarity and transparency of contractual terms, as well as report of relevant information --during the preliminary stage, at the time of undertaking the insurance, and within the term of the policy--, which includes provisions on how the said information is released (through the website, informative brochures and even by means of the sales force).
Are the courts adept at handling complex commercial claims?
Peruvian courts are currently undergoing an innovation process that includes the training of all its agents. To this extent, we consider that the courts will become more specialized as the said process moves forward.
Notwithstanding the foregoing, there are ADR mechanisms that allow complex commercial claims to be settled by agents out of the local courts, e.g., arbitration. Arbitration is highly developed in Peru and has such a level of sophistication allowing the submission of complex controversies to the decision of a specialized Arbitral Panel.
Is alternative dispute resolution well established in your jurisdictions?
Yes. The insured is entitled to submit the dispute before a judicial court, without prejudice to his or her right to agree with the insurer the submission of the claim to arbitration, or to any other ADR mechanism, even once the loss has occurred.
Likewise, the parties are free to agree the submission of the disputes arising from an insurance contract to arbitration, provided that the damages or losses claimed equal or are greater than 20 UIT (£19,359.48 approximately).
Without prejudice of the arbitration, Peruvian law also includes other mechanisms such as mediation and conciliation.
What are the primary challenges to new market entrants?
To enhance the market access to insurance as well as to diversify the offering of products. In Peru, it is needed to create a stronger insurance culture, and to promote the offering of innovative products that have been already tested in further developed markets.
Other major but currently untapped markets are micro-insurance and insurance for environmental damage.
To what extent is the market being challenged by digital innovation?
One of the main challenges for the insurance market in the face of digital innovation is exposure of privacy and confidentiality arising from cyber piracy or attacks.
To address this challenge, insurance companies must manage risks linked to information technology relating to failures in the security and operational continuity of computer systems, failures in development and implementation of the said systems and with their compatibility and integration, and inadequate investment in technology, among other aspects.
Over the next five years what type of business do you see taking a market lead?
Infrastructure investment remains the highest goal of the Peruvian government; therefore, the building industry and the insurance products associated to the latter will the construction sector and the insurance associated with this sector will lead the market for the next five years.