This country-specific Q&A gives a pragmatic overview of the law and practice of insurance & reinsurance law in the Chile.
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 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.
Are types of insurers regulated differently (i.e. life companies, reinsurers)?
Yes. Although most of the insurance regulation is of general application, there are specific regulations applicable to life insurance companies, non-life insurance companies and reinsurance companies. Therefore, different kinds of insurers will have to comply with regulations that specifically apply to their type of business, e.g., different kinds of capital requirements, different solvency margins, different debt/financial ratios and maximum levels of indebtedness, etc. Furthermore, Chilean regulations require insurance companies to have an exclusive business purpose and can only write the type of insurance they were authorised to do so by the Insurance Regulator, i.e., life insurance or non-life insurance.
Are insurance brokers and other types of market intermediary subject to regulation?
Yes. Insurance and reinsurance brokers (whether local or foreign, and acting as legal entities or individuals) are subject to their own special regulations. Other market intermediaries and ancillary parties also have special regulations, i.e., sales agents, loss adjustors and life annuity agents. All such entities are supervised and monitored by the Insurance Regulator.
Is authorisation or a licence required and if so, how long does it take on average to obtain such permission?
Yes. Insurance and reinsurance companies, as well as insurance and reinsurance broker and loss adjustors all require the Insurance Regulator’s prior authorisation or registration to operate, in accordance with the Insurance Act.
In the case of insurance and reinsurance companies, the Insurance Regulator’s authorisation requires the interested parties to submit specific documents to the Insurance Regulator. Applicable regulations provide that the Insurance Regulator should issue its decision within 30 days as of the date of the relevant filing. However, this period may be suspended if the Insurance Regulator requests amendments to the filing or additional information from the applicant. In this scenario, the abovementioned term required for the Insurance Regulator’s ruling will not resume until the applicant complies with the Insurance Regulator’s additional requests. Notwithstanding the foregoing, if the Insurance Regulator has not responded within 60 days as of the date of the relevant filing, the interested party may request it to issue a decision solely based on the documents submitted until that time. In such case, the Insurance Regulator shall issue such decision within 5 business days. In our experience, should no extraordinary issues arise, the relevant authorisation may take between approximately 2 to 6 months, as of the initial filing of the required documents to the Insurance Regulator.
In the case of insurance brokers, reinsurance brokers and loss adjustors, the person or legal entity interested in carrying out this activity must provide the Insurance Regulator sufficient evidence of their compliance with applicable special laws in order to be registered in the corresponding Insurance Regulator special registry.
Are there restrictions over who owns or controls insurers (including restrictions on foreign ownership)?
Yes, there are ownership restrictions. Nevertheless, these are the same for local or foreign shareholders or controllers. Shareholders and final controllers of insurance companies must evidence, among other requirements:
- that they: (i) have not been sentenced for felony crimes or crimes pursuant to the Insurance Act; (ii) are not subject to liquidation and inability or prohibition to perform commercial acts; and (iii) have not been sanctioned by the Insurance Regulator with the revocation of its authorisation/registration within the records it keeps pursuant to the Insurance Act or other laws, and in the case the shareholders are individuals, that they have not participated as a manager, director or legal representative of an insurance company that has been subject to these sanctions or cancellation of its incorporation authorisation, unless he/she safeguarded his/her responsibility according to applicable law or has proved that did not take part in the acts that caused it to be sanctioned;
- that they (i.e., all shareholders) have a net consolidated equity at least equal to their capital contribution in the relevant insurance company;
- submit financial statements which state that their consolidated net equity is at least equal to the capital contribution to be made to the insurance company by each of the relevant shareholders.
Furthermore, shareholders of life insurance companies must additionally:
- individually or jointly have a net consolidated equity equivalent to the projected investment;
- not have incurred in serious and reiterated behaviour that may risk the stability of the relevant insurance entity or its insureds;
- not have taken part of acts or negotiations, of any kind, contrary to the laws, regulations or good financial practices that operate in Chile and/or abroad;
- not: (i) be subject to liquidation and inability or prohibition to perform commercial acts; (ii) participated – within the last 15 years – as director, manager, chief executive or majority shareholder (directly or through third parties) of a bank, life insurance company, or pensions fund management company, that has been subject to windup, bankruptcy, or subject to provisional administration, respect of which the Chilean State or the Chilean Central Bank suffered considerable losses; (iii) register protests of documents that have not been cleared in the last 5 years; (iv) been sentenced for, among others, crimes against property or in connection with public documents, crimes against administrative probity, national security, tax and customs crimes, etc.; (v) been sentenced for felony crimes or been incapacitated to hold public office; or (vi) have been subject, directly or through legal entities, and as a result of a legal breach, to windup or provisional administration, or to the cancellation of its existence or operation authorisation, or its deregistration from the relevant registries necessary to operate or carry out public offers of securities.
Is it possible to insure risks without a licence or authorisation? (i.e. on a non-admitted basis)?
Yes. Foreign reinsurers can write the following insurances in Chile, without being duly licensed or authorised by the Insurance Regulator: (i) international maritime transport insurance; (ii) international commercial aviation insurance; (iii) international cargo and satellites insurance; and (iv) insurance for the cargo they carry.
Also, any Chilean resident (person or entity) may freely contract any kind of insurance policy with foreign insurance companies (not licensed in Chile) as long as: (a) the insurance is contracted abroad; and (b) the insurance contract is not required by law or qualifies as social security/pension insurance. A withholding tax may apply to premium payment to the foreign insurance company depending on the type of insurance contracted.
What penalty is available for those who operate without appropriate permission?
The penalties for carrying out insurance or reinsurance activities, without being duly authorised to do so, may include, the shutdown/closing of the offices or premises were the unauthorised insurance activities were carried out and the termination and liquidation of the unauthorised insurance operations, among others.
Furthermore, the representative of the foreign entity performing the unauthorised activity may be even sanctioned with jail time (between 61 to 301 days).
Those who act as insurance brokers, reinsurance brokers, sales agents, and loss adjusters, without being listed in the Registries as required by law or whose registration has been suspended, eliminated or revoked, and those who have knowingly enabled them to do so, shall be punished with fines of between 20 and 200 monthly tax units (approximately USD 1,415 to USD 14,150).
How rigorous is the supervisory and enforcement environment?
As a general rule, the Insurance Regulator is very active in its monitoring and enforcement of insurance regulations. Locally registered insurance and reinsurance companies have many reporting duties, which require them to periodically file several relevant documents to the Insurance Regulator (e.g., financial statements, internal policies, client’s claims, etc). Upon reviewing and analysing this information, it is very common for the Insurance Regulator to initiate administrative investigations and apply sanctions upon detecting violations of insurance regulations.
There are separate and distinct monitoring processes for each kind of regulated insurance entity (insurance companies, insurance brokers, loss adjustors, etc.), as they each have specific legal and administrative regulations.
Penalties for violations of insurance laws and administrative regulations can range between: (i) a written reprimand; (ii) a fine of up to UF 15,000 (approximately USD 613,000). In case of repeated offences applicable fines may increase to up to 3 or 5 times the original fined amount or to 30% of the value of the non-compliant operation; (iii) the suspension of the insurance company’s management for up to 6 months; (iv) the suspension of all or some of the insurance company’s operations for up to 6 months; and/or (v) the cancellation of its license (existence authorisation).
There are also other sanctions to specific violations, such as carrying out the insurance business without being duly authorised to do so [please refer to question 7 above].
Over the last few years the insurance industry has been transitioning towards a risk based supervision system, whose purpose is to strengthen the risk management of insurers, develop a preventive monitoring system, customize the supervision involving the insurer in the process, and to smartly allocate resources available for monitoring. The Insurance Regulator has published its monitoring policy since 2015.
How is the solvency of insurers (and reinsurers where relevant) supervised?
The solvency of insurance and reinsurance companies is supervised by the Insurance Regulator mainly upon their review of the financial information of insurance and reinsurance companies. As stated above, insurance and reinsurance companies must periodically submit information to the Insurance Regulator, among which is certain financial information that must be provided to the Insurance Regulator, e.g., a Uniformed Coded Statistic Form, the Formulario Estadístico Codificado Único [FECU], consolidated financial statements, etc.
Once received, this information is thoroughly reviewed by the Insurance Regulator and is later published to be made available to the public. The Insurance Regulator is entitled to request any additional information it deems necessary to evaluate a company’s compliance of all applicable insurance laws and regulations.
Insurers are also required to report any breach to the financial, debt, financial ratios, and reserve requirements set forth by law.
Notwithstanding the requirements above, insurance and reinsurance companies are required by the Insurance Act to meet capital requirements and certain financial ratios, all of which are further regulated by law and by regulations issued by the Insurance Regulator.
What are the minimum capital requirements?
Insurance and reinsurance companies must have a minimum capital of UF 90,000 (approximately USD 3,675,000) and UF 120,000 (approximately USD 4,825,694), respectively, at the time of its incorporation and throughout their existence. Chilean insurance and reinsurance companies are subject to limits of maximum level of debt set forth by the Insurance Act, which may not exceed 5 times a company’s equity for non-life insurance companies and 15 times a company’s equity for life insurance companies. Furthermore, insurance companies’ investments representing technical reserves and risk equity (similar but not the same as solvency margin) are also restricted and subject to specific single and combined limits.
Is there a policyholder protection scheme?
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.
How are groups supervised, if at all?
Among the reporting duties of insurance companies, these must report all related party transactions. Insurers might also be required to provide the legal documents, such as contracts, where the transactions with related parties are evidenced.
Insurance companies are subject to all the legal obligations of a Chilean publicly traded corporation (even when its shares are not publicly traded) and to Chilean securities regulations (particularly Act Nr. 18,045 regarding securities, which regulates related party transactions, and Act. Nr. 18,046 regarding corporations). Further, corporate governance provisions provide that the company shall protect and prevent possible group risks contagion or affect the insurance company incorporated in Chile.
Do senior managers have to meet fit and proper requirements and/or be approved?
Yes. Senior managers, along with their job description, must be reported by an insurance company to the Insurance Regulator. Any changes in this regard must be informed to the Insurance Regulator within 3 days as of such change.
Senior managers of an insurance company, reinsurance company, insurance broker or loss adjustor cannot be appointed as such if: (i) they have been sentenced for felony crimes or crimes under insurance regulations; (ii) are subject to liquidation and inability to perform commercial acts; and (iii) have been sanctioned by the Insurance Regulator. Further, insurance and reinsurance companies must submit their key officer resumes, including their professional and labor background, and evidencing the knowledge, skills and experience of the relevant individuals.
Are there restrictions on outsourcing parts of the business?
The insurance activity can only be carried out by duly authorised insurance and reinsurance companies, brokers, sales agents and loss adjustors. Thus, this activity can only be carried out by the entity that is authorised to do so. Consequently, insurance companies may outsource certain services as long as these are not activities deemed essential to the insurance business. It is advisable that this is analysed on a case by case basis.
How are sales of insurance supervised or controlled?
As stated above, all entities involved in the insurance activity have several reporting duties which include providing the Insurance Regulator information regarding the commercialisation of insurance, the types of insurance being commercialised, their distribution channels, etc.
This information is thoroughly reviewed by the Insurance Regulator, which may request any additional information it deems necessary to analyse an entity’s compliance with all insurance laws and regulations.
Insurance regulations also set forth rules regarding the contracting and commercialisation of insurance by different kinds of entities, and by means of different distribution channels.
The Insurance Regulator also supervises the commercialisation of insurance when receiving complaints from insureds. Upon receiving such complaints, the Insurance Regulator will most likely request the involved parties to provide all documentation evidencing the proper commercialisation of the insurance and, if a violation is detected, it may sanction the relevant insurer or insurance broker.
Are consumer policies subject to restrictions? If so, briefly describe the range of protections offered to consumer policyholders.
The CPA [please refer to question 11] provides that insurance policies must include certain minimum clauses required to protect the insured (e.g. term of the contract, early termination provisions, a detail of fees and/or charges, etc.)
Insurance laws and regulations require minimum contents and additional restrictions. As stated above, as a general rule the commercialisation of insurance policies in Chile is subject to such policies general terms and conditions being previously deposited in the Insurance Regulator´s Policies Deposit. This deposit is publicly available and deposited policies models must comply with the minimum requirements set forth in specific insurance regulations.
Are the courts adept at handling complex commercial claims?
Not all Chilean courts are specialists with regards to complex commercial matters (including insurance), due to the fact that their purview includes a wide array of legal areas. Therefore, as general rule, complex matters are best resolved by an arbitrator.
Notwithstanding the foregoing, insurance claims must – as a general rule – necessarily be resolved by an arbitrator. The insured party may only choose otherwise and submit a claim before an ordinary court for claims involving insurance compensation amounts of less than UF 10,000 (approximately USD 400,000).
Is alternative dispute resolution well established in the jurisdiction?
Yes. In addition to dispute resolution by arbitration or ordinary courts of law, the Insurance Regulator is authorised to act and rule as an arbitrator in claims involving compensation amounts of less than UF 120 (approximately USD 4,825). Rulings by the Insurance Regulator are binding.
Furthermore, the Insureds Defendant, or Defensor del Asegurado, an independent entity that is funded by local insurance companies, is authorised to hear out and resolve claims submitted to its authority. Proceedings before this entity are pro bono and must be brought by an insured against an insurance company. Rulings by the Insureds Defendant are binding for insurance companies but not for the insured.
What are the primary challenges to new market entrants?
The Chilean insurance market has a very structured and regulated system, where only duly authorised entities may carry out the insurance business. However, to the extent that an interested party complies with all relevant requirements set forth by insurance laws and regulations, the Insurance Regulator should grant it the relevant authorisation, as this authority may only refuse to grant such authorisation by a well-founded resolution with sufficient grounds.
To what extent is the market being challenged by digital innovation?
The local insurance market, fostered by market development and regulations, has implemented new digital solutions enabling the online contracting of insurance policies, the online reporting of losses and remote access to loss adjustment processes information. Over the last few years, insurance related laws and regulations have also adapted, and currently recognize email communications as legal notices, the validity of online policy contracting, the submission of online information to the Insurance Regulator, websites enabling consumer to compare prices on vehicle and property insurance, etc.
Over the next five years what type of business do you see taking a market lead?
Due to the characteristics and exposure of Chile to certain risks, property and life insurance will continue being core retail insurance products. Considering certain non-life insurance companies have been acquired by foreign corporations it may be that local companies reinsurance polices change and volume reduces. Additionally,, considering Chile is one of the most opened economies in the world, the access to global market implies that worldwide trends become a local reality in short terms. In this regard, data protection, cyber risks, liability due to drones, software, etc. and their related risks will probably enter into Chile rather sooner than later.