This country-specific Q&A gives a pragmatic overview of the law and practice of insurance & reinsurance law in the Peru.
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?
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:
(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 installments 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 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.
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, insurance companies of both branches (property 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.
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, the SBS manages a registry by virtue of which the services of the branches of insurance are specified for each insurance company.
Obtaining an Operating License to provide insurance services can take between 8 and 12 months.
For insurance brokers, the average term to obtain its registration before the SBS is approximately 12 months for natural persons and 04 for legal persons. For reinsurance brokers, the average term to obtain the registration is approximately 04 months.
Are there restrictions 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 favor of a single person, authorization from the SBS will be required.
Is it possible to insure risks 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 comply with the established conditions for its constitution and functioning.
What penalty is available for those who operate without appropriate permission?
Those operating without the appropriate authorization will be subject to administrative sanctions up to 200 Tax Unit (UIT) and criminal penalties (crimes against the financial and monetary order).
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.
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, 2018), the last update corresponding to the period January - March, 2018 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?
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.
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. In order to carry out this supervision, the SBS is authorized to 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 operations carried out between persons and/or related legal entities. In this sense, the total number of operations (transfers of resources, services, obligations or other such as credits, financial leases, investments or contingent, among others) that a financial system company makes with related natural and/or legal persons, may not exceed an amount equivalent to 30% of the effective equity of the company.
Do senior managers have to meet fit and proper requirements and/or be approved?
The administrative staff at managerial or executive level of insurance companies must comply with moral and technical criteria. In this sense, directors, managers and main officials (such as the heads of risk management areas) should have not have any negative management records or have been sanctioned administratively or criminally, as well as have not held any evidence of non-compliance regarding commercial, financial and tax payments or other acts involving dishonesty and/or willful misconduct. Moreover, they should have good references of their professionalism, which is related to the requirement to have an appropriate professional career for the position, that is to say, experience in specialized activities and/or directives related to their profession, in the financial system and/or academic specialization accredited with university degrees or postgraduate degrees.
Are there restrictions on outsourcing parts of the business?
In order to manage the operational risks associated with subcontracting, insurance companies should set appropriate policies and procedures to evaluate, manage and monitor subcontracted processes. Such policies and procedures must consider:
- The selection process of the service provider.
- The preparation of the subcontracting agreement.
- The management and monitoring of the risks associated with the subcontracting agreement.
- The implementation of an effective control environment.
- Establishment of continuity plans.
Subcontracting agreements must be formalized through signed contracts, which must include service level agreements, and clearly define the responsibilities of the supplier of the company.
Insurers assume full responsibility for the results of the subcontracted processes with third parties, and may be penalized for non-compliance. They must also ensure that secrecy and confidentiality are maintained on the information that may be provided to them.
In any significant subcontracting, a formal analysis of the associated risks shall be carried out and reported to the Board for approval. 'Significant' means a subcontracting that, in case of failure or suspension of the service, can put the company at significant risk, by affecting its income, solvency, or operational continuity. The subcontracting of one or more risk management functions will be considered significant.
Moreover, in case that companies wish to subcontract their data processing in a meaningful way, in such a way that it is done abroad, they will require prior and express authorization from the SBS.
How are sales of insurance supervised or controlled?
The sale of insurance is only regulated in respect of mass insurance. The SBS has a Framework Regulation for the Marketing of Insurance Products (approved by SBS Resolution No. 2996-2010) which regulates the marketing modalities that insurance companies can use for purposes of offering mass products; understanding by such those standard insurance that do not require special insurance requirements in relation to insurable persons and/or assets.
Are consumer policies subject to restrictions? If so, briefly describe the range of protections offered to consumer policyholders.
The consumer protection and defense rules privilege the consumer's interest in financial products due to the disadvantage resulting from the particular circumstances of the consumer relationship. In the case of contractors, insured, and/or beneficiaries who have the status of consumers, in accordance with the provisions of the Consumer Protection and Defense Code (approved by Law No. 29571), are applicable the provisions of Financial Products or Services and the Regulation of Transparency of Information and Contracting of Insurance. The provisions of these rules regulate the suitability of contractual conditions, mainly regarding the clarity and transparency that must reflect the contractual terms, as well as the communication of relevant information in the stage prior to the contracting of the insurance, at the time of contracting and during the term of the insurance contract, including regulation on how to disseminate such information (through the website, information brochures and even the sales force).
Are the courts adept at handling complex commercial claims?
The courts in Peru are in a process of innovation that includes the training of all its agents. In this sense, we consider that the courts in Peru will obtain greater specialization as long as this process continues.
Notwithstanding the foregoing, in Peru there are alternative mechanisms for conflict resolution that allow the settlement of complex commercial claims to be made by agents outside the local courts. For example, arbitration. Arbitration is highly developed in our jurisdiction and its level of sophistication allows submitting complex controversies to the decision of a specialized Arbitral Tribunal.
Is alternative dispute resolution well established in the jurisdiction?
Yes. The insured has the right to submit the dispute before the judicial court, without prejudice to his right to agree with the insurer, once the incident has occurred, submission to arbitration or other means of dispute settlement.
Moreover, the parties may freely agree to submit their differences arising from the insurance contract to the arbitration jurisdiction, provided that the damages or losses claimed from the company as a result of a claim are equal to or greater than 20 UIT (approximately US$ 24,545.00).
Without prejudice of the arbitration, Peruvian legislation also includes mechanisms such as mediation and conciliation.
What are the primary challenges to new market entrants?
Increase insurance penetration in the market and diversify existing products. In our environment we need to strengthen the culture of insurance, and promote the offer of innovative products, proven in more developed markets than the Peruvian. Another large market, untapped to date, is micro-insurance and coverage for environmental damage.
To what extent is the market being challenged by digital innovation?
One of the main challenges for the insurance market facing digital innovation is the exposure of privacy and confidentiality derived from piracy or computer attacks. To face this, insurance companies must manage the associated risks with information technology, related to failures in the security and operational continuity of computer systems, errors in the development and implementation of such systems and the compatibility and integration of them, inadequate investment in technology, among other aspects.
Over the next five years what type of business do you see taking a market lead?
Given the catastrophic events suffered in Peru on 2017, the main objective of the government is to invest in infrastructure; therefore, the construction sector and, therefore, the insurance associated with this sector, will lead the market for the next five years.