Are consumer policies subject to restrictions? If so briefly describe the range of protections offered to consumer policyholders
Insurance & Reinsurance (3rd edition)
The existing insured protection system can be classified according to the following criteria: (a) solvency: capital requirements and constitution of technical provisions; (b) contractual: rules on the drafting of clauses and the non-admissibility of abusive clauses, consumer-friendly interpretation in membership contracts and specific rules on insurance contracts in the Civil Code; (c) transparency of information: rules on publication and content of financial statements, advertising of suppliers and products; and (d) supervisory bodies focused on consumer protection, such as SUSEP, ANS and the National System of Consumer Protection.
In general terms, substantive law is currently more favourable to insureds, but certain recent developments indicate a certain shift towards a more evenly balanced system. Insurance in Brazil is governed by the following statutory framework:
(a) Decree-law 73, of November 21, 1966;
(b) Complementary Law 126, of January 2007; and
(c) the Brazilian Civil Code and the Brazilian Code for the Defense of Consumers. In terms of infra-statutory regulations, the National Council of Private Insurance (CNSP) has powers to issue regulations and the Superintendent of Private Insurance (SUSEP) issues guidelines (circulars) and ordinances. This legal framework is consistent with the legal principles applicable to the operation of insurance and insurance contracts and is similar to the legislative framework and concepts applied to insurance in Latin America and Europe.
Consumer protection and regulatory agencies in Brazil have a significant influence on the rules and regulations applied to the insurance market. In general, they act on a correct technical basis which guarantees relative equilibrium in the market, contributing to the development of the activity.
Moreover, the case law of the Superior Court of Justice (STJ) is particularly relevant in relation to insurance. The STJ is the highest court in the country for issues of federal law, which covers essentially all of the laws and regulations on insurance, and the regulatory activities of the Federal Government and regulatory agencies.
In the past, the Superior Court of Justice had a distinct tendency to find in favour of insured parties in relation to insurance issues, sometimes going so far as qualifying norms or establishing presumptions contrary to insurers in the interpretation of provisions of the Civil Code (particularly the interpretation of articles 763, 768 and 785). Recently, the STJ has taken a more technically sound approach applying the law in line with its technical basis. It is very likely that the court will take into account the rules edited by the CNSP and SUSEP as sources of interpretation and will adhere more to the actual wording of the law.
It is important to note that specific legislation (a Draft Law on Insurance – PLC 29/2017) is currently at an advanced stage of progress through Congress. If introduced, it will revoke several provisions of the Civil Code and CNSP and SUSEP rules. It is difficult to predict the repercussions of the law, but it is likely that it will lead to Brazilian courts reviewing the positions they took under the previous law in relation to the tenets and concepts of insurance and reinsurance law with possible change of approach in relation to certain issues (e.g. the regime of aggravation of risk, expenditure on salvage, apportionment of payout, direct third-party actions, follow the fortunes, statutory limitation, etc.).
The consumer policy holder enjoys all rights compared with institutional policy holders. Besides, to protect the interest of consumer policyholders, the validity of a contract that has been suspended because the policy holder fails to pay the premiums by installments after a lapse of over 30 days upon a reminder of the insurer or over 60 days from the scheduled date of payment, can be reinstated upon agreement reached between the insurer and the policy holder via negotiations and after the making of the outstanding premium payment by the policy holder. However, the insurer is entitled to terminate the contract if no agreement has been reached upon by both parties within two years after the day when the validity of the contract is suspended.
Danish insurance companies are required to observe consumer protection regulation. The Insurance Contracts Act provides quite detailed mandatory regulations to benefit the insured. These include, inter alia, regulation regarding insurance premium, limita-tion periods, duty of disclosure and right of cancellation.
In addition, Danish courts may generally at their own discretion set aside any contrac-tual provisions and terms fully or partly if the court deems them to be manifestly un-fair. Thus, Danish contract law prohibits the use of unfair contract terms in consumer agreements. A term will generally be considered unfair if it causes a significant imbal-ance in the parties’ rights and obligations under the contract to the detriment of the consumer. Certain terms are in particular likely to be considered unfair, e.g. high can-cellation charges or penalties.
On 25 May 2018, EU’s new General Data Protection Regulation (GDPR) came into force in Denmark. The GDPR brought new and stricter rules, including new requirements for data security and documentation and new penalties. In Denmark, the processing of personal data requires consent and such consent must always be specific, voluntary and informed. A consumer policy may be conditioned by such consent; however, the consumer must be informed that he or she may withdraw the consent.
Currently, neither the ISA, ISO, nor the ICA contain particular consumer protection provisions. Rather, these acts protect policyholders in general irrespective of whether they conclude theirs insurance contracts as consumers or entrepreneurs. Since 2012, however, Unfair Competition Act (Bundesgesetz gegen den unlauteren Wettbewerb, “ UCA”) 8 provides for protection of consumers against unfair clauses in general terms and conditions of insurers. No relevant case law exists so far but is expected to develop in the future.
Proposed amendments by Draft ICA (not exhaustive):
While the proposal of a full revision of the ICA (which was declined by the Parliament in 2013) had a relatively strong focus on consumer protective ideas, the current Draft ICA limits such restrictions to a minimum in favour of the freedom of contract:
- Withdrawal right, Draft ICA 7
- Statutory regulation of preliminary coverage, Draft ICA 23
- Admission of retroactive insurance, Draft ICA 24 (which currently is not allowed and thus void)
- Deletion of the current ICA 12 (according to which discrepancies in the policy from the agreed content of an insurance contract are deemed permitted if the policyholder does not object within 4 weeks)
- Prolongation of the period of limitation, Draft ICA 46
The IBA and the Act on the Establishment, etc. of Financial Services Commission (“AEFSC”) of South Korea also regulate the marketing and sales of consumer policies. Pursuant to the IBA, an insurer shall be obliged to explain insurance policies to potential policyholders. The IBA sets out the principle of conformity and specifies matters to be observed in relation to the solicitation advertisements and insurance solicitation, cancellation, surrender, etc. using telecommunications service. See also, answer to Question 15. An insurer shall also indemnify customers for any loss arising out of the insurance solicitation as specified under the IBA.
Consumers that have been aggrieved in the solicitation process may bring a consumer complaint directly to the FSS for attention and resolution.
The AEFSC provides a dispute resolution process as between an insurer and policyholder where the Financial Disputes Mediation Committee ("FDMC") within the FSS is authorised to review, deliberate on and resolve matters at raised by customers.
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).
The provisions of the French Consumer Code apply to the insurance contracts that are entered into by policyholders outside of a professional context. Such policyholders therefore benefit from protections available to consumers, as well as the relevant provisions of the Insurance Code.
Policies concluded with consumerS are regulated by:
- the French Insurance Code, which:
1. sets out a standard legal regim that already has somewhat of a pro-consumer bias, in that it contains strict guidelines regarding the wording and layout of certain key clauses (i.e. exclusion clauses or warranty forfeiture clauses), non-compliance with which results in the said clauses being deemed unenforceable;
2. contains provisions that specifically provide consumers with heightened protection, which were recently strengthened by the 17 March 2014 law on Consumer Protection, which inter alia enables insureds to terminate their insurance contracts any time during the coverage period (rather than exclusively at the annual renewal date) or cancel certain types of insurance (insurance contracts concluded at a distance or offered in conjunction with other goods and services) during an initial 14 day period.
3. the French Consumer Code, also contains provisions that apply to insurance contracts, according to which:
4. the interpretation of ambiguous contractual terms must always be made in the consumer’s favor, and
5. clauses that create a significant imbalance between the rights and duties of the parties may be declared null and void by the Courts (which will, inter alia, take note of the recommendations emitted by the Unfair Terms Commission (“Commission des clauses abusives”), which regularly identifies standard insurance contract clauses it deems to be unfair).
On its 100th anniversary, the Insurance Contract Act underwent comprehensive revision with its current version taking effect as of 1 January 2008. In revising the Insurance Contract Act, the legislator intended to promote consumer protection. For example, the new law, on the one hand, introduced extensive duties for insurers to inform and advise policyholders before the formation of the insurance contract and, on the other hand, restricted sanctions in case of breach of the policyholder’s obligations to disclose material risks pre-contractually or to cooperate with the insurer in the claims handling process. Accordingly, most provisions of the Insurance Contract Act which serve consumer protection are mandatory.
In addition to the Insurance Contract Act, insurance contracts are further governed by the German Civil Code (Bürgerliches Gesetzbuch, BGB). Even where the Insurance Contract Act leaves room for party autonomy, standard insurance terms and conditions are subject to Sections 305 et seq. BGB. Accordingly, provisions which are so unusual that the other party to the contract does not need to expect to encounter them do not form part of the contract. This may, for example, apply to foreign provisions copied and pasted into German policies. Furthermore, pursuant to Section 305c para. 2 BGB, any doubts in the interpretation of standard business terms are resolved against the user. Moreover, provisions in standard business terms will be ineffective if they unreasonably disadvantage the insured. While this scrutiny plays a predominant rule in consumer insurance, it is also relevant for business insurance.
All policies are subject to the Contract Law which is a pro consumer law. The law includes various Restrictions which intend to protect the insured. For example, restrictions and exclusions included in the policy must be emphasized either in bold or in a different color. If the insurer failed to do so he cannot rely on the Exclusion.
Questions included in the Proposal Form must be specific. General questions will prevent the Insurer from relying on the answers. Only answers to specific questions are relevant.
The proposal form must be attached to the policy and sent to the Insured. Failing to do so will prevent the Insurer from relying on the proposal form.
The insured does not have an independent duty of disclosure.
No precedential conditions are allowed. Insurance contracts cannot be voided unless in case of proven fraud. Generally, if the risk was aggravated, the remedy of the insurer is proportional payment of insurance benefits.
The Insurer cannot rely on the failure of the Insured to take the required safety precautions, unless the event is the direct result of the failure.
The Policyholder can sue Insurers either in an individual claim, or in a Class Action.
The Corporations Act and the ICA provide a range of protections for consumer policyholders. All PDS documents must be drafted in a clear, concise and effective manner that is easy for a consumer to understand. All consumer insurance policies are also subject to a 14 day cooling off period. Where a policyholder has purchased renewable cover, the insurer is required to advise the policyholder 14 days prior to its expiration whether the insurer is prepared to renew or extend the policy.
The ICA also provides a number of protections for policyholders, including notifications that must be made to insureds as to their duty of disclosure and the potential exclusion of the insurer's liability in certain circumstances.
The General Insurance Code of Practice (the Code) provides further protections to consumer policyholders where claims are made. Insurers which have subscribed to the Code are required to comply with strict time limits in managing claims.
ISVAP, just before its dissolution and transformation into IVASS, issued a number of regulations to protect the consumer, and in particular it is worth mentioning the following:
1. Regulation No. 40 of 3 May 2012 on mortgages, which defines the minimum requirements for life insurance contracts related to a mortgage or consumer credit as per Article 28, Paragraph 1 of Decree-Law No. 1 of 24 January 2012, amended by Law No. 27 of 24 March 2012; and
2. Regulation No. 41 of 15 May 2012, implementing provisions for the organization and creation of procedures and internal controls aimed at preventing the use of insurance companies and insurance intermediaries for the purpose of money laundering and financing of terrorism, in accordance with Article 7, Paragraph 2 of Legislative Decree No. 231 of 21 November 2007.
IVASS followed this regulatory trend in protecting the consumer issuing, on March 14, 2018, a letter to the market inviting all insurers operating on the Italian market to use the “Guidelines on the structure and language of insurance contracts”. These guidelines outline a new, more linear and clear way to draft contractual provisions (by way of an example eliminating the old distinction between "general conditions" and "special conditions", which in the past leads to many misunderstandings) and impose a clarity of language with the objective of making the reading and understanding of the contract more fluid, allowing the consumer to exercise more easily the rights deriving from the same.
Other particular provisions are contained into Section 3 (Articles 10–16) of Council Regulation (EC) No. 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, or territorial jurisdiction within the Italian Republic when the insured is a consumer. There principles have been incorporated also into the national law and as consequence in national disputes between a consumer and a professional insurer, the exclusive jurisdiction if that of the courts of the place where the consumer has his or her residence or elected domicile.
Consumer policies are restricted pursuant to several laws. For example, mandatory or unilaterally mandatory provisions in the Insurance Act (the latter is a series of provisions making void any agreement that, contrary to such provisions, adversely affects policyholders); and invalid provisions under the Consumer Contract Act.
For example, Article 10 of the Consumer Contract Act provides that:
“Any consumer contract clause that restricts the rights or expands the duties of the consumer beyond the application of provisions unrelated to public order in the Civil Code, the Commercial Code (Act No. 48 of 1899) and any other laws and regulations, and that unilaterally impairs the interests of the consumer in violation of the fundamental principle provided in the second paragraph of Article 1 of the Civil Code, is void”.
There is wide range of provisions contained in the Insurance Law, the Civil Code as well as in the Act on the Protection of Competition and Consumers of 16 February 2007 that apply to consumer (i.e. retail customer) policies. Additional requirements are set out by the KNF in its guidelines and recommendations regarding insurance distribution, bancassurance, product adequacy and product management system that introduce a number of obligations for insurance undertakings and intermediaries aimed at protecting customers (including consumers).
As a rule, all of the terms and conditions of insurance should be written in a transparent and unequivocal way. Any discrepancies or uncertainties are interpreted in favour of the customer (whether it is a consumer or not). There is a list of specific information that must be included both in the pre-contractual information as well as in the insurance policy and the terms and conditions of insurance.
Moreover, any unfair clauses in consumer contracts (i.e. ones that put the consumer in a worse position than that of the insurance provider) are forbidden. If such clauses are included in the terms and conditions of an insurance contract, which has not been
negotiated individually with the consumer, such clauses are null and void.
More restrictions apply in respect of insurance-based investment products. According to the Insurance Distribution Law insurance intermediaries and insurance undertakings that advise on, or sell, insurance-based investment products to consumers, should possess an appropriate level of knowledge and competence in relation to the products offered. They should assess the consumer's needs and offer a product that fits those needs.
The Chilean legislator has emphasised the protection of insurance consumers from law 20,555 of 2012 and with absolute clarity from law 20,667 that modified the regulation of the contract. In this context, both the Commercial Code and Law 19,496 on the Protection of Consumer Rights contain protection mechanisms. On the one hand, article 542 of the Commercial Code introduced a control mechanism for content by inclusion of the contract, which is complemented by article 16 of Law 19,496 on abusive clauses and contemplates a control mechanism for exclusion. In addition, the pre-contractual information requirements of articles 514 and 529, number 1 of the Commercial Code, and article 17B of Law 19,496 must be considered. In addition to the foregoing are the rules on transparency of the aforementioned law 19,496 and the rules on market conduct dictated by the CMF.
Consumer policies are subject to certain regulatory provisions on sound practices that insurance companies must observe with regard to the offer and marketing of insurance products and the content of insurance policies.
The Circular contains clauses to be mandatorily included in the general conditions of certain type of insurance policies, to protect the interests of the policyholders, insureds and beneficiaries.
Also, CONDUSEF has issued regulation and guidelines that must be observed by insurance companies for the protection of policyholders, insured and beneficiaries, focused on transparency, clarity and avoidance of abusive practices.
Finally, there have been judicial precedents in Mexico in which Courts have given guidance on the proper construction of insurance companies, per example, by recognising that insurance policies must be construed by applying a contra proferentem rule.
Consumer policies must meet the requirements of the Consumer Rights Act 2015 (“CRA 2015”). The CRA 2015 prohibits the use of unfair contract terms in consumer agreements and consumer notices (including announcements, promotions and renewal letters). A term will be unfair if, contrary to the requirement of good faith it causes a significant imbalance in the parties’ rights and obligations under the contract, to the detriment of the consumer. Core terms (i.e. terms that either relate to the main subject matter of the contract or to the price to be paid) cannot be assessed for fairness to the extent that they are sufficiently transparent and prominent. Importantly, in insurance contracts core terms will include exclusions and conditions. To ensure that the insurer is able to rely on such terms both policy conditions and exclusions must be transparent (which will require drafting in plain and intelligible language) and also prominent (so that the consumer is sufficiently aware of the term). Certain terms are likely to be unfair such as high cancellation charges, terms that allow the insurer to determine the characteristics or price after the contract has been entered into. Any term found to be unfair will not bind a consumer.
The IA grants further protection to any policyholder (including consumers), whereby any arbitrary terms, breach of which would have had no effect on the cause of the incident insured against, are void.
There IA also provides policyholders with further rights of recourse, should the insurance claim be rejected. Should a policyholder have any complaints in relation to a claim, the insurer is required to investigate each complaint within 15 days of the date of its submission. Each complainant (whether it is the insured or the beneficiary), may appeal the insurer's decision to the IA. An insurer may be fined 50,000 Dirhams if it is found to have delayed or failed to provide clarifications on the complaints.
Belgium has detailed legislation on consumer contracts of insurance, such as the 2014 Law noted above, and its implementing Royal Decrees. Others (non-exhaustive) provisions restricting freedom of contract (often implementing EU provisions) include:
• Belgium’s laws on use of an official language;
• the 1991 Royal Decree’s rules on pre-contractual disclosures for life and non-life contracts and on use of plain language;
• the Law of 2 August 2002 on the supervision on the financial sector and financial services provides rules on fair, clear and non-misleading information;
• various Royal Decrees on pre-contractual disclosures and mandatory terms, e.g. the Royal Decree of 14 November 2003 regarding the activity of life insurance; and
• restrictions on choice of competent jurisdiction (under the Brussels I bis Regulation and national rules).
Finally, various general texts apply. A key example is the Code of Economic Law, which sets out Belgium’s current implementation of the 1993 Unfair Contract Terms Directive, the 2005 Unfair Commercial Practices Directive and the 2011 Consumer Rights Directive.
Many states have rules protecting personal lines policies issued to individual consumers. These rules vary from state to state but may include protections limiting insurers’ abilities to cancel policies, especially during the policy period, requiring certain minimum levels of benefits/coverage and restricting the use of mandatory arbitration clauses.
OJK Regulation 1 of 2013 on Consumer Protection in the Financial Services Sector (OJK Regulation 1/2013) provides for consumer protection applicable to insurance products. Specifically, OJK Regulation 1/2013 provides for consumer protection applicable to, among other things, product design, the preparation and delivery of information, product offerings, dispute resolution, and consumer complaints.
OJK Regulation 1/2013 further provides that each financial service product document must be written simply, and provide a summary of the product together with up-to-date and accessible details.
Further, insurance sector-specific consumer protections are provided for under OJK Regulation 23/2015, which requires, among other things, that an insurance company:
(a) only conveys accurate and clear details about its products;
(b) develops sophisticated risk profile assessment policies and procedures; and
(c) handles all product complaints submitted by its policyholders, insured parties or participants.
Insurance policies are structured to incorporate comprehensive mechanisms for customer protections that they are required to include by law. Insurance policies typically include details of the Insurance Ombudsman, who are appointed to address complaints by the insured against the insurer, in relation to the settlement of claims.
The IRDAI requires insurers to formulate a grievance redressal policy and file it with the IRDAI. Insurer is required to provide the details of the grievance redressal mechanism within the policy. Policyholders who have complaints against insurers are first required to approach the grievance or customer complaints Department of the insurer.
Insurers are required to necessarily form part of the Integrated Grievance Management System (IGMS) put in place by the IRDAI to facilitate the registering/ tracking of complaint on-line by the policyholders.
In cases of delay or no response relating to policies and claims, the IRDAI can take up matters with the insurers to ensure speedy resolution. Only policyholders, claimants or the insured can approach the IRDAI for assistance and advocates, agents and other third parties are not allowed to approach the IRDAI.
IRDAI Regulations provide, amongst other obligations, that insurers follow certain practices at the point of sale of the insurance policy to ensure that the insured can understand the terms of the policy properly.
In addition to the above, as a consumer, while there are no exclusive procedures for resolution of insurance or reinsurance disputes, insurance policies are contracts of indemnity and parties can approach a consumer court, commercial court, civil court or invoke arbitration to claim monies for any breach of contract.
The Consumer Protection Act, 1986 lists insurance as a service and provides for a three tiered consumer forum, which can hear insurance disputes. The consumer forums have a three-tier hierarchy – the District Commission hears disputes with a value up to US$28,816, the State Commission hears disputes up to the value of US$144,012 and the National Commission hears disputes valued above US$ US$144,012. The consumer forums follow a summary procedure to ensure quick adjudication of disputes. Consumer Courts are empowered to provide compensation for any deficiency of service by the insurer in servicing a claim.
Insurance policies and related documents issued by insurance companies to an insured must be in the form and with content approved by the OIC, as discussed in question 15.
If an insurance company issues a policy which is in a different form or with content that is different from that which was approved, the insured or beneficiary would have the option of holding the insurance company liable for the performance of obligations according to the policy issued to him/her, or according to the policy approved by the OIC. If an insurance company issues a policy using the form or content that is not approved by the OIC, the insured (but not the beneficiary) would have the option of holding the insurance company liable under that insurance policy, or terminating the insurance contract and claiming a return of the premiums in full.
Regardless of the option elected by the insured or the beneficiary in the above cases, the insurance company would be liable for non-compliance under the LIA or NLIA.
The VersVG sets out extended rights for consumers, particularly in relation to the termination of insurance policies. Consumers have the right to withdraw from an insurance contract within two weeks after conclusion without giving reasons (Article 5c VersVG). With regards to life insurance policies, consumers can withdraw from the contract within 30 days after conclusion (Article 165a(2a) VersVG).
Consumer policies are also subject to the KSchG, which provides a broad range of protections to consumer policyholders. For instance, Article 3 KSchG provides consumers with the right to withdraw within one month from conclusion of the insurance contract, if it was not concluded on the business premises of the trader or at a trade fair. Furthermore, consumers may also withdraw from insurance contracts, if circumstances, which were essential for the consumer’s consent, are less likely to occur than depicted by the trader (Article 3a KSchG). Consumers can withdraw from such contracts within a week after such fact is noticeable to the consumer. With regards to insurance contracts for a duration exceeding one year, the right of withdrawal expires one month after the date of conclusion.
In general, a contractual provision not individually negotiated is deemed to be unfair and thus invalid, if, contrary to the requirement of good faith, it significantly alters the balance of the parties' contractual rights and obligations to the detriment of the consumer. For instance, with regards to insurance contracts, the consumer’s burden of cost must be as transparent as possible. Similarly, a contract stipulating a burden of proof for the consumer stricter than the general statutory rule is invalid. Article 6 KSchG provides a non-exhaustive catalogue of contractual provisions considered unfair .
Whilst consumer policies are not subject to any particular restrictions by the Central Bank, there are a broad range of protections afforded to consumers of financial products under the CPC. The CPC applies to financial services providers regulated either by the Central Bank or by a regulator in another EU or EEA Member State, when providing services to consumers in Ireland on a FOE or FOS basis.
The CPC requires regulated entities to act honestly, fairly, and in the best interests of the consumer and the integrity of the market. Certain information must be obtained by regulated entities from a consumer prior to providing a product or service, in order to assess the suitability of a product for the individual consumer. This information includes details of the consumer’s needs and objectives, personal circumstances, financial situation and attitude to risk (if relevant). The CPC also sets out the obligations on financial service firms when dealing with consumers in respect of advertising, contacting consumers, claims processing, handling of errors and complaints, maintaining records and providing information on products. In addition, the CPC requires regulated entities to disclose certain information to consumers in respect of conflicts of interest and any remuneration arrangements in place.
Regulated entities may be subject to administrative sanctions by the Central Bank for any failure to comply with the CPC.