Is there a policyholder protection scheme?
Insurance & Reinsurance
The following policyholder protections are available:
- Procedures allowing to change insurance policy terms by voluntary agreement between an insurance company and a policyholder in cases where it would be difficult for such insurance company to continue its insurance business.
- Procedures allowing the Prime Minster to order (a) an insurance company to take necessary measures, such as suspending its business or consulting on the transfer of insurance contracts, or (b) the management of an insurance company’s business and property by an insurance administrator in cases where it would be difficult for such insurance company to continue its insurance business.
- Procedures allowing the Prime Minister to designate another insurance company and recommend that such insurance company accept consultations on the transfer, etc. of insurance contracts in the event of a bankruptcy of an insurance company.
- Procedures allowing the Life Insurance Policyholders Protection Corporation of Japan to provide financial assistance for the transfer, etc. of insurance contracts or underwrites insurance contracts for an insurance company in the event of a bankruptcy of such insurance company.
Where a general insurer is under judicial management and is believed to be insolvent, the Minister may declare a Financial Claims Scheme over the general insurer. This entitles eligible policyholders with claims connected to certain policies to be paid before they otherwise would during the winding up of the general insurer. The scheme does not apply to life insurers or private health insurers. Any policyholders of state based compulsory insurance lines are governed by separate schemes created under state legislation.
The scheme offers continuous cover to policyholders for 28 days after the scheme is declared and permits claims to be made within 12 months. The scheme only covers general insurance contracts and does not extend to policyholders with an operative revenue or gross assets above AUD 200 million or with more than 500 employees. Where claims are below AUD 5,000, policyholders are only entitled to be paid an amount equal to what the insurer's liability would have been. Where policyholders are over that threshold, they will only be paid if APRA is also satisfied that the policyholder meets any conditions in the Insurance Regulations 2002 (Cth).
The scheme is managed by the Commonwealth and funded through a levy on the financial sector.
Yes, the Danish Guarantee Fund for Non-life Insurance Companies is a fund which provides cover for policyholders in case of a non-life insurance company’s bankruptcy. In brief, the Guarantee Fund will in case of bankruptcy step in and provide cover and reimburse prepaid premium. The guarantee scheme generally applies to private insurances (consumer insurances) taken out with insurers that have been granted license from the DFSA to carry out insurance business in Denmark, or with foreign insurers which have passported their license through their home country regulator. In addition to the guarantee scheme, the minimum capital requirements set out in the EU Solvency II Directive (question 10), and the fit and proper requirements of the senior managers (question 13), leads to some protection of the policyholders.
In Poland there is the Insurance Guarantee Fund ("UFG") that protects the interests of insured persons. However, this protection refers mainly to compulsory third party liability insurance for owners of motor vehicles and farmers in Poland. The basic task of the UFG is to pay compensation and benefits to victims of accidents caused by uninsured vehicle owners and uninsured farmers. It also satisfies claims of injured parties, in the case where the perpetrator of a traffic accident fled the scene of the incident and is unknown.
The UFG pays compensation also when an insurer declares bankruptcy or it is subject to compulsory liquidation. Such compensation is available with respect to compulsory third party liability insurance. It covers the full amount of the claim in case of drivers and farmers. In the case of farmers' buildings it covers the claim up-to a contractually agreed sum.
Moreover, in the case of bankruptcy or compulsory liquidation, the UFG guarantee also covers life insurance and compulsory insurance other than listed above. The maximum payment to an entitled person may not exceed 50% of the claim (up to EUR 30,000).
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 (“FSCS”) protects policyholders (including consumers and small businesses) should an 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.
One of the primary aims of the Insurance Contract Act (Versicherungsvertragsgesetz, VVG) is to protect the policyholder who is, in general, considered to be the weaker party, even if the policyholder is not a consumer. As such, the Insurance Contract Act contains various provisions which cannot be waived to the detriment of the policyholder. Exceptions are made with regard to large risks (Section 210 para. 2 VVG) and open policies (cf. Section 53 et seq. VVG) where the legislator assumes that the policyholder has sufficient experience with insurance contracts to defend his or her own interests.
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 CONDUSEF is the governmental body created to protect the interests and the rights of the consumers of financial services. 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. The CONDUSEF also operates and maintains various public registries, that may be freely accessed by the public, including, a registry of financial institution, a registry of standard-form insurance agreements, and a registry of sanctions imposed to financial institutions.
Claims may be submitted to the insurance company within five years, regarding life insurance coverage, and two years, in all other cases, counting from the date in which the occurrence that gave rise to the claim took place. Upon filing a claim, the statute of limitations is suspended.
If the insurance company denies coverage, the policyholder, insured or beneficiary may file a claim before CONDUSEF prior to filing the claim with competent courts. Claims with CONDUSEF should be submitted within one year from the date of occurrence of the event. If no claim is submitted to CONDUSEF, or after submitting a claim with CONDUSEF that did not result in any settlement, the insured has the right to file a claim before competent courts.
Upon the filing 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.
Finally, the LISF and Circular provides also disclosure and transparency obligations that have as a purpose the protection of the insured, such as the obligation to register standard-form insurance products, the obligation to provide complete documentation to the policyholder, the obligation to disclose commission paid to intermediaries, among others.
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 of life as well as certain health and accident insurance policies by way of mandatory requirements as to the earmarking of assets.
Policyholder protection is also paramount to the new regulatory regime introduced in the course of 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 economically detrimental regulatory accounting requirements.
Solvency (cf. Question 9) and minimum capital requirements (cf. 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, the risk of insurers experiencing serious financial trouble is now reduced considerably.
The norms of the Code of Commerce envisage two kinds of insurance contracts. One is what could be called “large risk” insurances, in which there is ample freedom of contract. Large risks are those in which the policyholder is a juridical person that pays an annual insurance premium inferior to UF 200 which amount to approximately USD 9,060. Also, regardless if the policyholder is a natural person or a legal entity, or the annual insurance premium involved, cargo insurance and marine and hull insurance are always deemed to be “large risks”, and freedom of contract is not restricted. The policy forms commercialised in the market for these classes of insurances, are not subject to any scrutiny by the regulator.
The second kind of insurance contract is the so-called regulated contract, to which the substantive regulations of the Code of Commerce apply. These are mandatory provisions that cannot be derogated by the parties’ consent, and provide a minimum standard that protects policyholders and beneficiaries. Any stipulation that breaches such standards is null and void. However, stipulations that favour the policyholder above the minimum standards are valid and enforceable. Insurers and brokers may only offer and commercialise policy forms that have been deposited in a Registry of Policies kept by the regulator. The regulator may eliminate from such a Registry any policy form that does not comply with the minimum standards established in the law and regulations, or which contains ambiguous or unclear clauses.
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 IRDAI has recently issued the IRDAI (Protection of Policyholders’ Interests) Regulations 2017 (Policyholders’ Regulations) which superseded the IRDAI (Protection of Policyholders’ interest) Regulations 2002 and 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, insurance intermediaries or any other distribution channel 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 or any other amount due under the policy.
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.
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.
Policyholder protection schemes have been put in place, so as to protect policyholders in the event that an insurance company becomes insolvent or loses its license (thereby causing it to be wound-up). The schemes are effectively constituted of (i) the possible transfers of the insolvent insurance company’s portfolio to another insurer and/or (ii) the intervention of various financial guarantee funds (though it should be borne in mind that not all types of insurance will necessarily be able to benefit from both these schemes).
The portfolio transfer scheme protects life insurance policyholders and is not available for non-life insurance contracts (one appreciates the rationale for providing such a scheme specifically for life insurance policies, given the extended periods of time during which such policies are usually kept). Whether the transfer scheme is finally conducted is left at the discretion of the ACPR, which can either allow it to go ahead or refuse and set a date for the termination of the impacted contracts.
Guarantee funds may also intervene, in certain circumstances, so as to provide policyholders with compensation. There is, for instance, a guarantee fund that specifically protects life insurance policyholders (“fonds de garantie contre la défaillance des sociétés d’assurances de personnes”), as well as a guarantee fund that protects policyholders that have taken out mandatory insurance policies (“fonds de garantie des assurances obligatoires de dommage”). It should be noted, in relation to the latter, that if the said guarantee fund has had to provide compensation for bodily injury or property damage, owing to the insolvency of the policyholder’s insurer, then it would be subrogated into the rights of the victim, much as would have been the case for the original insurer.
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.
Insurance and reinsurance undertakings must implement specific proceedings for the purposes of identifying potential risks to their financial conditions (to the extent such risks may eventually result in a breach of the minimum capital requirements).
Under such circumstances (i.e. the actual verification of the risks), ASF shall implement all necessary measures so as to preserve the interests of policyholders, insureds and beneficiaries. The measures to be adopted by ASF include, among others:
a. Restriction to the exercise of certain activities, notably with regard to some types of insurance products;
b. Impose restrictions to the possibility of incurring in the distribution of new insurance products;
c. Prohibit or impose limitations on distribution of dividends;
d. Suspend or dismiss members of the corporate bodies, as well as to appoint temporary directors;
e. Increase or decrease on the undertaking’s share capital;
f. Determine the transfer of qualified shareholding stakes;
g. Determine the partial transfer of insurance contracts.