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23 September 2014 |
Insurance and reinsurance in the Russian Federation: overviewMARKET TRENDS AND REGULATORY FRAMEWORK 1. What were the main trends in the insurance and reinsurance markets over the last 12 months? The number of companies in the market reduced in 2013-2014, due to several liquidations. However, there was a significant increase in transactions in the insurance market, despite the general economic slowdown. Most experts note a slowdown and high loss ratio for retail insurance in 2013-2014, but with growth in corporate insurance products. In 2013 the Federal Finance Market Service (FFMSC), which supervised and controlled insurance activity in Russia, was incorporated into the Central Bank of the Russian Federation (Bank of Russia) becoming the largest regulator in Russia. 2. What is the regulatory framework for insurance/reinsurance activities? Regulatory framework Insurance activities (including reinsurance) are primarily regulated by the following legislation:
As set out in the legislation, insurance activity involves the following parties:
Insurance activity is also subject to general legal principles. For example, insurers are prohibited fr om insuring illegal interests, damages caused by gambling, or expenses related to hostage recovery. Regulatory body Insurance activity was previously controlled and supervised by the Federal Finance Market Service (FFMSC). However, as a result of administrative reforms in 2013, the FFMSC was incorporated into the Bank of Russia. The regulatory functions of FFMSC are now performed by the relevant department of the Bank of Russia. REGULATION OF INSURANCE AND REINSURANCE CONTRACTS 3. What is a contract of insurance for the purposes of the law and regulation? How does it differ from a contract of reinsurance? Insurance contract Under a contract of insurance, the insurer is obliged to cover the insured's damages and other negative consequences (such as loss of property, payment of contractual damages to third parties, disability and personal injuries), if an event stipulated in the contract occurs. The exact amount of compensation paid to the insured must be indicated in the insurance contract as well as the amount of premium paid to the insurer for its services. The contract of insurance must be in a simple written form executed by the parties. In practice, most insurers offer standard drafts of insurance contracts which may be non-negotiable. Reinsurance contract A reinsurance contract creates an obligation for the insurer to cover the insured's damages or other negative consequences. Such contracts may be entered into between the initial insurer under the insurance contract and a subsequent insurer which undertakes to cover the initial insurer's expenses related to payments to the insured under the insurance contract. 4. Are all contracts of insurance/reinsurance regulated? The following types of insurance contracts are regulated by the legislation:
CORPORATE STRUCTURE 5. What form of corporate organisation can insurers take? An insurer can take any form of corporate organisation recognised under the applicable law. In practice, Russian insurers usually take the form of:
REGULATION OF INSURERS AND REINSURERS 6. Are all insurers and reinsurers regulated? Are they all regulated in the same way? All insurers and reinsurers are regulated under the same principles and provisions of the legislation. 7. Can insurers and reinsurers carry on non-insurance business? Are there any restrictions on their business activities? Insurers and reinsurers cannot carry on non-insurance business activity under mandatory provisions of the legislation. 8. Are there any statutory limits or other restrictions on, or requirements relating to, the transfer of risk by insurance or reinsurance companies? In general, obligations under an insurance contract (insurance portfolio) are transferable. However, such transfers can only be performed on certain conditions being fulfilled, for example:
OPERATING RESTRICTIONS Authorisation or licensing 9. Does the entity or person have to be authorised or licensed? Insurance/reinsurance providers All insurance or reinsurance activities must be licensed by the Bank of Russia. A party seeking a licence must provide a number of documents specified in the Insurance Law to the Bank of Russia (such as licence application, foundation documents, legal entity state registration documents and shareholders information, among others). Within 60 days of receiving these documents, the Bank of Russia will grant a licence or decline an application on a limited number of specific grounds. The grounds for refusal of the grant of a licence are, among others:
Insurance/reinsurance intermediaries All insurance or reinsurance activities (including mutual insurance activities and broker insurance activities) are subjects to licensing by the Bank of Russia. 10. What are the main exemptions or exclusions from authorisation or licensing? There are no exemptions or exclusions from the licensing of insurance or reinsurance activities. Restrictions on ownership or control 11. Are there any restrictions on the ownership or control of insurance-related entities? Insurance/reinsurance providers There are no expressly stated restrictions on ownership or control of insurance-related entities. However, Russian governmental bodies have a right to refuse acquisition of control over an insurance-related entity in certain circumstances:
Insurance/reinsurance intermediaries See above, Insurance/reinsurance providers. 12. Must owners or controllers be approved by or notified to the relevant authorities before taking, increasing or reducing their control or ownership of the entity? Insurance/reinsurance providers Owners or controllers of an insurer must obtain such approval from the Bank of Russia before:
In addition prior approval of the FAS or Government Commission may be needed if changes in control or ownership over the insurer fall under anti-monopoly or foreign investment legislation. Insurance/reinsurance intermediaries See above, Insurance/reinsurance providers. Ongoing requirements for the authorised or licensed entity 13. What are the key ongoing requirements with which the authorised or licensed entity must comply? Insurance/reinsurance providers Entities that perform insurance activities must:
Insurance/reinsurance intermediaries See above, Insurance/reinsurance providers. Penalties for non-compliance with legal and regulatory requirements 14. What are the possible consequences of an entity failing to comply with applicable legal and regulatory requirements? What recourse do policyholders have if they have done business with a non-approved entity? Insurance/reinsurance providers The Bank of Russia can issue a warning to an insurer if it fails to comply with applicable legal and regulatory requirements by, among other things:
If the insurer fails to comply with the warning requirements, the Bank of Russia can either:
If the insurer fails to comply with the warning requirements after a licence is limited or suspended, the Bank of Russia can recall the licence altogether. In the case of a licence recall, the insurer can apply for a new insurance licence in the future. However, this is unusual as a licence recall usually leads to insolvency. Within six months after its licence has been recalled, the insurer must:
A policyholder who has done business with a non-approved entity can both:
Insurance/reinsurance intermediaries See above, Insurance/reinsurance providers. Restrictions on persons to whom services can be marketed or sold 15. Are there any restrictions on the persons to whom insurance/reinsurance services and contracts can be marketed or sold? There are no specific restrictions on the persons to whom insurance/reinsurance services and contracts can be marketed or sold. REINSURANCE MONITORING AND DISCLOSURE REQUIREMENTS 16. To what extent can/must a reinsurance company monitor the claims, settlements and underwriting of the cedant company? Reinsurance companies are not obliged to monitor the claims, settlements and underwriting of the cedant company. However, some information may be obtained from public sources, such as information regarding claims and court proceedings, accounting reports and major transactions. 17. What disclosure/notification obligations does the cedant company have to the reinsurance company? Once a contract is concluded, the cedant company's disclosure and notification obligations to the reinsurance company depend on the contract. However, the cedant company must disclose the fact of the reinsurance agreement on the internet. INSURANCE AND REINSURANCE POLICIES Content requirements and commonly found clauses 18. What are the main general form and content requirements for insurance policies? What are the most commonly found clauses? Form and content requirements Insurance contracts must be concluded in writing. They can be either:
In addition, insurance contracts must include the following terms:
Commonly found clauses Clauses commonly found in insurance policies include:
19. Is facultative or treaty reinsurance more common? What are the most commonly found clauses in reinsurance policies? Facultative/treaty reinsurance Facultative reinsurance is more common. Treaty (or obligatory) reinsurance is not recognised under Russian law. Commonly found clauses Commonly found clauses are the same as for insurance policies (see Question 18, Commonly found clauses). Russian law does not recognise the concept of follow-the-fortune as a separate doctrine, but in practice when risks have been ceded, the reinsurer takes on the same terms as the ceding company for that risk. Implied terms 20. Are there any terms that are implied by law or regulation (even if not included in the insurance or reinsurance contract)? Principles of the Civil Code apply to insurance and reinsurance contracts. For example, a principle of good faith that (in the context of a contract of insurance) means, among other things, the insured's obligation to disclose to the insurer significant information related to the insured event. Customer protections 21. How do customer protections in the general law affect insurance contracts? What customer protections are generally included in insurance policies to supplement this? The insured can terminate the insurance contract at any time. If this is the case, the insurance premium may be retained by the insurer (although the insurance agreement may provide otherwise). The insurance contract can stipulate the cancellation procedure and the exact rules for policy cancellation by the insurer. However, this is not common. Standard policies or terms 22. What are the main standard policies or terms produced by trade associations or relevant authorities? The insurance trade associations have work groups and committees that participate in the legislative process. The Ministry of Finance has some standard policies, such as policies for compulsory third party liability car insurance. Insurance companies usually have standard framework contract terms. INSURANCE AND REINSURANCE POLICY CLAIMS Establishing an insurance claim 23. What must be established to trigger a claim under an insurance policy? The insured must notify the insurer without delay if an event specified in the insurance contract occurs. The law does not specify the form of notification and what proof must be provided. The insurance contract usually stipulates that the insured must both:
If the insured fails to notify the insurance company in time, the insurance company can refuse to pay insurance compensation under the contract, unless the insured proves in court that either:
Third party insurance claims 24. What are the circumstances in which third parties can claim under an insurance policy? Third parties can claim under an insurance policy if they are beneficiaries under the policy (for example, in the case of civil responsibility insurance contracts that cover responsibility towards third parties). Time limits 25. Is there a time lim it outside of which the insured/reinsured is barred from making a claim? There are time limits outside of which the insured/reinsured is barred from making a claim:
§ Under property insurance contracts: two years. The parties cannot amend the statutory limitation periods by agreement. Enforcement 26. Can the original policyholder or other third party enforce the reinsurance contract against a reinsurer? The original policyholder cannot enforce the reinsurance contract against the reinsurer. Under a reinsurance contract, the insurer under the main insurance contract is responsible to the original policyholder. In relation to insolvent insurers, see Question 29. Remedies 27. What remedies are available for breach of an insurance policy? If there is a breach of an insurance policy, the non-defaulting party can seek termination of the insurance contract and damages. There is no concept of aggravated damages in Russian law and recovery of damages is generally difficult. If the insurance company fails to provide insurance compensation, the insured can bring a claim for recovery of insurance compensation plus interest. These claims are usually dealt with within nine to 12 months in commercial courts (including consideration of the case by the court of appeal and the court of cassation). Punitive damage claims 28. Are punitive damages insurable? Can punitive damages be reinsured if they are covered by an underlying policy? Punitive damages are not recognised in Russia except for certain provisions in consumers' legislation. Therefore, generally punitive damages are not insurable. INSOLVENCY OF INSURANCE AND REINSURANCE PROVIDERS 29. What is the regulatory framework for dealing with distressed or insolvent insurance or reinsurance companies, or other persons or entities providing insurance or reinsurance related services? What regulatory and/or other protections exist for policyholders if the insurance company is insolvent? The Federal Law «on Insolvency» regulates insurance companies' insolvency. The policyholder can both:
The insolvency procedure can be started under any of the following circumstances:
30. Can excess insurance policies «drop down» to provide coverage if the primary insurer goes into insolvency? Whether excess coverage can «drop down» depends on the terms of the contract. There is no relevant established court practice. 31. Is a right to set-off mutual debts and credits recognised in an insolvency proceeding involving an insurer or reinsurer? This is possible but the right to set off mutual debts and credits in an insolvency proceeding involving an insurer or reinsurer is significantly limited. TAXATION OF INSURANCE AND REINSURANCE PROVIDERS 32. What is the tax treatment for insurers, reinsurers, and other persons or entities providing insurance and reinsurance-related services? Insurance companies are subject to federal, regional and local taxation. Therefore, insurance companies must pay income tax, value added tax (VAT), property tax, transport tax and land tax. Income tax is charged at 20% (on profit minus business expenses). INSURANCE AND REINSURANCE DISPUTE RESOLUTION 33. Are there special procedures or venues for dealing with insurance or reinsurance complaints or disputes? There are no special procedures or venues for dealing with insurance or reinsurance complaints or disputes. Parties can agree to settle a dispute by mediation or arbitration, or through the court system. 34. Are arbitration clauses in insurance and reinsurance agreements enforceable? Arbitration clauses in insurance and reinsurance contracts are generally enforceable. Under recent court practice, if the court finds that the arbitral institution that the parties have agreed on financially depends on one party (which raises reasonable doubts regarding impartiality), then an arbitration clause is not enforceable. 35. Are choice of forum, venue and applicable law clauses in an insurance or reinsurance contract recognised and enforced? Arbitration The parties can choose any arbitration centre or ad hoc arbitration to resolve their dispute. Court system The parties are free to agree on a venue to resolve their dispute within the Russian court system (a particular court of general jurisdiction or a particular commercial court can be agreed on). The parties are also free to choose any foreign law as an applicable law, if there is a foreign element in the contract (for example, one of the parties to the contract is a foreign company). If parties to the contract come from different jurisdictions, they can agree that a dispute will be resolved by the court of a foreign jurisdiction. REFORM 36. What proposals are there for reform of the law, regulation or rules relating to the provision of insurance or reinsurance services? Proposals for reform of the law include:
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Related areas
Труханов, Гармаев_Practical Law Global, Thomson Reuters_07.2014
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