David Lewin, Managing Director
Act Number 44 of June 10, 2005 (the “Insurance Activities Act”) relates to the activities of insurance companies, pension funds and pension companies. When the act was drafted, activities relating to non-life insurance were included in a separate chapter (Chapter 12) without any material review of the existing activities.
In various assignments to the Banking Law Commission, the Norwegian Ministry of Finance specified that a comprehensive review of the activity rules for non-life insurance should be initiated.
After several postponements, the Banking Law Commission submitted its Report Number 20, NOU 2008: 20, The Activities of Non-life Insurance Companies (Report), on October 29, 2008.
On the basis of the Report, the Ministry of Finance presented a white paper, Prop. 134 L (2009-2010), Amendments to the Insurance Activities Act (white paper) on May 28, 2010. The white paper’s main focus is the creation of a more thorough draft legislation of non-life insurance activities.
The draft legislation has been formulated for a new Chapter 12 in the Insurance Activities Act that will result in the enactment of the most important activity rules in the area of non-life insurance and a substantial enlargement of the scope of the legislation in this area. The draft legislation deals both with topics that have not been subject to regulation and certain material amendments to the current legislation.
According to the cabinet minister of the Ministry of Finance, the amendments are a necessary modernization of the regulations concerning non-life insurance companies. Their goals are to secure important consumer interests as well as to improve the competition between non-life insurance companies.
Summary of the Draft Legislation – Areas That Have Not Been Subject to Regulation
We describe here sections of an abstract from the white paper in order to summarize the draft legislation. The examined articles mostly comprise the topics that have not been subject to regulation in Chapter 12 of the Insurance Activities Act. The summary includes possible new provisions that Norwegian insurance companies will have to comply with if the legislation becomes law.
- Article 12-1 of the draft legislation prohibits the marketing and sale of insurance against penal sanctions (for example, traffic violations and illegal downloading via the internet), provided the insurance is considered to be in defiance of the legal system. However, insurance against civil liability (e.g., automobile insurance) or against directors and officers liability is excluded from the prohibition.
- The Ministry of Finance has the authority to determine if the insurance is de facto in defiance of the legal system. The Norwegian courts of law have judicial review of the individual decisions adopted by the Ministry of Finance.
- Pursuant to the current law, the extent to which non-life insurance companies can administer account arrangements (self-insurance schemes1) on behalf of legal or individual persons is not clarified. Article 12-2 stipulates that non-life insurance companies can assume administration of self-insurance schemes, provided that the non-life insurance company also assumes the insurance of the legal or natural person. As such, the non-life insurance companies have to assume an underwriting risk in part even if the non-life insurance companies do not provide an insurance service per se, but instead undertake to administer payments and allocations under the self-insurance scheme.
- Article 12-3 involves a duty for the non-life insurance company to ensure that its insurance agents comply with the Insurance Contracts Act Articles 2-1, 2-2, 11-1 and 11-2 in connection with entering into an insurance agreement with the insured. The said articles of the Insurance Contracts Act relate to information that the insured shall receive prior to entering into an insurance agreement (for example, through an insurance certificate). The insurer will be associated with the agent by means of information given by the agent. Furthermore, Article 12-3 stipulates that an insurance claim under an insurance agreement can be filed directly with the agent, in which case the insurance claim shall be regarded as filed with the insurance company in accordance with the Insurance Contracts Act Articles 8-5 and 18-5.
- Articles 12-5 and 12-6 of the draft legislation relate to the scale of premium rates and the calculation of premiums of non-life insurance. The proposed rules are meant to ensure that the calculation of premiums for non-life insurance is based to a greater extent on detailed and somewhat differentiated risk elements. Pursuant to Article 12-6, non-life insurance companies have, among other duties, a duty to re-estimate the premiums in case of non-conformity between the premiums and the risk-assumed. Article 12-6 even imposes on the non-life insurance companies a duty to raise the premiums that constitute an insufficient security compared to the responsibility under the insurance agreement.
- Articles 12-10 to 12-16 concern the technical insurance reserves in the non-life insurance industry. Among other things, the Ministry of Finance has recommended certain rules that depart somewhat from the rules in the current regulations concerning reserves. The reserves a non-life insurance company shall establish, pursuant to Articles 12-11 and 12-16, are the following:
– Premium reserves (Nw: premieavsetning) – cf. article 12-11;
– Reserves relating to non-accrued risk (Nw: ikke avløpt risiko) – cf. article 12-11;
– Outstanding claims reserves (Nw: erstatningsavsetning) – cf. article 12-12;
– Security reserves (Nw: sikkerhetsavsetninger) – cf. article 12-13;
– Reinsurance reserves (Nw: reassuranseavsetninger) – cf. article 12-14;
– Other reserves to cover risk-bearing derived from the Insurance Activities Act (Nw: andre avsetninger til dekning av risiko avledet av forsikringsvirksomheten) and natural hazard reserves (Nw: naturskadeavsetninger) – cf. article 12-15; and
– Guarantee reserves (Nw: garantiavsetninger) – cf. article 12-16.
- Based on recent amendments in the insurance contract legislation concerning insurance companies’ right to refuse to accept insurance policies for individual customers, the Banking Law Commission and the Ministry of Finance have proposed in Article 12-17 the establishment of a special distribution and allocation scheme for necessary insurance.
- The objective of establishing such schemes is to ensure that customers who would otherwise not have been able to purchase what may be regarded as fundamental insurance (e.g., loss of or damage to residence, personal accident, illness, etc.) will be able to purchase these insurance policies on acceptable terms and conditions even if special risk factors are present.
The proposed schemes will entail that all non-life insurance companies will help cover losses that may arise, however, the details of such schemes have not been prepared and the Ministry of Finance proposes that such schemes shall be governed by secondary Norwegian law (Nw: forskrift).
The draft legislation has not been adopted by the Norwegian legislators, but it focuses on new requirements for non-life insurance companies’ compliance. However, according to the Banking Law Commission and the Ministry of Finance, an implementation of the draft legislation will require limited resources from both the authorities and the private sector, including the non-life insurance companies.
We therefore anticipate that the amendments will be approved by the Norwegian parliament.
- A self-insurance scheme means that legal or individual persons carry the underwriting risk themselves instead of paying an insurance company to do so.
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