Social Security System
Mandatory Insurance
Private Insurance and Pensions
Taking Out Insurance
Property and Liability Insurance

Personal Insurance

Social Security System

In a welfare state like Denmark, it is a public concern that everyone has access to a broad range of social security services. Most basic social security services are provided free of charge by the state, regional and local government. Many other services are partly subsidized by various public schemes. For example, this is to a large extent reflected in the relatively low level of compensations awarded for personal injuries.

Health and sickness
Social security services relating to health and sickness are the main areas of interest and concern. By law, each individual is entitled to free medical treatment from general medical practitioners, involuntary hospitalization and a variety of medical treatment requiring voluntary hospitalization. To varying degrees, medicine is subsidized by the state in order to ensure that those most in need receive the correct prescription medicine.

Danish citizens travelling on holiday within the Eurasian area are insured for the first month of their holiday by the state against sickness and for medical treatment in foreign hospitals. As a general rule, all other travellers such as business travellers and exchange students have to take out travel insurance against sickness and for medical treatment abroad.

Financial aid
Another key concern is the provision of financial aid for people who are unable to meet their own or their family's requirements as a result of unemployment or severe social or health problems. Financial assistance may be provided with repayment conditions and is often connected with educational or job training schemes. Assistance may also be provided in the form of home help to the elderly or disabled, or in the form of cash grants or subsidies in respect of medical or other equipment necessary to sustain an existence deemed 'tolerable' by Danish social and health standards. Additionally, the state secures the right to retirement and disablement pensions and benefits to nationals residing in Denmark and who have suffered a loss of earning capacity due to old age (mid-sixties) or disablement.

Underlying concerns
Social security legislation in Denmark only provides financial assistance and other services in the form of minimum benefits. The range and quality of benefits seem to be under increasing pressure due to the high costs of maintaining the welfare state and its range of social security services. At least this is the impression from public debate on the welfare state over recent years.

Consequently, features of the Danish social security system leave room for supplementary and/or alternative insurance schemes. Realizing this, legislators have in quite a few instances decided to extend the underlying considerations of the welfare state to other spheres of public and private life by way of legislation on mandatory insurance.

Mandatory Insurance

Mandatory by law

Among a number of types of insurances made compulsory by law, the most important are:

  • third-party liability in respect of motor vehicles;

  • workmen's compensation and occupational disease insurance (from which the state and municipalities may abstain in their capacity as self insurers); and

  • medical malpractice liability insurance.

It is also mandatory to take out insurance for agricultural property which must be properly insured against fire. People employing assistants and providing lodgings for employees are required to take out fire insurance for the property or properties. The owner or user of aircraft are under an obligation to take out insurance in respect of liability for property damage or bodily injury occurring outside the aircraft. Dog-owners' liability insurance is also mandatory by law. And attorneys, state-authorized public accountants and estate agents are either directly or indirectly required by law to take out professional indemnity insurance.

Mandatory by contract
Mandatory insurance may also be imposed by contract. This is the case in respect of fire insurance for the full value of real property and insurance covering loss or damage to cars which are financed by mortgage deed since such insurance is always required by the mortgagee. As regards real property fire insurance it is, as a main rule, mandatory by law for an insurance company to accept a proposal for insurance from the real property owner.

Construction contracts are usually governed by the General Conditions for Works and Supplies for Building and Civil Engineering Works, an agreed document stipulating, among other things, that the employer is liable to take out fire and storm insurance for buildings from the date works begin. In most other instances, insurance is governed by the principle of freedom of contract.

Private Insurance and Pensions

The Danish insurance and pensions industry is well developed and competitive. About 200 domestic and foreign insurance companies and over 30 multi-employer pension funds compete to offer a broad range of insurance and pension products.

Non-life insurance market
More than 170 insurance companies operate in the non-life insurance sector. About 80 of these companies are mutuals and about 70 are public limited companies. The rest are branch offices of foreign companies. Even though the number of insurance companies is quite large in comparison to the size of the population, 80% of premium income is shared between the 10 largest insurance companies of which the largest holds a market share of about 20% of earned premiums.

Foreign companies have an influential position in relation to premium income in the non-life insurance market. Insurance companies of foreign origin or under foreign control earn 30% of the total gross premiums. In relation to GDP (gross domestic product) Danish non-life insurance premiums are below average compared to the European Union.

Life insurance and pension market
The life insurance and pension market is split between about 80 companies and pension funds. About 50 companies are public limited companies. As is the case in relation to non-life insurance, this sector is dominated by a few large companies or groups. About 10 companies or groups account for a market share of 75% of premiums.

This sector, however, is predominantly under the influence of national companies, groups and funds as the market has only recently been deregulated in line with EU legislative requirements. Prior to deregulation no tax deduction was granted in respect of premiums paid to insurers which were not approved by the Danish Financial Supervisory Authority and to a large extent this rule has protected the interests of Danish insurers. An illustration of the lack of foreign dominance in this market is that less than 10% of total gross premiums is accounted for by companies under foreign control.

Sales and product distribution
In both markets, insurance and pensions are procured and underwritten through agents. However, this sales channel has been met with fierce competition over recent years as alternative points of sale have been introduced. Cooperation and mergers between insurance companies, banks and building societies have given rise to distribution through local branches and outlets of banks and building societies.

Moreover, the diversity and complexity of products on the markets have, to a certain degree, necessitated the introduction of broking in Denmark. This is a trend which is expected to continue in years to come. Products in the life insurance and pension sector are mainly distributed through voluntary or compulsory labour market pension schemes and many people take out additional financial security insurance after personal agreement and directly with an insurer or pension fund.

Income tax
Insurance companies are liable to pay income tax on their taxable income like any other company. The corporation tax rate is 32%. However, insurance companies are allowed to offset reserves for future liabilities against their taxable income. As an exception to the rule, multi-employer pension funds are not liable to pay income tax.

Even though insurance business is exempt from VAT (value added tax), a so-called payroll tax is levied upon insurance companies equalling about 5% of the company's total payroll.

Public legislation and regulation
The entire insurance industry in Denmark is regulated within the frameworks of the Danish Insurance Operations Act, which has been amended several times in line with EU legislative initiatives.

The act requires everyone conducting insurance-related business to obtain a licence. Licences are granted by the Danish Financial Supervisory Authority which also oversees the operation of insurance companies, including investment activities of insurance companies and pension funds. As a rule, investment must be conducted conservatively, this is, assets may only be invested with a view to obtaining the highest possible return with due regard to the security of the investments.

Under the rules of the Insurance Operations Act, companies or funds conducting insurance business must register with the Danish Commerce and Companies Agency, which oversee compliance with the rules on association, founding and changes.

The insurance industry must comply with national and EU acts on competition. National legislation is of most importance given the size of the country and the companies involved.

Apart from this legislation, insurance companies are free to operate and conclude contracts according to the principle of freedom of contract. This principle has, however, been abolished in a number of important respects. For example, certain general policy conditions have to be approved by public authority or phrased in accordance with public legislation. This is the case for general policy conditions on:

  • life insurance;

  • workmen's compensation insurance;

  • compulsory insurance such as third-party motor-vehicle liability insurance; and

  • insurance covering transfer of ownership of real property.

Other regulation
Because of the strength of consumer protection organizations, the insurance industry has accepted to negotiate and agree on the terms and conditions of, for example, comprehensive householders' insurance policies with the Consumer Affairs Ombudsman. This is an example of semi-private legislation whereby insurance companies are left to compete fiercely on price and service rather than on terms and conditions. This should lead to greater transparency in terms and conditions which will benefit the consumer.

Insurance is also regulated by civil law, notably by the 1930 Danish Insurance Contracts Act. This has been amended and supplemented by other acts and provisions, among others by the Danish Contracts Act, the Marketing Practices Act and the Certain Consumer Agreements Act.

A common feature is to protect the insured against the insurer and his presumed monopolistic power and - in most instances in relation to the insured - stronger standing. One of the most important principles laid down in the Insurance Contracts Act is that deviation from certain provisions are not allowed when it is to the detriment of the insured. These include:

  • provisions on the effects of misrepresentations made by the insured;

  • the effects of delayed payment of premium on the part of the insured;

  • the implications of intentional conduct and/or negligence in relation to the details of the insured event;

  • the insured's failure to comply with agreed safety measures and regulations; and

  • the obligation of the insured to notify the insurer of the circumstances of the insured event.

The insurance industry itself has also accepted to attempt to keep order between its own kind and its customers by the formation of different insurance and pension organizations with both informative, marketing and/or enforcing purposes. Among the most important of these organizations are the following:

  • the Danish Insurance Association, which is the trade association of for insurance companies and pension funds in Denmark;

  • the Danish Insurance Information Service;

  • the Danish Motor Insurers' Bureau;

  • the Danish Committee for Assessment of Sub-standard Lives; and

  • the Danish Insurance Institute, which is an educational institute formed by the insurance industry.

In various other respects the insurance industry works with public authorities such as the police and fire departments, and private organizations in order to prevent and minimize losses and damage and practise risk management.

Settling disputes and enforcing legislation
The Insurance Complaints Board is an important judicial body in dealing with policyholders' complaints, particularly where they relate to consumer affairs and in creating judicial precedent.

The board is made up of three Supreme Court judges, representatives of the Consumer Council, and insurance industry representatives. Consequently, the board possesses quite some experience and insight into legislative consumer-insurance matters.

Parties are not obliged to comply with awards made by the board, but the board is obliged to assist the consumer in bringing his or her case before an ordinary court of law if the insurance company declares that it does not intend to comply with an award of the board in favour of the consumer.

Legal disputes may also be settled before the ordinary courts of law which are organized in a hierarchy of three levels with access to appeal a judgment at least once and with special permission twice. As a general rule, a legal dispute should be brought before the municipal courts in the first instance but may - depending on the complexity of the matter, the economic values at risk or the principle nature of the matter - be brought before a high court (of either the Eastern or the Western division). A municipal court judgment may be appealed before a high court. Similarly, a high court judgment may be appealed before the Supreme Court provided the latter is second instance or special permission to appeal is granted.

Where a legal dispute involves or presupposes knowledge of maritime or commercial matters, the dispute may be brought before the Maritime and Commercial Court in Copenhagen with the possibility of direct appeal to the Supreme Court.

It is not uncommon for insurance policy conditions to include provisions on referral of disputes to arbitration. However, if the composition of the arbitral tribunal does not afford adequate protection for the policyholder, the provision regarding arbitration may be disregarded. Arbitration procedures in insurance matters are, however, far less frequent than dispute settlement before the Insurance Complaints Board and the ordinary courts of law.

Taking Out Insurance

The insurance companies and pension funds have a wide range of products on offer. However, the tendency seems to be for consumers to take out comprehensive policies particularly for household and motor vehicle insurance.

Business entreprises also tend to take out insurance as package policies. Therefore, it is not uncommon for a single policy to cover movable property, buildings insurance, general liability and compulsory industrial injuries insurance for employees all in one.

As far as pension schemes are concerned, these products may also be bought as package policies covering both personal accident and life insurance as well as providing for a pensions savings scheme.

There are, of course, different reasons for this pattern in taking out insurance, but the main reason may be that, as a result of fierce competition in the market, the insurance companies and pension funds are seeking to retain their customers by offering attractive discounts and bonus systems on premiums.

Property and Liability Insurance

Fire insurance
Fire insurance may be taken out separately but is usually taken out as an integral part of another type of insurance, for example, with residential building policies and ordinary householders' policies. These often also cover damage by fire to movable property in residential dwellings.

Loss of benefits insurance/business interruption insurance
As a general rule, property insurance only covers the capital interest attached to the property. However, separate insurance or extension of property insurance may be taken out in order to insure the profitability interest of the property so that loss of profits is reimbursed.

Liability insurance
Many types of liability insurance, ranging from compulsory liability insurance and private liability insurance to commercial liability insurance, fall under this heading. Some of these types of liability insurance are included in comprehensive policies. For example, this is the case in respect of householders' policies. Also, it is not uncommon to take out insurance with comprehensive cover for commercial and products liability.

Motor vehicle insurance
Third-party liability insurance is compulsory by law. Because of the high cost of cars and repairs in Denmark and on the request of mortgagees, most policyholders take out comprehensive motor vehicle insurance also covering loss or damage to the vehicle itself.

Theft and embezzlement insurance
Insurance against theft can be taken out separately. However, all householders' policies include cover in respect of theft and burglary. Embezzlement insurance is usually taken out separately as a so-called caution policy.

Legal aid insurance
Legal aid insurance must be taken out together with or as an extension to another comprehensive policy, for example, a householders' policy, a building policy or a motor vehicle policy. As the name indicates, the insurance covers costs in connection with legal assistance as a result of a legal dispute over, for example, the placing of blame for the occurrence of an insured event.

The Danish Competition Authority has recently ruled that Danish insurers' agreement on standardized and identical maximum sums insured and deductibles under legal aid covers violates the Danish Competition Act. Consequently, this agreement must be abolished by no later than December 31 2000.

Transport insurance
The Danish Marine Insurance Convention, rather than the Insurance Contracts Act, stipulates the rules on marine insurance. Insurance in respect of transport over land is not regulated by the Danish Marine Insurance Convention but the rules on this type of insurance closely resemble those of the convention.

Typically, under the convention, insurance covers loss or damage, resulting from an unforeseen event, to the hull of the vessel, its machinery, fittings, equipment and spare parts. Additionally, the insurance covers third-party liability. Cover may be extended to cover loss of profits and loss of freight as well as cargo insurance, for example.

Agricultural and livestock insurance
Agricultural and livestock insurance is typically taken out comprehensively and is designed to meet the needs and the special risks of the agricultural sector. Insurance cover is usually provided for buildings, contents, liability, livestock, crops, agricultural equipment and loss of profits.

Miscellaneous insurance comprises for instance voluntary and compulsory professional indemnity insurance, credit and caution insurance, travel insurance (which may also be incorporated in most comprehensive policies) and technical insurance to cover instruments.

Personal Insurance

Workmen's compensation and occupational disease insurance
The most important rules governing industrial injury and occupational disease insurance are laid down in the Workmen's Compensation Insurance Act whereby cover is granted for industrial injury and occupational disease. The benefits under the insurance include, but are not limited to, compensation for medical treatment and expenses, compensation for loss of earnings and compensation for permanent injury.

Accident insurance
Accident insurance usually covers death or disablement as a result of an accident. Cover is made by the payment of a lump sum or an annuity.

Private health insurance
To supplement the social security system an increasing number of people are choosing to take out sickness insurance to cover medical treatment at private hospitals, medical expenses and the entitlement to daily benefits in case of sickness.

Life and pension insurance
Many different products are available that provide life and pension insurance. Life insurance policies usually cover in the form of a lump sum or an annuity payable upon the death of the insured. It is also possible to take out endowment insurance policies. Pension insurance may be taken out on an individual or group basis and may include an old-age pension, disablement pension and survivors' pension (as a supplement to public pensions). Unit-link products are also available.

For further information on this topic please contact David Rubin or Jesper Ravn at Bech-Bruun Dragsted by telephone (+45 77 33 77 33) or by fax (+45 77 33 77 44) or by e-mail ([email protected] or [email protected])

The materials contained on this web site are for general information purposes only and are subject to the disclaimer.