In review: the essentials of insurance and reinsurance law in Cambodia

All questions

Insurance and reinsurance law

i Sources of law

The MEF launched an important reform in 2000 and 2001,⁵⁹ which consisted of an increase in the minimum capital held by insurance companies to 5 million SDRs as well as a classification of insurance companies into three categories. These categories were general insurance companies, life insurance companies and reinsurance companies. This was followed in 2011 by the introduction of a fourth category: micro-insurance companies.

The National Assembly of Cambodia adopted the new Law on Insurance, which was promulgated on 4 August 2014 and entered into force on 4 February 2015. The new Sub-Decree on Insurance supplements and reinforces the Law on Insurance.

Several sub-decrees should be adopted in the near future, which will be followed by many ministerial orders. The most important and notable changes will cover the following areas:

1. general and life insurance contracts;
2. insurance companies' liquidation and dissolution processes;
3. the micro-insurance legal framework;
4. insurance control; and
5. dispute resolution and disciplinary measures.

ii Making the contract

Generally, Cambodian regulations do not differ from other countries' regulations in terms of contract formation. The policy must be written and must indicate:

1. both parties' names and addresses;
2. the subject matter to be insured;
3. the type of covered risks;
4. the commencement date and location of risks;
5. the insured value;
6. the insurance premium and method of payment;
7. the method and conditions for declaration of risks;
8. the term of contract and period of coverage;
9. the terms and conditions of nullification and forfeiture of rights; and
10. the conditions for early termination.

For life insurance, it must also indicate the name of the beneficiary and the event and conditions for refund of the insured amount.

Regarding these standard requirements, it is worth pointing out that they are not always economically or practically adapted to some forms of insurance distribution networks. This is especially true for micro-insurance products, which should be easily executed. The new Sub-Decree on insurance maintains a written agreement and signatures; however, during the discussion with the private sector, the MEF has accepted paperless insurance policies.

In addition, the Law on Insurance and Sub-Decree on Insurance provide specificities that are sometimes difficult to understand. At first, it may appear normal that insurance policies are required to be written in the Khmer language⁶⁰ with clear terms and conditions, but the Law does not provide for any exception, especially for major risks and for cross-border risks.

Furthermore, both the Law on Insurance and the Sub-Decree on Insurance seem to indicate that no insurance policy can enter into force prior to the payment of the premium. Put another way, the payment is a condition for the enforceability of the insurance policy. This rule seems to be mandatory.

Surprisingly, the Law on Insurance foresees only three parties to an insurance contract: the insurer (or its representative), the insured and the beneficiary (the latter in the case of life insurance contracts). There is also a definition of a policyholder;⁶¹ however, it is not the usual definition of a policyholder as it is commonly understood. In addition, the Law does not mention the possibility of underwriting a group insurance policy even if, in practice, group insurance policies are widely spread out and accepted by the IRC, which even distinguishes between compulsory and facultative group insurance policies.

The Law on Insurance states that an insurance contract is a commercial contract, to which it can be objected that although the insurer may always be a merchant, the policyholder may not be.

Finally, the insurance regulations may conflict with others, leading to a Kafkaesque situation. For instance, a regulation applicable to general insurance companies (but interpreted as applicable to any institution) prohibits chairmen of the board from holding an executive role. However, the Ministry of Labour and Vocational Training, together with the Ministry of Interior, requires them to hold a working permit to get a business visa allowing them to lawfully remain on the Cambodian territory. The working permit requires an employment contract, which could not be arranged with a fake salary, since the General Department of Taxation could reassess it.

iii Interpreting the contractGeneral rules of interpretation

Currently, there is no rule of interpretation clearly stated in the Law on Insurance but there is a new law on consumer protection promulgated on 2 November 2019.⁶² Furthermore, there are very few rules of interpretation in the Civil Code.

However, because every insurance product must be approved by the IRC, this means that the IRC has its own interpretation, which may be used as a benchmark for policyholders and insureds covered under the same insurance policy.

The new Sub-Decree on Insurance mentions statutes of limitation for any actions related to insurance contracts, both for general and life insurance as follows – five years for general insurance contracts and 15 years in case of life insurance contracts.⁶³

Type of terms in insurance contracts

The IRC is also very cautious regarding the Khmer language terminology that is used.

A ministerial order on insurance contracts should be adopted detailing, inter alia, rules regarding conditions and interpretation.

The Law on Insurance and the Sub-Decree on Insurance add two important details regarding the interpretation of a contract.

First, and naturally, both regulations provide for nullification in cases where the insured (policyholder) has concealed the truth or wilfully misrepresented material facts leading to any change of the insured subject of risk.⁶⁴ However, negligence does not necessarily lead to nullification.

Second, the Law on Insurance provides that for property insurance, the indemnity made by the insurance company must be the same amount as the declared property, unless agreed otherwise.⁶⁵ This rule seems contradictory to the indemnification principle, although the reasons behind it are understandable. The Cambodian population is not familiar with insurance policies and may not understand that insurers provide an amount lower than the declared or insured value of the property. This rule obliges insurers either to assess the real value before covering the property or to state clearly that they will not pay the declared amount if it exceeds the actual value.

iv Intermediaries and the role of the broker

In addition to the descriptions in Sections I, II.iii and III.ii regarding the distribution of products, there continue to be very few active insurance brokers and most of these received their licences only recently – with an impressive peak in July 2018 with four new licensed brokers. However, with a very low insurance penetration rate among the Cambodian population, the lack of knowledge of many business people (especially local tycoons), the growing interest in insurance and stronger protections for duly licensed insurance companies are all factors that will contribute to an increase in the number of brokers.

Apart from this, brokerage in Cambodia is typically defined as acting on behalf of the policyholder. Although the brokers are organising themselves (there is a draft ethical code in circulation and an informal association exists), the legal relationship between insurance companies and brokers falls broadly under the Civil Code and more specifically under the regulation applicable to agency agreement.⁶⁶

Brokers are not specifically protected when bringing business to insurance companies, even if insurance companies generally comply with general standards in these situations.

v Claims

The Law on Insurance provides only a few rules regarding claims and the former legislation, which is still applicable, is useless in this regard. Therefore, claims must follow the common rules provided in the Civil Procedure Code.

The Law only states that the insurer may complain before the court to void its responsibility if a risk occurred because of a fraudulent act of the insured.

The Law also provides a subrogation mechanism to claim reimbursement of a duly paid insurance indemnity from the third party who caused the damage.⁶⁷ However, subrogation is not possible against relatives, managers, etc., except in the case of malicious acts caused by any of these. In addition, the Law on Insurance provides the victim with a direct payment mechanism against the insurance company for liability insurance.

The Law provides no payment of life insurance if the insured died by suicide.

The new Sub-Decree on Insurance provides the possibility to the parties of an insurance contract to determine the validity period of claims after the expiry date of the insurance contract – not less than five years for general insurance contracts and not less than 15 years for life insurance contracts. However, these validity periods are only applicable in the case that the insured or the beneficiary did not know of the occurrence of risk during the validity period of the contract.

As of the first quarter of 2021, claims for general insurance, life insurance and micro-insurance totalled US$9.1 million, US$2.1 million and US$0.20 million, respectively.⁶⁸ The total gross claims paid as of the first quarter of 2021 amounted to US$11.3 million.