Trends and prospects
What are the current trends in and future prospects for the insurance and reinsurance markets in your jurisdiction?
The local insurance market is receptive to global developments, including the development of insurance products. The market's low capacity to assume risks makes reinsurance indispensable, particularly in relation to large or catastrophic risks. Penetration of catastrophe bond (CAT) insurance will continue to develop, considering the physical characteristics of the country, and should reach state-owned assets either via insurance or CAT-like products, despite the fact that the government has not yet taken out such protection.
Insurtech will continue to develop, particularly via joint ventures between insurers and brokers and retail chains. For large and mid-sized companies, the appetite for cyber insurance will increase.
Longevity is an issue within the pension system, which is mainly based on individual capitalisation. This was reflected in a recent update by the regulator of the mortality tables, which have reduced pensions in anticipation of increased life expectancy. Insurers have noted the possibility of developing products for risks associated with longevity and in order to complement the pension system.
Congress is currently discussing a bill to modify capital requirements for insurers based on risk, which may have consequences in the capital requirement for some companies and the scope of risks that they take. Further, there are ongoing discussions to increase the level of corporate governance standards – in particular, the responsibility of boards of directors to adopt risk-management policies. This may affect in insurers’ selection of reinsurers.
What is the primary legislation governing the (re)insurance industry in your jurisdiction?
The primary pieces of legislation are the various laws of Congress and the regulations issued by the executive power and insurance regulator (the Superintendence of Securities and Insurance (SVS)). The Insurance Act (Decree with Force of Law 251/1931) governs insurers and is the main legal text regulating insurance. It establishes rules regarding:
- the activities of local insurers and reinsurers;
- the faculties of the regulator; and
- the basic operating guidelines for the market.
Under Law 21,000/2017, the SVS will be replaced by the National Finance Market Commission. General Norm 139, issued by the SVS, regulates the Insurance Act in respect of foreign reinsurance entities and brokers. The Commerce Code regulates insurance contracts. The adjustment of losses is regulated by Decree 1055/2012.
Which government bodies regulate the (re)insurance industry in your jurisdiction and what is the extent of their powers?
The highest-level insurance regulator is the SVS. The insurance intendant is the second in command and is in charge of various officers who in turn supervise insurers, reinsurers, intermediaries and loss adjusters.
The SVS has the power to inspect offices, review documents and books, and instruct on several matters, including the presentation of financial statements and accounts.
The SVS can also apply disciplinary measures, including the suspension of an entity's operation (for up to six months) and revocation of its authorisation as an insurer, reinsurer, intermediary or loss adjuster.
Law 21,000/2017 establishes the National Finance Market Commission, a new specialised government agency established to regulate and oversee activities in the financial, stock and the insurance and reinsurance markets, as well as the activities of agents. It will replace the SVS and come into operation later in 2017. Its council comprises five members, four of which must be proposed by the Chilean president and ratified by four out of seven Senate members. The council’s president is appointed by the Chilean president. All members of the new council have already been appointed and its operation should commence shortly.
Ownership and organisational requirements
Ownership of (re)insurers
Are there any restrictions on ownership of or investment in (re)insurers in your jurisdiction, including any limits on foreign ownership/investment?
There are no limits on ownership or investment in insurers or reinsurers where the capital is foreign.
What regulations, procedures and eligibility criteria govern the transfer of control of/acquisition of a stake in a (re)insurer?
Chilean law has no general limitations for mergers and acquisitions of insurers or reinsurers. However, in general, parties that are interested in such transactions must inform the Superintendence of Securities and Insurance (SVS) or the National Finance Market Commission’s council (once active) of a merger. The SVS (or the commission) must ordinarily approve the operation and must always approve potential amendments to a company’s bylaws.
If an acquisition involves 10% or more of the company’s capital, the SVS must be informed of the transaction and the persons entering into ownership of the company must prove that they have a patrimony at least equal to:
- the amount of the acquisition; and
- the minimum capitals.
If the company’s patrimony-at-risk is reduced and this is not remedied within the term fixed by the SVS (or the commission), the regulator may issue instructions limiting the transactions that the company can carry out.
Must (re)insurers adopt a certain legal structure in order to operate? If no mandatory company organisation applies, what are the common structures used?
Chilean insurers and reinsurers must be organised as sociedad anónimas (similar to corporations or public limited companies), which are limited by shares and have a board of directors composed of at least seven members.
Do any particular corporate governance requirements apply to (re)insurers, including any eligibility criteria for directors and officers?
Some requirements are established in SVS General Norm 309/2011, including that directors’ technical capabilities (eg, professional qualifications and experience) and moral integrity must be considered during the appointment process.
Which (re)insurers must obtain authorisation from the regulator before operating on the market and what is the procedure for doing so?
To obtain the regulator’s authorisation, insurers and reinsurers must present evidence that they have the minimum capital required, as well as other financial conditions. In addition, evidence will be presented showing that the controllers, majority shareholders, directors, administrators and officers have not been convicted of a crime or prohibited from conducting business or penalised by the insurance regulator.
Insurance and reinsurance contracts for Chilean risks are mandatorily subject to Chilean jurisdiction. However, the parties to a reinsurance contract may choose to apply foreign law and international arbitration may be agreed.
Domestic developments and impact of standards Global standards – including the principles of the International Association of Insurance Supervisors (IAIS) – are being adapted into Chilean law. The Superintendence of Securities and Insurance (SVS) is a member of the IAIS and has taken steps to apply its core principles in an effort to respond to new international standards of supervision. Thus, local regulation has increased the level of information made available to the public, and the International Finance Reporting Standards for companies supervised by the SVS are being implemented.
What are the minimum capital and solvency requirements for (re)insurers operating in your jurisdiction?
The minimum capital requirement is equivalent to UF90,000 (approximately $3.7 million). Further, shareholders must prove that they have a patrimony equal to at least the minimum capital requirement and the investment proposed for the company.
Do any other financial requirements apply?
(Re)insurers must maintain technical reserves and two risk ratings issued by approved risk rating agencies, as well as a five-year business plan.
Are personnel of (re)insurers subject to any professional qualification requirements?
Not specifically, general managers and main executives of the company (including actuaries and the internal comptroller or auditor) must present their CVs.
What rules and requirements govern the business plans of (re)insurers?
The business plan must detail:
- the lines of business, risk profile and objective market;
- projected costs;
- the capital projected to develop the business plan;
- an organisational scheme, detailing functions;
- a competitive strategy; and
- outsourcing requirements.
What risk management systems and procedures must (re)insurers adopt?
Risk management systems and procedures must include:
- policies and procedures;
- internal control systems;
- corporative governance;
- reinsurance policies and programmes;
- investment policies; and
- IT systems.
Reporting and disclosure
What ongoing regulatory reporting and disclosure requirements apply to (re)insurers?
Financial information must be sent electronically on a quarterly and annual basis to the insurance regulator. This information must include financial statements, an analysis and all essential and relevant facts.
Do any other operating requirements apply in your jurisdiction?
What are the consequences of non-compliance with the operating requirements applicable to (re)insurers?
The regulator may apply penalties which, in the case of wilful contempt of court, may include suspension of the (re)insurer’s licence to operate.
What general rules, requirements and procedures govern the conclusion of (re)insurance contracts in your jurisdiction?
While insurance and reinsurance contracts can be evidenced by any proven means, some documentary proof must exist demonstrating that the oral or written contract has been transmitted or recorded electronically, physically or otherwise. The insurer must issue and deliver the insurance policy within five days of its conclusion.
Are (re)insurance contracts subject to any mandatory/prohibited provisions?
In respect of insurance, mandatory norms in the Code of Commerce apply to insurance contracts that do not qualify as ‘significant risks’ – that is, those contracted by juridical persons that pay an annual insurance premium in excess of UF200 (approximately $8,200). Mandatory norms regulate the obligations of insureds and insurers, including general obligations regarding:
- the duty of disclosure;
- the aggravation of risk;
- the non-payment of a premium;
- bankruptcy; and
- conflict resolution.
In respect of those contracts considered significant risks, there is ample freedom of contract.
In respect of reinsurance, there is also ample freedom of contract, but the insurer cannot delay payment of the insurance indemnity on any grounds relating to the reinsurance.
Insurance and reinsurance contracts for Chilean risks are subject to Chilean jurisdiction. However, the parties to a reinsurance contract may apply foreign law and international arbitration may be agreed.
Can any terms be implied into (re)insurance contracts (eg, a duty of good faith)?
As in many civil law systems, the Civil Code and Code of Commerce set out terms and conditions that apply to all contracts, including insurance contracts – for example, good faith. Other terms are deemed to belong to the specific type of contract, such as the indemnity principle and specific requirements for aleatory contracts.
What standard or common contractual terms are in use?
The minimum requirements imposed by General Norm 124 also establish the standard terms, including:
- general conditions, such as:
- risks covered;
- insured matters;
- definitions for terms;
- the rights, duties and burdens on the parties; and
- conflict resolution methods;
- particular conditions – that is, general conditions that have been modified to fit a particular insurance contract; and
- additional clauses which expand insurance coverage.
What is the state of development in your jurisdiction with regard to the use of ‘smart’ contracts (ie, blockchain based) for (re)insurance purposes? Are any other types of financial technology commonly used in the conclusion of (re)insurance contracts?
In Chile, ‘smart’ contracts are in their infancy and barely used.
What rules and procedures govern breach of contract (for both (re)insurer and insured)?
Breach of contract is governed by the norms on insurance contracts set out in the Code of Commerce and complemented by the general rules on contracts in the Civil Code. In significant risk contracts and reinsurance, the parties may submit to foreign law (but not to a foreign jurisdiction).
In general, under Chilean law, breach of the insured’s duties may entitle the insurer to terminate the contract and, in case of a loss, not to indemnify it. However, in this case, it is generally considered that the breach must be significant and have a causal relationship with the loss.
What consumer protection regulations are in place to safeguard the rights of purchasers of insurance products and services?
The Consumer Protection Law 2004 plays a role in this regard. Under it, insureds can request the government body in charge of consumer protection to demand information from the (re)insurer and verify its fulfilment of obligations regarding the contract. However, the norms regulating the insurance contract should prevail over the Consumer Protection Law in respect of actions to claim insurance indemnity.
What general rules, requirements and procedures govern the filing of insurance claims?
Once the loss has been announced to the insurer, the process for adjusting the loss will commence. The loss adjuster must collect all relevant information and antecedents regarding the loss and issue his or her non-binding recommendation to the parties. The parties may object to the adjuster’s conclusions within 10 days. For larger insurers, the term is 20 days. The adjuster must respond to the objections within six days (which increases to 12 days for larger insurers). If the discrepancies between the parties persist after five days, the insurer must notify its final position to the insured. In its final communication to the insured, the insurer must inform the insured that it may resort to appropriate dispute resolution procedure in accordance with in the policy or law. As a rule, conflicts must be resolved by arbitration. However, if the controversy does not exceed UF10,000 (approximately $415,000), the insured can file a claim before the ordinary courts.
What is the time bar for filing claims?
The time bar is four years.
Denial of claim
On what grounds can the (re)insurer deny coverage?
In general, the insurer may deny coverage on the following grounds:
- the loss was not disclosed in time; however, in several decisions it has been established that this cannot be validly invoked if the insured was not in a position to disclose the loss, or if the delay in disclosure has not prejudiced the insurer;
- the contract was terminated due to non-payment of the premium;
- false declarations were made regarding the risk;
- there was a lack of support for the claim;
- an exclusion clause existed;
- rescission accrued due to aggravation of the risk; or
- limited measures were taken to prevent a loss or following the loss.
What rules and procedures govern the insured’s challenge of the denial of a claim?
The governing rules are the Code of Commerce and Decree 1055/2012 regarding the loss adjustment process. If the adjuster recommends that the claim be denied, the insured may object to the adjuster’s recommendation. If the adjuster maintains its position and the insurer accepts the adjuster’s recommendation, the insured must follow the policy’s clause regarding resolution of conflicts. In the absence of such a clause, the insurer may commence legal proceedings before an ordinary court or an arbitrator.
On what grounds can a third party file a claim directly with the (re)insurer?
A third party can file a claim directly with the (re)insurer only when it has assigned its rights against the reinsurer to the insured. If the insurer has commenced bankruptcy proceedings, the creditors (through the receiver) may pursue the claim with the reinsurer.
Are punitive damages insurable?
No. Chile does not have punitive damages, and penalties cannot generally be insured, since they are deemed to contravene public order.
What regime governs (re)insurers’ subrogation rights?
On payment (partial or total) of the insurance indemnity, the insurer automatically subrogates the insured in all of its rights and actions against third parties responsible for the loss. No assignment of rights is required.
How are the services of insurance intermediaries regulated in your jurisdiction?
Insurance and reinsurance intermediaries must be approved by the Superintendence of Securities and Insurance (SVS) and registered as such. Brokers (or their representatives in the case of companies) must:
- pass a proficiency exam;
- have no limitations under insurance law; and
- present a bank guarantee or a policy of professional indemnity to the SVS.
Further, conflicts of interest are prohibited – for example:
- directors or administrators of insurers or administrators cannot be intermediaries;
- employees of a loss adjuster cannot be intermediaries; and
- reinsurance brokers cannot be insurance brokers.
To be approved, reinsurance intermediaries must obtain a professional indemnity policy for no less than UF20,000 (approximately $830,000) or one-third of the premium intermediated in the previous year, whichever is higher.
In addition, foreign reinsurance brokers must present evidence that they have been incorporated as a juridical person in their country of origin and can intermediate risks ceded from abroad. They must appoint a representative in Chile with broad faculties, including the ability to serve suits on behalf of the intermediary.
What tax liabilities arise in the conduct of (re)insurance business?
Insurers and reinsurers established in Chile are principally subject to the Income Tax Law. The rate for 2017 is 25.5% and from 2018 onwards it will be 27%. Value added tax is imposed on some types of insurance at 19%.
In respect of insurance contracts agreed outside Chile, a 22% withholding tax applies. For reinsurance, a 2% withholding tax applies. These withholding taxes do not apply to several states which have entered into tax treaties with Chile (including Argentina, Australia, Belgium, Brazil, Canada, China, Colombia, Croatia, Denmark, Ecuador, France, Ireland, South Korea, Malaysia, Mexico, New Zealand, Norway, Paraguay, Peru, Portugal, Spain, Switzerland, Sweden, South Africa, Russia and the United Kingdom).
What regime governs the insolvency of (re)insurers?
Insolvency is regulated by the Law of Insurance. Its norms apply if the patrimony of the company falls below the minimum or if there is an investment deficit or overindebtedness. In such cases, the regulator may fix a term to resolve the situation. Otherwise, it may liquidate the company, with the regulator acting as the receiver. The regulator may reach agreements with creditors for the reorganisation of the company.
Effect on insureds
How does a (re)insurer’s insolvency affect insureds and the (re)insurer’s obligations to insureds?
In bankruptcy liquidation proceedings, the insurer may claim as if it were any other creditor. The norms do not clearly establish whether the proceeds of facultative reinsurance benefit the reinsured or the majority of creditors.
Are there any compulsory or preferred venues for insurance litigation in your jurisdiction?
Arbitration is mandatory in insurance matters; however, if the claim is less than approximately $415,000, the insured may decide to litigate before the ordinary courts.
How are insurance disputes with a cross-border element handled in your jurisdiction?
Under mandatory norms, all Chilean insurance and reinsurance matters are subject to Chilean jurisdiction.
What issues are commonly the subject of insurance litigation?
Most litigation concerns the coverage and quantum of indemnity. The interpretation of policies plays an important role in determining the scope of coverage – particularly where a policy is in English and based on the common law system, as opposed to the civil law system applicable in Chile.
What is the typical timeframe for insurance litigation?
Arbitration in the first instance takes at least one year. Appeals may take an additional six months. First-instance litigation before the ordinary courts may take at least two years and appeals before the appellate court and the Supreme Court may take an additional two years in total.
What regime governs the arbitrability of insurance disputes?
As a rule, all insurance disputes are subject to arbitration, unless the insurer decides to litigate before the ordinary courts in cases amounting to less than approximately $415,000.