A Q&A guide to insurance and reinsurance law in Spain
Spain's regulatory framework is largely based on EU insurance directives. However, the government still plays an important role in the regulation of insurance and reinsurance activity. In particular, in insurance mediation, the government has adopted an interventionist approach which extends to interpreting EU legislation in a way that does not always bear a strong resemblance to the text of the EU directives (through "gold-plating'' techniques).
The government (the Ministry of Economy and Treasury) acts through the Insurance Authority (Dirección General de Seguros y Fondos de Pensiones) (DGSFP), which is the relevant supervisory body for the insurance industry.
The following important current market trends should be highlighted:
Recently there have been many alliances between insurers and saving banks, whereby the saving bank sells a part of the shares it holds in its own insurer to an insurer, resulting in important joint ventures. Therefore, the savings bank obtains a cash injection and gets the maximum use of its insurance business, and the insurer can offer its products to a wider range of clients (due to the savings bank's network). However, this market trend is not as strong now as it was a few years ago.
The DGSFP has announced its intention to implement the Solvency II Framework Directive through a new Act on the Regulation and Supervision of Private Insurance Activity, which will succeed the current Consolidated Act on the Regulation and Supervision of Private Insurance Activity approved by Legislative Royal Decree 6/2004 dated 29 October (Texto Refundido de la Ley de Ordenación y Supervisión de los Seguros Privados) (TRLOSSP) (see Question 2). The DGSFP expects the Act to be passed by March 2012. The implementation of the Solvency II Framework Directive requires the modification of nearly all the articles of the TRLOSSP. The main changes affect:
the capital requirements (in particular solvency capital requirements and the minimum capital requirements, as well as capital add-ons);
the governance system (including the risk management function, the compliance function the internal audit function and the actuarial function);
the supervision of insurance groups.
The main concern is the possible effects that the implementation of the Directive may have on the insurance market, which is split into many small insurers (there are more than 300 insurers in the market). Specifically, many smaller insurers may disappear if they are unable to meet the capital and solvency requirements.
The rules for the regulation of the insurance sector are mainly contained in the TRLOSSP and its implementing Regulation, approved by Royal Decree 2486/1998 dated 20 November (ROSSP).
The activity of insurance and reinsurance intermediaries is regulated under the Insurance Mediation Act (Ley 26/2006, de Mediación de Seguros y Reaseguros Privados) (LMSRP).
The DGSFP is responsible for ensuring compliance with the legislation and can impose sanctions on entities which fail to comply with their regulatory obligations. In addition, the DGSFP regularly issues criteria which aims to clarify the meaning of the provisions of the above acts, in particular the LMSRP. These criteria are important to demonstrate the DGSFP's opinion about an unclear issue. However, they are not binding and are merely guidelines or recommendations addressed to insurers, reinsurers and intermediaries.
Insurance contracts must also comply with the Insurance Contract Act (Ley 50/1980, de Contrato de Seguro). This Act is mandatory (parties cannot contract out of it, unless the provisions agreed are more beneficial for the insured) for all insurance contracts except for large risk insurance contracts and reinsurance contracts, where the parties can agree clauses different from those established in the Insurance Contract Act.
Pension plans and funds are regulated under the Consolidated Act on Pension Plans and Funds, approved by Royal Legislative Decree 1/2002, dated 29 November (Texto Refundido de la Ley de Regulación de los Planes y Fondos de Pensiones), implemented by the Regulation on Pension Plans and Funds (Reglamento de Planes y Fondos de Pensiones), approved by Royal Decree 304/2004, dated 20 February.
An insurance contract is a contract whereby the insurer is committed, within the agreed parameters and after receiving the corresponding premium, to compensate the damage suffered by the insured or to provide certain capital, income or other benefits agreed in the contract if the risk covered by the insurance contract takes place (Article 1, Insurance Contract Act).
All insurance contracts are regulated. Generally, insurance contracts are regulated under the Insurance Contract Act (see Question 2), although some specific insurance contracts, such as air or marine insurance, are regulated under specific Acts.
The TRLOSSP, the ROSSP and the LMSRP were drafted on the basis of the insurance market because the reinsurance market is small in Spain. The TRLOSSP hardly mentions reinsurance activity (there are only two Spanish reinsurance companies specifically dedicated to reinsurance, one of which is linked to a major insurance group).
However, on 16 November 2005 Directive 2005/68/EC on reinsurance (Reinsurance Directive), was incorporated into legislation by an amendment to the TRLOSSP. Therefore, the TRLOSSP includes a new Chapter V "Reinsurance" (Articles 57 and 58) where all legal requirements related to reinsurance activity are defined.
The corporate purpose of an insurer is limited to insurance business and other related operations set out in Article 3.1 of the TRLOSSP (such as damages prevention activities or capitalisation operations) (Article 11, TRLOSSP). Therefore, insurers are prevented from carrying out other activities different than these.
The corporate purpose of a reinsurer company is limited to reinsurance business and other related operations (such as carrying on statistical studies and analysing risks) (Article 11, TRLOSSP). Reinsurers are prevented from carrying on activities other than these.
There are no statutory limits or other restrictions or requirements relating to the transfer of risk by insurers or reinsurers (to reinsurers and retrocessionaires (that is, a reinsurer which accepts a portion of the cedant's underlying reinsurance risk from another reinsurer), respectively). There are typically fronting operations in the market where the direct insurer transfers 100% of the risk underwritten to reinsurers.
Insurers. A company intending to operate in the insurance sector in Spain must apply for authorisation from the DGSFP (except those companies domiciled in the European Economic Area (EEA) intending to operate in Spain under the "Right of Establishment'' or "Freedom of providing Services'' (FOS) regimes).
To apply for authorisation, the company must comply with certain requirements, set out in article 5.2 of the TRLOSSP. The most important requirements are as follows:
The company must be a public limited company (sociedad anónima), a mutual entity or a co-operative.
The corporate purpose of the company must be limited to insurance and related activities.
The company must file an activities programme with the DGSFP and comply with it.
The company must have the minimum share capital set out in the TRLOSSP (the minimum share capital depends on the insurance classes in which the company intends to operate).
The company must identify the shareholders or participants of the fund (the shareholders and participants must also comply with certain legal requirements).
The company must be managed by persons that fulfil certain honesty, qualification and experience requirements.
Companies intending to operate as insurers must prove that they meet all the above requirements.
In addition, the application filed with the DGSFP must include information on:
The classes of business it intends to undertake.
The geographical scope in which it intends to operate.
The projected budgets.
The financial results.
There may be additional requirements imposed on the applicant depending on the particular sector in which it intends to operate.
When an application is filed, the DGSFP has six months to decide whether to grant the authorisation. Due to the complexity of the procedures in some cases, this term is sometimes exceeded.
After authorisation is granted by the DGSFP, the Ministry of Economy and Treasury holds a right of veto, although it is almost never used.
The authorisation is granted for specific classes. If the insurer later decides to operate in different classes of insurance, it must file an additional application (with additional information and documents).
Spanish insurers (domiciled within the Spanish territory) intending to operate in an EEA member state (either under the FOS or Right of Establishment regimes) must apply for authorisation before the DGSFP.
Reinsurers. Reinsurance activities can be carried out by the following entities (Article 57, TRLOSSP):
Spanish reinsurers with authorisation from the Ministry of Economy and Treasury.
Spanish insurers with authorisation from the Ministry of Economy and Treasury to operate in the direct market, if they carry out reinsurance activities in the same classes for which they are authorised in the direct market.
Insurers and reinsurers domiciled in other EEA member states who are authorised to carry out reinsurance activities in their home member states.
Insurers and reinsures domiciled in third countries that carry out reinsurance activities in their own country.
To obtain the authorisation mentioned in the first bullet above, entities must file an application with the DGSFP. This application must contain information such as:
The risks it intends to cover.
The type of agreements it intends to enter into with the ceding companies.
A balance sheet.
After an application has been filed, the DGSFP has six months to decide whether to grant the authorisation. Due to the complexity of the procedures in some cases, this term is sometimes exceeded.
The Ministry of Economy and Treasury also has a right of veto on the issuance of the authorisation.
There are different types of insurance intermediaries (entities that market insurance and reinsurance products):
Agents. Agents can be either exclusive or non-tied agents. Exclusive agents distribute products on behalf of a single insurer, whereas non-tied agents are entitled to work with more than one insurer.
Insurance and reinsurance brokers. Independent intermediaries operating in the insurance and reinsurance markets to obtain the best deal to meet their clients' (the policyholder, in the case of insurance brokers) needs.
Bank-insurance operators. These are financial entities (banks, saving banks, and so on) who use their existing financial entity network to distribute insurance products. Like agents, bank-insurance operators can be either exclusive or non-tied.
Agents. The requirements are as following:
Exclusive agents. Before start operations in Spain, exclusive agents must be registered in the DGSFP registry. The relevant insurer is responsible for registering its exclusive agent with the DGSFP registry.
Non-tied agents. Non-tied agents must be authorised by the DGSFP before starting to distribute insurance products. For that purpose, they must file an application form with the DGSFP. This authorisation must contain information in relation to, among other things, their:
financial capacity;
qualification and professional experience;
honesty;
professional insurance liability policy;
activities programme.
After the DGSFP grants its authorisation, the non-tied agent is registered in the DGSFP registry.
Brokers. Insurance/reinsurance brokers must also comply with certain DGSFP authorisation requirements to operate and be registered in the DGSFP registry. These requirements are similar to those for non-tied agents (see above, Non-tied agents).
Bank-insurance operators. The financial entity must meet certain DGSFP authorisation requirements to operate and be registered in the DGSFP registry.
External auxiliaries. Although external auxiliaries are not intermediaries themselves, they collaborate with intermediaries capturing clients and carrying out administrative activities. External auxiliaries do not require an authorisation or licences because they do not carry out insurance mediation activities.
Professionals involved in the insurance sector. Administrative professionals to insurance/reinsurance-related activities (such as experts and adjusters) do not require specific administrative authorisations.
Underwriting agencies. An underwriting agency is a legal entity which provides and supplies insurance and reinsurance services in the name of and on behalf of an insurer or reinsurer (as if the insurer or insurer was providing the services itself) but does not cover the risks underwritten. As opposed to intermediaries (brokers and agencies), underwriting agencies do not need the insurer's prior authorisation each time they intend underwrite a policy, provided they are generally authorised to do so under the terms and limits of the contract or agreement entered into with the insurer or reinsurer.
Underwriting agencies intending to operate in Spain do not require DGSFP authorisation but the powers of attorney granted by the insurer must be submitted to the DGSFP before the agency starts to operate.
Spanish insurers and reinsurers must file for DGSFP authorisation before starting operations (see Question 8).
However, if an insurer domiciled in an EEA member state intends to set up a branch in Spain, it can operate under freedom of establishment after its home insurance regulatory authority has communicated it to the DGSFP. Therefore, Spanish authorisation is not required. Similarly, insurers working in Spain on an FOS basis do not require further authorisation after its home insurance supervisor has communicated it to the DGSFP.
Third countries' insurers and reinsurers operating reinsurance in their home country can accept reinsurance operations in Spain (Article 57, TRLOSSP).
Exclusive agents. The activity of exclusive agents is not subject to licence as such. Exclusive agents must registered by the insurer. Therefore, exclusive agents' activity is merely subject to prior communication to the DGSFP.
Non-tied agents and brokers. Non-tied agents and brokers' activities must be licensed and registered. The registry must also consider insurance and reinsurance mediators operating in Spain under rights of establishment or FOS regimes, who, subject to home regulatory authority authorisation, only have communication duties to the DGSFP.
External auxiliaries. External auxiliaries does not require authorisation or licences. However, it is quite probable that a new figure will be established by the pending Sustainable Economy Draft Bill, the "auxiliary adviser" (see Question 30). External auxiliaries can help with the management, performance and conclusion of insurance contracts. They are not subject to a licence, but must be registered in a special purpose-built registry:
By the insurer if they are helping exclusive agents.
By the non-tied agents, insurance and reinsurance brokers in other cases.
Professionals involved in the insurance sector. Adjusters and experts are not required any special authorisation or licence, but to be in possession of suitable qualification degree (see Question 8).
Underwriting agencies. At present underwriting agencies are not subject to any licence requirements (see Question 8). However, the underwriting agencies regime will be amended in a near future, as the Sustainable Economy Project Draft Bill reviews this matter (see Question 30).
The restrictions on the ownership or control of insurance-related entities in terms of age are the same than the restrictions provided for limited companies (legal age). However, there are specific and relevant requirements that insurance and reinsurance companies must comply with in terms of control, ownership, qualification and solvency:
Insurance and reinsurance companies must meet certain requirements to ensure solvency through the guarantee fund, solvency margin and technical provisions requirements (see Question 12).
Insurance companies' managers must meet certain requirements such as, to be commercially honourable, and to reach a certain degree of qualification and professional experience (see Question 8).
There are also relevant restrictions in terms of significant holdings (participaciones significativas) and close links (vínculos estrechos) (when the company has a stake representing at least 20%) which result from the acquisition, increase or decrease of share capital of by insurance or reinsurance companies (see Question 11).
In relation to insurance intermediaries, some specific qualification requirements are provided (for example, insurance brokers must have passed successfully a training course or an aptitude test in finance and insurance matters that complies with the DGSFP standards (Article 27.1.b), LMSRP)). In addition, at least half of the employees in charge of the administration of reinsurance brokers must have previous adequate experience (that is, at least two years) involved in the management, administration, control and counsel of public or private entities of analogous circumstances.
Insurance brokers must inform the DGSFP when taking, increasing or reducing their shareholdings which may lead to significant holdings or close links (Article 28, LMSRP). In particular, if an insurance broker has a significant stake in an insurance or reinsurance company or agent, this must be highlighted in all commercial documentation of private insurance mediation submitted by the broker (Article 33.3, LMSRP). Other information duties related to significant stakes are also set out under Article 42.1 of the LMSRP.
There are no specific restrictions on underwriting agencies, adjusters and experts (see Question 8).
The DGSFP requires prior notification of the following information for certain transactions (Article 22, TRLOSSP):
Any taking, increasing or reducing of shares involving any change of control of 10% or more of the company's share capital or voting rights.
Any transaction which results in the stake of a partner in a company exceeding 20%, 33% or 50%.
Any person or entity acquiring a dominant position within an insurance company.
After the DGSFP is notified, it has three months to oppose to the transaction and administrative silence is considered as approval. Failure to notify may result in serious penalties (see Question 13).
Before deciding if it must oppose to the transaction or not, the DGSFP must obtain a report on the operation issued by the Executive Service of the Commission of Prevention of Money Laundering (Servicio Ejecutivo de la Comisión de Prevención de Blanqueo de Capitales e Infracciones Monetarias) (SEPBLAC) (Article 22, TRLOSSP).
Insurance brokers must inform the DGSFP when taking, increasing or reducing their shareholdings which may lead to significant holdings or close links (Article 28, LMSRP). Therefore, brokers must inform the DGSFP about the link (Articles 33 and 42.1, LMSRP) (see Question 10).
Professionals involved in the insurance sector. No specific provisions are given by the relevant authorities before taking, increasing or reducing their control or ownership of the entity control or ownership of adjusters and experts (see also Question 8).
Underwriting agencies. As underwriting agencies represent insurance companies, if an insurance or reinsurance broker is willing to acquire a significant holding in an underwriting agency, the acquisition is also subject to the general regulation of significant holdings. Therefore, brokers must inform the DGSFP about significant stakes they have in underwriting agencies (Articles 33 and 42.1, LMSRP) (Criteria of the DGSFP number 00002939/2007, dated 5 July 2007). This information duty is aimed at brokers in relation to significant stakes in underwriting agencies and not the other way around.
Underwriting agencies are not considered to be insurance mediators by the LMSRP (Third Additional Stipulation) therefore the provisions given to insurance and reinsurance intermediaries do not apply to them.
The key ongoing requirements authorised insurance and reinsurance companies must meet are contained in the TRLOSSP and ROSSP (see Question 2).
Insurance and reinsurance companies must meet the legal requirements concerning the necessary technical provisions (provisiones técnicas) depending on the insurance activities that the company carries out (Article 16, TRLOSSP). These provisions, which are defined in Chapter II of the ROSSP, are aimed at ensuring the yield and liquidity of the company's investments.
Insurance and reinsurance companies must meet a solvency margin (margen de solvencia) as well, in accordance with the insurance core activity and classes of insurance (Article 17.2, TRLOSSP). The solvency margin is made up of assets without encumbrances and excluding intangible assets.
A third of the minimum amount of the solvency margin constitutes the guarantee fund (fondo de garantía) (Article 18, TRLOSSP). This fund comprises a legal reserve which must not be lower than certain legally fixed amounts depending on the classes of insurance the company practices. The value of solvency margin and the guarantee fund is set out in Chapter II of the ROSSP.
To ensure that company's accounting books reflect its actual financial situation, insurance and reinsurance companies must also comply with certain accounting obligations (Article 20, TRLOSSP). Therefore, individual and consolidated annual accounts must be supervised by auditors. This accounting information will be submitted to the DGSFP.
Insurance and reinsurance companies must periodically submit to the DGSFP online certain statistic-accounting information (annually, semi-annually and quarterly) as well as the company's annual accounts (Article 66, TRLOSSP).
The basic regulation on insurance and reinsurance intermediaries is set out in the LMSRP (see Question 2).
Like insurance and reinsurance companies, insurance and reinsurance brokers must also periodically (annually) submit to the DGSFP certain statistic-accounting information (Article 49, LMSRP) (see above, Insurance/reinsurance providers).
Professionals involved in the insurance sector. Insurance legislation does not establish any regulatory requirements applicable to experts and adjusters (see Question 8).
Underwriting agencies. The powers of attorney submitted to the DGSFP, must be updated so that the DGSFP is informed about modifications and cancellations (paragraph 4, Third Additional Stipulation, LMSRP).
The possible offences committed by insurance or reinsurance companies when failing to comply with legal or regulatory requirements are established in Article 40 of the TRLOSSP and depend on certain criteria, such as the nature of the infringement, the amount of the damage caused or the turnover resulting from the infringement. These criteria are also taken into account when adjusting the sanction to be imposed. The administrative infringements are categorised into three groups (Article 43, TRLOSSP):
Very serious.
Serious.
Minor offences.
Each of these three groups contains offences which are penalised as follows (Article 41, TRLOSSP):
Very serious administrative infringements. The legal consequences affecting the insurance company may be:
a) revocation of its administrative authorisation;
b) suspension of the administrative authorisation to operate in one or several insurance classes for between five and ten years;
c) publication of the activity comprising the administrative offence;
d) a fine amounted to 1% of its equity or from EUR150,000 (about US$225,404) to EUR300,000 (about US$450,807) (whichever is higher).
Sanctions a), b) and d) can be imposed simultaneously with sanction c).
Serious administrative infringements. The legal consequences are as follows:
suspension of the administrative authorisation to operate in one or several insurance classes for between five and ten years;
publication of the activity comprising the administrative offence;
a fine amounted to 1% of its equity or from EUR150,000 to EUR300,000 (whichever is higher).
Minor administrative infringements. The insurance company will receive a fine of up to EUR300,000 or a private warning.
Administrative offences committed by insurance or reinsurance intermediaries when failing to comply with legal or regulatory requirements are established under Article 55 of the LMSRP and are also categorised as very serious, serious and minor offences. The corresponding penalty to each offence depends on the category of offence. The applicable sanctions to administrative offences are the following (Article 56, LMSRP):
Very serious administrative infringements. The legal consequences are as follows:
a) cancellation of its registration in the special administrative Registry of insurance intermediaries, reinsurance brokers and technical directors;
b) suspension to operate as exclusive insurance agent, insurance broker or bank- insurance operator during a maximum period of ten years;
c) publication of the activity comprising the administrative offence;
d) a fine from EUR15,001 (about US$22,541.9) to EUR30,000 (about US$45,081).
Penalties on a), b) and d) are compatible to be imposed simultaneously with penalty on c).
Serious administrative infringements. The legal consequences are as follows:
a) suspension to operate as exclusive insurance agent, insurance broker or bank- insurance operator for a maximum of one year;
b) publication of the activity comprising the administrative offence;
c) a public warning;
d) fine from EUR15,001 to EUR30,000.
Sanction a), b) and d) are compatible to be imposed simultaneously with sanction c).
Minor administrative offences. The legal consequences are as follows:
public warning;
fine from EUR6,001 (about US$9,017) to EUR15,000 (about US$22,540).
No specific penalties or administrative offences are provided for underwriting agencies, adjusters or experts (see Question 8).
The restrictions to underwrite an insurance contract are the general restrictions to underwrite contracts set out in articles 1259, 1263 and 1264 of the Spanish Civil Code (that is, valid consent).
However, the Insurance Contract Act also sets out specific restrictions on the insured in life insurance contracts which must be highlighted:
In policies covering the risk of death, the written consent of the insured is necessary unless his interest in the insurance may be inferred (Article 83, Insurance Contract Act).
If the insured is a minor, not only is his written consent necessary, but also his legal representatives' written authorisation.
No insurance policies covering the risk of death can be underwritten if the insured is under 14 or disqualified, except in insurance contracts in which the death cover is lower or equal to the premium or the surrender value.
For reinsurance contracts, the only restriction is that the entity to whom the contract is marketed must be necessarily an insurer (the ceding company).
Reinsurance companies can monitor the claims by the well-known cláusula de control (claims control clause). Under this clause, the cedant cannot confirm the insured's cover or settle the claim unless the reinsurer's prior consent has been given.
Claims co-operatives clauses (cláusulas de cooperación o vigilancia) are also well known in the Spanish reinsurance market. These clauses impose the duty on the cedant to notify the reinsurer immediately of the loss and entitle the reinsurer to participate in the handling of the claim (by instructing adjusters, assessing the damage, and so on).
In addition to monitoring claims and settlements, reinsurance companies can also participate in policy underwriting if this is agreed by the cedant and the reinsurance company. For example, reinsurance companies can even directly assume the risk assessment (which is increasingly common in Spanish life insurance market).
Unlike insurance contracts, Spanish legislation only lightly regulates reinsurance contracts. Therefore, parties can agree whichever disclosure/notification obligations they prefer to ensure that the reinsurance company can assess the risk undertaken by the cedant (see also Question 15).
Article 8 of the Insurance Contract Act establishes the minimum content requirements of the insurance policies:
Name and surname or corporate name of the contracting parties and their address, as well as the designation of the insured and of the beneficiary, when applicable.
The concept in which it is insured.
Nature of the risk covered.
Designation of the insured objects and their location.
Insured sum or scope of coverage.
Premium amount, surcharges and taxes.
Maturity of the premiums, place and form of payment.
Duration of the contract, stating the day and time when it effectively starts and terminates.
Name and type of insurance mediator, if intervening in the contract.
In addition, Article 104 of the ROSSP sets out the information that the insurer must provide to the policyholder before underwriting the policy, also known as Nota Informativa (Information Note):
Applicable legislation.
Internal or external claim proceedings.
The country where the insurance company or the branch has its registered office and its corresponding address.
If an insurance mediator participates on the underwriting of the policy, some information must be included on its identity and position.
In relation to life insurance, there is certain information which must also be provided to the policyholder before underwriting the insurance contract (Article 105, ROSSP):
Coverage specification.
Duration of the contract.
Cases of resolution.
Conditions, periods and expiration of premiums.
To make clear that the policyholder is already aware of the above information when underwriting the policy, he must declare in the policy that he has already received the information required in Articles 104 and 105 of the ROSSP.
In addition, insurance policies must contain the clause for indemnification of extraordinary risks by the Insurance Compensation Consortium (Consorcio de Compensación de Seguros) when the policy implies the payment of the Consortium's surcharges. The Insurance Compensation Consortium, a public corporate entity attached to the Ministry of Economy and Treasury, has among its functions to satisfy the indemnities deriving from extraordinary risks to those insured persons who have paid the corresponding surcharges. The Consortium will always satisfy the indemnity, unless the insured had underwritten a special policy covering it (although this is not common as the insured would already be indemnified if it has paid the due surcharges) and the insurer is able to pay the indemnity.
Insurance policies usually contain other standard clauses, such as data protection clauses or the clause of express acceptance of restrictive clauses (see Question 18).
There are several clauses which should be included within insurance policies under the Insurance Contract Act:
The clause for indemnification of extraordinary risks by the Insurance Compensation Consortium (in accordance with the provisions laid down in the Consolidated Text of the Legal Statute of the Insurance Compensation Consortium, approved through Royal Legislative Decree 7/2004, dated 29 October). The extraordinary risks are those risks which due to their magnitude or nature of causes and effects, cannot be covered by regular insurance (Article 44, Insurance Contract Act). These types of risks are those caused by extraordinary and unlikely environmental or political and social events such as earthquakes, floods, terrorism, and so on.
The clause for indemnification of extraordinary risks by the Insurance Compensation Consortium is only required for policies with mandatory surcharges (that is, for material damage insurances: fire and natural events, terrestrial vehicles, other damage to property (for example, theft, glass breakage, damage to machinery, electronic equipment and computers, and so on)).
Data protection clauses are also required by Act 15/1999, dated 13 December 1999, on Personal Data Protection. The insurer must inform the policyholder about the rights to which he is entitled in relation to the personal data provided.
In relation to restrictive clauses and customers' rights (see Question 17 and 19) the insurer must also include in the wording of the policy a clause of express acceptance of restrictive clauses, by which the policyholder declares having read and understood the restrictive terms and conditions of the policy and accepts them.
The policy wording must contain a claims and complaints clause specifying the internal or external claim proceedings. In particular, insurance companies must have a customer service through which the insured may claim. The customer service is responsible for resolving the insured's claims (Article 63, TRLOSSP). See also Question 19.
Insurance regulation aim to protect customers' rights in policy underwriting. Current insurance legislative trend seeks greater transparency and sets increased protection for savers and policyholders.
Articles 104 and 105 of the ROSSP develop Article 60 of the TRLOSSP (see Question 17) setting out certain requirements concerning the duty of information that the insurance company must provide to the policyholder. Before underwriting the insurance contract the insurance company must inform the policyholder about the country and authorities supervising the activity of the company as well as the applicable legislation to the contract and to claims and complaints.
The Ministry of Economy and Treasury protects the balance of rights and obligations of the insured and the insurance company underwriting an insurance contract. In particular, the administrative protection on private insurance activities is regulated by the existing regulation on the protection of financial services clients (Act 44/2002, dated 22 November, on measures to amend the financial system, and its developing rules). Insurance companies must have a customer service responsible for resolving claims and complaints. Claims before the DGSFP are subject to this previous claim before the customer service appointed by the insurance company. Therefore, if the insured's claim before the customer service is not answered or it is rejected, the insured can claim before the DGSFP.
Clauses contained in policies which restrict the customers' rights must be specifically highlighted (usually, in bold), and must be specifically and expressly accepted in writing (Article 3, Insurance Contract Act) (see also Question 17).
The Association of Spanish Insurers and Reinsurers (UNESPA) used to prepare standard wording policies in relation to certain risks which were available and commonly used by insurers. However, UNESPA (or other trade association or relevant authority) no longer makes standard policies or terms (and currently it could raise some problems from the point of view of the competition authorities).
The only standard clause imposed by regulations is the clause for indemnification of extraordinary risks by the Insurance Compensation Consortium (see Question 18).
Different circumstances must be considered for a claim to be covered under an insurance policy (depending on the type of insurance contract).
Irrespective of the compliance with all the conditions required within the policy for coverage to be granted (such as the period of insurance, claims exceeding deductible under the policy and so on), for third party liability insurance, a claim falls under the scope of the policy if:
The insured has received a claim from a third party who seeks compensation for the damages caused as a consequence of the insured's negligent act or omission.
The claim falls under the temporary scope of the policy, paying special attention to either the discovery or the retroactivity period granted by the policy.
The insured did not cause the damage by gross negligence or bad faith.
Third parties can claim under an insurance policy against the insurer, either jointly with the insured or solely (Article 76, Insurance Contract Act (relating to civil liability insurance)). Therefore, Article 76 entitles prejudiced parties to direct action against the insurer. For this purpose, the insured must disclose the details of the policy to the aggrieved party so he can address a claim against insurer.
There is a two-year limitation period for claims related to damage insurance contracts (Article 23, Insurance Contract Act), while claims related to life, accidents and health insurance (that is, for claims related to personal damages) are time-barred after five years.
The cedant company's claims against the reinsurer are not subject to any special term. Therefore, the Civil Code applies and claims are time-barred after 15 years (Article 1964, Civil Code).
The original policyholder, the insured or other third party cannot enforce the insurance or reinsurance contract against a reinsurer as these contracts are totally independent, and therefore they are not entitled in any case to enforce the contract against reinsurer (Article 78, Insurance Contract Act). There is no contractual relationship between the above parties.
In the event of the insurer's voluntary or compulsory liquidation, the insured have a special privilege over the credit balance of the insurer's account with the reinsured. However, that priority must be enforced by the insured before the insurer's receivers and not before the reinsurer.
The following are the available remedies for breach of an insurance policy:
The insurance contract is void if at its conclusion no risk existed or the loss had already occurred.
The policyholder must inform the insurer about all the circumstances known that may influence the risk. Therefore, to a certain extent, the insurer has the duty of providing a risk questionnaire form for this purpose, or the policyholder is exempt from providing these details. If the questionnaire had been provided, the insurer may terminate the contract by a statement within a month after it became aware of the relevant circumstances on the questionnaire. If the loss occurs before this statement has been given, the indemnity will be reduced proportionally. However, the policyholder's malice or gross negligence generally implies that the insurer is released of its payment obligation.
In the contract's duration, the policyholder must inform the insurer about all circumstances increasing the risk. The increased risk allows the insurer to propose to the policyholder, in the following two months, an amendment to the contract. If the increased risk had not been communicated to the insurer, the contract may be terminated. However, if a loss occurs and the increased risk had not been communicated, the insurer is only released from its duties to pay if the policyholder or the insured has acted with bad faith. Otherwise, the insurer's duties are proportionally reduced to the difference between the agreed premium and the one that would have been applied if the risk had been dully assessed.
In relation to premiums, if the policyholder does not pay the first or single premium agreed in the insurance policy, the insurer can terminate the contract or request payment. In addition, if the loss occurs before the policyholder pays the first or single premium, the insurer has no indemnity payment duty. If the policyholder does not pay the further premiums, in cases of periodic premiums, his coverage is suspended within a month after its due date. In addition, if the insured does not claim its payment within six months after its due date, the contract is considered terminated.
The policyholder must inform the insurer of loss within the seven days after he was aware of the loss (or a greater term if agreed). If this duty is not fulfilled, the insurer can claim the damages resulting from this lack of communication, except if the insurer was aware of the loss through different means. In addition, the policyholder or the insured must provide detailed information, details and consequences of the loss. If this requirement is not met, the insured will lose its indemnity right if he had malice or gross negligence.
The policyholder and/or the insurer must reduce the compensation sought, or the insurer may reduce the indemnity proportionally to the importance of the damages and the degree of party culpability.
For damages insurance, if the amount insured exceeds the value of the interest insured, any party can seek a reduction of the amount and the premium. In this case, the insurer must refund the premium excess to the policyholder. If the loss occurs, the insurer must indemnify the damage actually caused. However, if the over-insurance was due to the insured's bad faith, the contract is void, and the insurer who acted in good faith can withhold the premiums due and the premiums corresponding to the current insurance period.
When two or more insurance contracts underwritten by the same policyholder with different insurers cover the same risk and for the same period, the policyholder or the insured must notify these circumstances to the insurers. If the insurers are knowingly not informed, in the case of over-insurance the insurers are obliged to pay the indemnity.
For life insurance, in cases of reluctance or inaccurate statements affecting the risk assessment made by the policyholder, the effects described in the second bullet point above apply. However, the insurer must not challenge the contract a year after its conclusion (or a shorter term if agreed in the policy between the parties) unless the policyholder had acted with malice.
If the age of the insured is incorrect, the insurer can terminate the insurance contract if the insured's real age exceeds the admission limits. In any other case, if the premium paid is lower than what it should be, the insurer's indemnity is proportionally reduced. If the premium paid is higher than should have been paid, the insurer must reimburse the premium excess.
If an insurer or reinsurer domiciled in Spain becomes insolvent, there are two different processes to consider:
Either the insurer itself or one of its creditors can request that the court being insolvency proceedings, proving that the insurer is actually insolvent.
The DGSFP decides to dissolve the insurer/reinsurer and put it into liquidation and, therefore, entrusts the Insurance Compensation Consortium with the liquidation of the company.
The Insurance Compensation Consortium (besides the functions mentioned in Question 17) is also responsible for liquidating insolvent companies under Article 14 of the Insurance Compensation Consortium Statute and Article 31 the Consolidated Act on the Regulation and Supervision of Private Insurance Activity. The administrative liquidation of an insurer by the Consortium could be carried out without the intervention of the Courts (it can be considered as an alternative to the liquidation of an insolvent company by the Mercantile Courts). One of its main purposes during liquidation is to protect the rights of insureds, beneficiaries and aggrieved parties, even purchasing their credits.
When insolvency proceedings are requested by either the insurer or one or more creditors, the Insolvency Act (Ley 22/2003, Concursal) applies. This Act applies to insolvency proceedings of all type of companies. However, some special provisions apply when the insolvent company is an insurer:
After the judge begins insolvency proceedings, he must communicate it to the DGSFP, so that the latter inform the rest of Insurance Authorities in the EEA and publish it in the EU's Official Journal.
The administration body (which is responsible for, among others, assisting and representing the insolvent company, issuing a report on the situation of the company, creating the list of creditors and preparing a list of the assets) must comprise three judge-appointed members:
a lawyer from the lawyers proposed by the Consorcio de Compensación de Seguros;
an economist or auditor from the economists and auditors proposed by the Consorcio de Compensación de Seguros;
the Consorcio de Compensación de Seguros.
The DGSFP can request the judge dealing with the insolvency proceedings to submit information on the status and development of the proceedings.
After the insurer is put into liquidation, the Consorcio de Compensación de Seguros conducts the liquidation.
If the insurer lacks liquidity during the insolvency proceedings, the Consorcio de Compensación de Seguros may advance the expenses required to guarantee the correct development of the insolvency proceedings.
For all other matters, general insolvency provisions apply.
One of the fundamental principles of insolvency law is that the unsecured creditors of an insolvent party rank pari passu in the insolvency (that is, they get paid out equally pro rata to their claims).
An exception occurs in relation to the insolvency of an EEA insurer under the Directive 2001/17/EC on the reorganisation and winding-up of insurance undertakings (which under Spanish law is implemented by Law 34/2003, of 4th November, which modifies the Consolidated Act on the Regulation and Supervision of Private Insurance Activity). The credit of the insured, beneficiaries and prejudiced parties in civil liability insurance have absolute priority over the rest of creditors against the insurer regarding the assets in which the technical provisions are invested (Article 59, Consolidated Act on the Regulation and Supervision of Private Insurance Activity).
The DGSFP can dissolve an insolvent insurer and put it into liquidation, even if none of its creditors or the insurer itself has requested the court to begin the insolvency proceedings. This usually happens after the DGSFP has already taken different, but unsuccessful, measures to avoid the insurer's liquidation.
If the DGSFP decides that the insolvent insurer must be liquidated, it entrusts the Consorcio de Compensación de Seguros with this. The liquidation is regulated under the Consolidated Act on the Regulation and Supervision of Private Insurance Activity.
Insurance and reinsurance companies are subject to the following taxes:
Corporate income tax.
Business activity tax. Business activities tax is a local tax levied yearly depending on the office space and other elements of the activity.
Insurance premium tax.
Insurance Compensation Consortium surcharges (an indirect tax on the premiums paid to insurance undertakings). After the reforms on the Consortium's legal regime (Act 12/2006, dated 16 May) life insurance contracts are also subject to the surcharge in the insurance of extraordinary risks.
In addition, if the insurer underwrites policies covering fire risks, it must collect, as an intermediary (charged to policyholders), the Fire Brigade Tax. The most efficient system to make the collection is through the Economic Interest Grouping created by UNESPA.
Insurance and reinsurance companies' insurance operations are VAT exempt, but they must comply with some formal obligations relating to VAT.
Mediation-related operations are VAT exempt. However, other activities or services provided by the mediator that are not strictly related to mediation (for example, risks management and reports) are not VAT exempt. Mediators are subject to income tax (individuals) or to corporate income tax (legal entities).
Insurance undertakings operating in Spain through the FOS regime must have a tax representative before starting its practice in Spain. This role can be carried out by either a person or an entity, provided he/it is resident in Spain. Tax representatives are liable to the Spanish Administration jointly with its represented clients. Due to this, large and professional corporations (for example, international law firms) providing this service are stopping this line of work, and tax representation will be mainly developed through small law firms.
Tax representatives have the following filing duties before the Spanish Administration on the entry of contracts:
Liquidation of the Consortium extraordinary risks and liquidation of companies surcharge. Even if the operations made by the insurer are exempt of paying the surcharge, the tax return must be filed monthly.
Income tax of non residents must also be filed monthly after the premium is received by an insurer working on FOS basis.
Communication to be eventually made to the Death Cover Insurance Contract Registry (Registro de Contratos de Seguro de Cobertura de Fallecimiento), regulated by the Act 20/2005, dated 14 November. Insurance entities (even entities working in Spain on FOS basis) must communicate to the Registry the name and passport/national identity number, policy number of the insured person on the life insurance policy covering the insured's death, unless the policyholder and beneficiary are the same person/persons. No information about premiums, policyholders or indemnities must be submitted. Under Royal Decree 398/2007, the information must be sent electronically.
At the end of every year, the insurer must file before the Tax Authority the annual information on insurance operations with third parties. The tax return must indicate the name and tax identification number of the policyholders, taking into account surrender value of the policy by 31 December.
On surrender or on payment of indemnities, either partial or total, 19% must be withheld by the insurer (through its tax representative). The withholding is declared and paid, quarterly. Annually, in the first 20 days of January, the annual pro-forma model 188 must be filed, indicating the identity of the policyholders to whom the withholdings should be attributed.
Act 44/2002 on Amending measures of the Finance Sector established the possibility of the insured complaining before the DGSFP. However, the claimant must previously complain before the customer service of the insurance company (see Question 18).
Apart from this, there are no further special procedures or venues for dealing with insurance or reinsurance complaints or disputes in Spain other than judicial courts or even arbitration. However, arbitration is not often used when concerning insured's claims.
There are no specific dispute resolution methods used to settle reinsurance claims. Most cases are settled out of court.
The Sustainable Economy Draft Bill has been recently approved by the government, the main proposals of which are the following:
The establishment of the auxiliary adviser (see Question 9). It will not only be able to participate in client capture and administrative functions, as the current external auxiliaries, but it will be able to aid the management, performance and conclusion of insurance contracts. The new Administrative Registry of auxiliary advisers will be responsible for their control. They will be subject to the same incompatibilities regime applicable to the insurance mediators with whom they collaborate, as well as have the required knowledge. They will act, at all times, under the instructions and responsibility of the mediator they collaborate with.
Before starting operations, underwriting agencies will have to receive the administrative authorisation of the Ministry of Economy and Finance. The agencies will have to fulfil a series of requirements, such as:
having to file an activity programme indicating the risks that are going to be underwritten, the insurers (accepting that underwriting agencies can work with more than one insurer) and representation terms under which they act;
file their organisational structure and internal surveillance procedures;
having an account independent from the other economic resources of the company that will only correspond to the business on behalf of the insurer and will be included with professional civil liability insurance or any other equal guarantee covering any possible professional negligence.
The underwriting agencies already established in Spain will have a year from the date the Act comes into force to adapt to these requirements.
For increased policyholders' protection and a further transparency in the industry, in addition to the information that must be provided to the client before the conclusion of an insurance contract, the Draft Act adds the requirement to report the breakdown of the portion of the premium for acquisition costs (showing, for example, broker's fees).
The Insurance Contract Act also has pending reforms. At present, the amendment is at preliminary stage, and the DGSFP has drafted the "Proposal for the Basis of Reform". This proposal leads to the introduction of a series of provisions related to certain insurance classes that are not included at today's Insurance Contract Act and will mean an important change of the insurance contract current regulation.
Main activities. The UNESPA is an association that represents over 95% of the insurance industry. Among its functions, it represents, manages and defends professional, economic and social interests that are common to the whole industry against any person, entity or organization, national or international.
W www.unespa.es/frontend/unespa/base.php
Main activities. This organisation studies the insurance market, and it publishes a number of reports and statistics related to the insurance sector. Its activities also include training, lecturing and on-line advising.
Main activities. This organisation, among other things, defends the interests of its associates, innovate and internationalises brokers' activity providing international networks that allow interaction, and represents its associates against other legal entities.
Main activities. This organisation aims to defend the interests of brokers before public entities and insurance companies, and to enhance the role of brokers among the general public.
Main activities. This organisation provides legal advice, services during negotiation and the duration of the operations, and responsibility pending negotiations.