A Q&A guide to Insurance and Reinsurance in Finland.
The Q&A gives a high level overview of the market trends and regulatory framework in the insurance and reinsurance market; the regulation of insurance and reinsurance contracts; and the regulation of insurers and reinsurers, including regulation of the transfer of risk. It also covers: operating restrictions for insurance and reinsurance entities; reinsurance monitoring and disclosure requirements; content requirements for policies and implied terms; insurance and reinsurance claims; insolvency of insurance and reinsurance providers; taxation; dispute resolution; and proposals for reform. Finally, it provides websites and brief details for the main insurance/reinsurance trade organisations in Finland.
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This article is part of the PLC multi-jurisdictional guide to insurance and reinsurance. For a full list of contents visit www.practicallaw.com/insurance-mjg
The Finnish insurance markets are well developed and traditionally quite centralised. Companies and households are usually aware of insurance needs and are generally well insured. The popularity of life assurance, as an investment instrument, rivals that of other investment instruments that have been granted equal status in tax legislation.
The insurance market is dominated by insurance groups which offer comprehensive insurance products through specialised companies in particular insurance fields. These groups usually have stable market shares, with only minor changes. Increasingly, banks have formed business partnerships with insurance groups to form "financial department stores" offering a wide range of financial services.
Foreign insurance companies have joined the markets through EU laws concerning freedom of establishment and free provision of services. In the middle of the 1990s, insurance broker firms expanded their activities to Finland. However, domestic insurers are still able to compete with foreign insurers.
An important feature of the Finnish insurance market concerns pension insurance companies. Employers obtain pension insurance for their employees from one of the private insurance firms (which in many cases form part of insurance groups (see above)). Finland maintains a system which requires establishment in Finland in order to offer pension insurance in Finland. This system is allowed by the EU through a non-treaty derogation, although no prospect of removing this derogation is pending since little competition is expected due to different pension systems in other member states. Although pension insurance is strictly regulated it is very capital and investment intensive.
Specialised reinsurance companies and units within insurance groups operate in the Finnish reinsurance markets (both in outgoing and incoming reinsurance).
The Insurance Companies Act (521/2008) regulates the carrying out of direct insurance business outside pension insurance. It also applies to reinsurance companies (which are generally not expressly regulated). It contains provisions on:
Insurance companies' rights to carry on insurance business.
The administration, liability and solvency requirements of insurance companies.
Specific requirements for the life assurance business.
Rules concerning financial arrangements, distribution of assets and transformation or winding up.
Supervision of insurance companies.
Remedies.
Confidentiality.
Marketing.
Insurance mathematics.
The Insurance Companies Act is interpreted by the Financial Supervisory Authority, which has issued guidelines and prerogatives which are accessible on its website.
There is a distinction between mandatory and voluntary insurance. Mandatory insurance, which can be statutory or not, concerns insurance policies that must be obtained, such as motor liability insurance, pension insurance, and work accident insurance. Additional laws apply to statutory insurance, such as the Act on Pension Insurance Companies (354/1997) (pension insurance, an important part of the market, is not considered in detail in this chapter), Motor Liability Insurance Act (279/59), Patient Injuries Act (585/86), Environmental Impairment Liability Insurance Act (81/1998). In addition, the law recognises group insurance, which can cover group members mentioned in an underlying contract.
The Act on Foreign Insurance Companies (398/1995) regulates the conditions under which foreign insurance companies can carry on insurance business in Finland. It mainly implements EU law concerning companies established with the European Economic Area (EEA), but also contains provisions concerning insurance companies of non-EEA countries (who require a licence to operate in Finland (see Question 8)).
In addition, there are a number of Ministry of Social Affairs and Health decrees and decisions concerning the accounting and solvency of insurance companies. Solvency requirements are also governed by the Act on Insurance Classes (527/2008).
The Act on Insurance Mediation (570/2005) implements Directive 2002/92/EC on insurance mediation. In addition to the rules in the Directive, Act on Insurance Mediation also specifies that only a policyholder can be the client of an insurance broker and pay the commissions. The Act on Insurance Mediation applies to reinsurance mediation, with some important exceptions.
The Act on Supervision of Financial and Insurance Conglomerates (699/2004) regulates the supervision of insurance business in Finland, setting up the regulatory authority, the Financial Supervisory Authority. The Act on Financial Inspection (878/2008) provides the rules for the authority's organisation and powers. The Financial Supervisory Authority can issue binding instructions concerning activity. The most important are the Finnish Conditions on the General Good (2003:1).
General consumer protection authorities have authority within the field of consumer insurance, and anti-trust officials have authority when a competition issue is involved.
An out-of-court dispute resolution body, the Insurance Board, issues recommendations regarding individual cases. Its recommendations are published and provide general guidance.
A contract of insurance is not defined in law. The Insurance Contracts Act (543/1994) provides that:
Insurance of the person refers to insurance policies issued to insure natural persons.
Non-life insurance refers to insurance policies which indemnify the insured against losses arising from:
property damage;
losses sustained under liability for damages; and
other financial losses.
Insurance is defined by insurance practitioners as having the following characteristics:
The risk must be uncertain (not inevitable).
The risk must involve potential economic damage (therefore meaning that the insurable interest can be expressed in terms of money).
There must be a correspondence between the risk and the premium.
The risk must be divided between a large number of policyholders.
The insurer and the policyholder must be separate entities.
Contracts of insurance can be distinguished from other contracts in that they are provided by special institutions authorised to insure risks (see Question 8). For example, a bank cannot offer a product under which a borrower is released from his liability to pay interest or other payments because of unemployment or another accidental reason of economic distress, because the authorities have considered this to be insurance (although it does not fulfil the separate person condition since the bank is charging extra interest to cover its own risk of default by the creditor). Deductibles held by policyholders in more regulated fields of insurance, such as motor insurance, have also raised discussions since maintaining a high deductible has even been considered by the authorities to constitute insuring your own risks. Capitalisation agreements (life assurance type investments without a person insured) are now subject to the Insurance Contracts Act.
The word insurance is widely used in a social security context, but social security is regulated differently.
The Insurance Contracts Act does not apply to reinsurance, and there is almost no case law in this area. There is some legal literature to provide guidance in this field, principally derived from reinsurance practice interpreted in accordance with general principles of civil law. In addition, a reinsurance contract can be distinguished from a primary insurance contract purely on formal legal grounds (that is, the reinsurer does not have a direct contractual relationship with the policyholder).
The Insurance Contracts Act covers all contracts of primary insurance (insurance of the person or non-life insurance) (see Question 3, Contract of insurance). Additional regulations apply to statutory insurance (see Question 2, Insurance and reinsurance companies).
Reinsurance contracts are not expressly regulated and follow industry practice. Solvency requirements that apply to insurance institutions also apply to reinsurance institutions.
All insurers and reinsurers in Finland are generally regulated in the same way, although different laws may apply depending on the company form (for example, mutual insurers are governed by different legal provisions compared to other insurance companies).
However, insurance companies that are not established in Finland that offer policies under the principle of freedom of establishment under EU law are principally under the supervision of their home member state (although Finnish authorities can intervene in some cases). This leads to some differences in treatment.
Insurance and reinsurance companies are prohibited from carrying on non-insurance business, except business that is ancillary to insurance business, that is, representing other insurance or financial institutions based in the EEA in selling their products (Chapter 2, section 16, Insurance Companies Act).
An insurance company can transfer its entire insurance portfolio to another insurance company (Chapter 21, Insurance Companies Act). This requires the consent of the Financial Supervisory Authority, which can impose conditions and limitations authorised by the legal provisions.
An insurance or reinsurance undertaking has generally no statutory restrictions on transferring part or all of the risks it has underwritten to other insurance undertakings. Under contract law, an insurance company cannot transfer a contract of insurance to another insurance undertaking without the policyholder's consent and, at least in some situations, the parties having the right to claim on the policy. Such a situation might arise, for example, when the insured event has already taken place at the time of the transfer. There are also no restrictions based on the nationality of the undertaking to which the risk is transferred.
Statutory insurance and some forms of insurance based on mandatory legislation, such as motor liability insurance, may face stricter regulation concerning transferring risk (see Question 4, Insurance).
Both insurance and reinsurance providers operating in Finland must be authorised. Authorisation can be granted by the:
Finnish authorities.
Authorities of another state.
In the latter case, an undertaking established in the EEA can carry on business under the principle of freedom to provide services. There are statutory procedures for notification, under procedures set out by the home member state. Special provisions also apply in relation to Switzerland. Undertakings established outside the EEA must operate through a branch, the establishment of which requires authorisation. The Act on Foreign Insurance Companies, however, requires that authorisation must be granted, subject to the criteria set out in that Act being met.
A licence from the Financial Supervisory Authority is needed to establish a new insurance undertaking in Finland. An application for a licence must:
Refer to the particular insurance classes to be provided.
Be accompanied with documentation, including:
an action plan, with details on the:
intended business;
estimated premium income;
administrative structure and its costs;
reinsurance strategy; and
other aspects possibly requested by the Financial Supervisory Authority (its guidelines and prerogatives may contain more details).
documents providing information about the management of the company and its shareholders;
evidence about payment of the founding capital;
an account of potential conflicts of interest.
The licence applies within the EEA or, on the request of the applicant, beyond the EEA depending on agreements entered into by the Finnish authorities with other states.
Insurance services (that is, issuing policies rather than providing related services such as damage surveys) can be marketed by the insurance companies themselves, tied agents, or independent insurance brokers. Frequently, banks act as tied agents for insurance companies belonging to the same group (see Question 1, Insurance). Insurance companies have vicarious liability for the acts and omissions of their employees and tied agents. An insurance company can market the products of another insurance company established within the EEA as an ancillary activity.
Independent brokers, who do not form part of the marketing organisation of any particular insurance company, are independently liable. They can be either legal entities or individual persons. They are prohibited from directly charging or receiving direct commissions from insurance companies (Act on Insurance Intermediaries).
Insurance intermediaries must be registered by the Financial Supervisory Authority under the Act on Insurance Mediation although they are not required to be authorised. Registration is a routine administrative act that does not involve as much discretion as authorisation does (that is, the authority must register the applicant when certain non-discretionary criteria listed in law are met). A legal entity must nominate a person as being responsible for intermediation activities, including the supervision of the staff.
Physical persons acting either as independent brokers and tied agents must be reliable persons, which means, at a minimum, that they cannot recently have been convicted of serious crimes. The requirement of reliability is wider than this, but it is unclear how it would be defined in practice.
An independent broker must meet requirements of competence and skill that must be proven by an examination.
Both insurance companies and independent brokers can use agents, such as advertising agencies, but the insurance company or intermediary is responsible for the agents that it uses.
The scope of other providers of insurance or reinsurance-related activities is very wide. Generally, there are no requirements applicable to the provision of insurance-related services. Insurance companies or their clients can use services such as surveyors or other experts they find useful. Doctors making medical examinations for the purposes of granting pensions under the statutory pension insurance system or awarding damages have been subject to criticism as they are paid by insurance companies for their services, which has led to allegations of partiality.
There are statutory competence requirements, however, for insurance mathematicians and rules for the auditing of insurance companies. At least one of the auditors must be authorised by the Central Chamber of Commerce of Finland. The Chamber grants authorisation after applying specific criteria for competence.
There are no exemptions or exclusions from authorisation or licensing requirements for insurance reinsurance companies except for those following from EU law.
See above, Insurance/reinsurance providers.
Generally, other providers do not need authorisation (see Question 8, Other providers of insurance/reinsurance-related activities).
There are no specific restrictions on the ownership or control of insurance and reinsurance undertakings on grounds such as nationality, age, sex, or field of business. However, if the owner has a "relevant bias" as defined in Chapter 2 section 8 of the Insurance Companies Act an application for authorisation may be rejected. A relevant bias is defined to mean a relationship which would jeopardise the possibilities of the Financial Supervisory Authority to exercise control on the activities of the insurance company. There is no practice of how this provision will be applied, however (see Question 8, Insurance/reinsurance providers).
There are no specific restrictions on the ownership or control of insurance mediation undertakings that are entitled to market insurance services, except for independent insurance broker firms which cannot be owned by insurance undertakings as this would jeopardise their impartiality (see Question 8, Marketing insurance/reinsurance services).
There are no specific restrictions on the ownership or control of providers of other insurance-related services.
Anyone wishing to acquire 10% or more of the stock capital or guarantee shares of an insurance undertaking, or 10% or more of the voting rights in the company, must notify the Financial Supervisory Authority, which can prohibit the acquisition but no express approval is needed (Chapter 4, sections 5 and 6, Insurance Companies Act). In addition, increases of ownership to 20%, 30% or 50% of the stock or guarantee capital or equivalent increases in voting rights must also be notified to the Financial Supervisory Authority.
There are no specific requirements for notification or pre-approval.
There are no specific requirements for notification or pre-approval.
Life assurance and non-life insurance companies must submit, four times a year, results of specific insurance mathematical tests required by law to the Financial Supervisory Authority. Insurance companies must be specifically audited in relation to certain insurance mathematical aspects ten times a year.
In certain forms of insurance with a specific regulatory framework (such as motor or third party liability insurance), there are annual reporting obligations for statistical purposes.
In addition, insurance undertakings must contribute to the costs of the Financial Supervisory Authority by paying an annual fee whose amount is stipulated by law.
Insurance intermediaries must contribute to the costs of the Financial Supervisory Authority by paying an annual fee whose amount is stipulated by law.
Good insurance practices must be observed in the marketing of insurance services. An insurance company cannot:
Give in its marketing false or misleading information.
Otherwise use any methods that are inappropriate concerning the customer or that are contrary to good practice.
Marketing that does not include information needed for the customer's financial security is always considered inappropriate. An insurance company's agent must state clearly in all his activities that he is acting explicitly as an agent. In marketing a single insurance product, the agent must inform the customer which insurance company's product it is.
There are no specific ongoing requirements for other providers of insurance/reinsurance-related activities.
Failure to comply with certain requirements in the Insurance Companies Act can be punished by criminal sanctions of fines or imprisonment of up to one year. For some specified minor offences, a lighter punishment is provided. For insurance practitioners, there are express criminal sanctions of up to one year's imprisonment for the breach of confidentiality obligations.
The Financial Supervisory Authority has wide powers to intervene in the activities of an undertaking violating the provisions governing its activities, including the withdrawal of any authorisation (section 27 et seq., Act on Financial Inspection). The Authority can impose a conditional fine to force the undertaking to comply with its powers.
The customer of an insurance undertaking that does not comply with the insurance laws should contact the relevant supervisory authorities such as the Financial Supervisory Authority, or the Consumer Ombudsman or Competition Authority (where relevant). The main remedies for the customer are, however, either ordinary litigation before a court, or the use of an out-of-court procedure (see Question 19). A court claim usually requires that the insurance undertaking's acts or omissions have breached the customer's rights. Where the dispute concerns an insurance undertaking's failure to perform its administrative duties towards the authorities, the customer usually lacks a cause of action.
A policyholder that has done business with a non-approved entity can recover damages in court from that entity. However, the court may not interfere if the customer was, or must have been aware of, the lack of authorisation (such as in the case of a wager rather than a true insurance contract). There is no guarantee fund to cover losses.
Except for obvious cases of fraud, insurance contracts offered from abroad which do not comply with requirements imposed by Finnish law (whether or not based on EU law) are not considered void because they have breached administrative obligations. The position of the parties in such cases depends on the applicable jurisdiction and law.
Insurance intermediaries are subject to the supervision of the Financial Supervisory Authority, which has similar powers to interfere with an intermediary's activities that it has for insurance undertakings, although the intermediary is registered rather than authorised (see above, Insurance/reinsurance providers). The Authority can prohibit the intermediary from continuing its activities (Act on Insurance Mediation). Criminal sanctions only apply in respect of breach of confidentiality.
Different rules apply to tied intermediaries and independent insurance brokers:
Tied intermediaries. Insurance companies are responsible for tied intermediaries they use, including where the intermediary has failed to comply with its registration requirements. Therefore, the customer can bring an action against the insurance company for damages (where damages have been suffered). In itself, a failure to comply with administrative requirements does not constitute a ground for damages.
Independent insurance brokers. Independent insurance brokers are independently liable and must have liability insurance to cover their liability. The requirements imposed on brokers are more stringent and are mainly intended for the benefit of customers. Contracts of insurance concluded with a broker that is not appropriately registered are not automatically void. The outcome of any dispute with a foreign broker depends on the applicable jurisdiction and law.
Generally, there are no specific regulatory requirements on other providers (see Question 8, Other providers of insurance/reinsurance-related activities). Therefore, remedies for breaches of obligations are contractual and must be sought by ordinary court litigation.
There are no express restrictions except for general restrictions on marketing to minors.
Under the legal principles that apply to reinsurance contracts, a reinsurer has access to all records related to the ceded contracts or portfolio (but no further than that). This right extends to after the period of validity of the relevant contract has expired. Although this right automatically applies as a legal principle, there is frequently a term in the reinsurance contract further safeguarding this right.
Reinsurance is not expressly regulated by statutory law (see Question 2, Insurance and reinsurance companies). However, general principles of law provide that a cedant company must provide information relevant to the reinsurer for underwriting or risk assessment. This obligation is usually included as an express term in the reinsurance contract, although this right is automatically deemed to exist (see Question 15).
Information relevant to the reinsurer for underwriting or risk assessment usually include:
The Insurance conditions used in primary insurance.
The risk policy of the primary insurer, such as deductibles.
Whether the risk is reinsured or subject to retrocession.
The loss ratio of the primary insurer.
The cedant company does not need to inform the reinsurer of circumstances that are not material or which the reinsurer is deemed to already know. For example, a reinsurer is deemed to know normal insurance conditions in the relevant field. If the terms used in primary insurance deviate from what is considered normal, there is a duty to inform the reinsurer of them.
Generally, contracts of insurance are in writing, but this is not a legal requirement. The formation of a contract of insurance differs from general principles of contract law: cover commences, unless otherwise agreed, when the insurer or the policyholder delivers or sends an acceptance of the offer made by the other party to the contract and not when acceptance is received by the other party (section 11, Insurance Contracts Act). The Insurance Contracts Act provides other specific provisions concerning the formation of an insurance contract.
There are provisions in the Insurance Contracts Act defining what information the parties to a contract of insurance must give each other before the conclusion of the contract. After the conclusion of an insurance contract, the insurer must provide the policyholder, without undue delay, with a document which sets out the:
Main content of the contract (that is, the insurance policy).
Terms and conditions governing the insurance.
The Act was passed in 1994, when the electronic form of communication was not widely used in commercial relationships, and therefore the use of an electronic form is not expressly covered by the Act. However, on the basis of Directive 2002/65/EC on the distance marketing of financial services, an electronic form could be used as a substitute for paper when issuing the policy.
There are very few statutory content requirements for insurance policies. The Insurance Contract Act specifies only that where the terms and conditions governing the insurance entitle the insurer to change the insurance premium or any other conditions of an insurance of the person during the validity of the insurance policy (that is, the insurance period), this entitlement must be recorded in the insurance policy.
However, it is advisable to record any major exclusion of cover or other provisions that would differ from what is normally expected from the parties to the policy document, although even oral terms set out during the conclusion of an insurance contract can be relied on later, provided that proof is provided.
The typical terms depend on the type of policy and to whom the policy is issued. Insurance policies are usually not very elaborate and the conditions of insurance are given separately. Policies generally contain:
Information on the parties (the insurer, the policyholder, the assured, the beneficiary, and so on).
The principal terms of insurance (the sum insured, the deductible, and so on).
The policy will refer to the conditions, and incorporate them into the contract.
The conditions will usually include provisions concerning:
Jurisdiction and, where applicable, law of the agreement.
Privacy and data protection.
Conditions of the Insurance Contracts Act, even where mandatory (for example, in the field of disclosure) are usually repeated in the insurance conditions (see Question 18).
Insurance policies issued to consumers and smaller enterprises which are normally not individually negotiated usually contain a clause which provides that the cover will continue to apply each year (calendar year or calculated from conclusion of the contract) unless terminated in a given period (usually 30 days) before the termination of the year.
Policies issued to larger companies are usually global policies covering many areas of insurance. They are elaborate documents, often prepared by and even issued by brokers (especially when many underwriters are involved). They are often drafted to apply indefinitely.
Unlike English contract law, the concept of an implied term is not used in Finnish contract law, although the application of general legal principles to contractual relationships is very similar. Finnish law, like many other continental legal systems based on civil law, applies the general principle of law of good faith and fair dealing (often referred to as the principle of loyalty).
The Insurance Contracts Act is mandatory. Any conditions of a contract of insurance which deviate from the provisions of the Act are void if they are to the detriment of:
An insured person or a person entitled to compensation or benefits other than the policyholder.
A policyholder if the policyholder is a:
consumer;
business which, in terms of the nature and scope of its operations or other circumstances, can be compared to a consumer.
Generally, the parties are free to determine the scope of cover and premiums, as long as the terms are fair and conscionable.
These rules do not apply to:
Credit insurance.
Marine or cargo insurance taken out by businesses.
Aircraft insurance taken out by businesses.
However, many fields of insurance, such as motor (third party) liability insurance, are covered by special statutes which also have mandatory provisions.
The parties have an express duty to disclose matters that are material for the other party, even where the policy or terms do not provide for this (Insurance Contracts Act). This produces a similar effect to the doctrine of utmost good faith under English law.
Insurance conditions always give the option to refer disputes to out-of-court dispute settlement, although no specific reference needs to be made as the procedure operates under a statute. This dispute settlement is run by the Insurance Board, which is maintained by the Information Bureau of Financial Services. This Board can issue recommendations on individual disputes regarding the application of insurance laws or contract terms. The Board is not competent to rule on statutory insurance.
In some fields of insurance, there are special procedures supplementing ordinary court procedures. For example, the Average Adjuster of Finland (established by statute) has the right to hear, at first instance, disputes over yacht insurance.
Traditionally, the insurance providers have co-operated in producing common insurance terms for many fields of insurance. This practice, however, is now prohibited as it is seen as cartel-like behaviour. The old standard terms are still in use and provide models for companies' individual terms.
The Association of Finnish Marine Underwriters has created standard terms for Finnish marine hull and cargo insurance underwriting.
In statutory insurance, the Finnish Motor Insurers' Centre (a statutory body) has issued model motor insurance terms. These model terms include a number of mandatory provisions. Each motor insurer must submit its own terms for inspection the Financial Supervisory Authority. The model terms provide guidance on what is acceptable to the authority.
Reinsurance contracts are not subject to the provisions of the Insurance Contracts Act (see Question 18). Because of the lack of statutory law and the limits of case law, general legal principles apply, which produce legal effects similar to the implied term of utmost good faith.
Although there are no statutory provisions as to the form or content of reinsurance contracts, they are usually concluded as signed contracts in writing. A written contract does not have to contain all legal information applicable to the contractual relationship and evidence can be brought on elements outside it.
Reinsurance contracts are traditionally relatively brief as the commercial relationship is based on trust. However, they always contain terms about how the reinsurance premium is calculated, defined by references to standard methods used in the business. When the primary insurer is active in many fields of insurance, a reinsurance contract usually contains restrictions as to what forms of primary insurance the reinsurance contract covers. The reinsurance contract frequently includes terms concerning when reinsurance cover begins and when it ends.
The primary insurer usually has an express right to continue its business in the way it deems appropriate. This means that the reinsurer cannot generally intervene in the primary insurer's business. Follow the form, follow the fortune and follow the settlements clauses are all common terms in Finnish reinsurance policies. A reinsurer frequently has the express right to inspect the documents of the primary insurer, although this right automatically exists whether or not it is included (see Question 16).
Reinsurance contracts frequently include arbitration and choice-of-law clauses. An arbitration agreement must be in writing, but this requirement is usually interpreted very widely.
Facultative reinsurance has become more popular than treaty reinsurance over the last few decades, as part of an overall tendency for insurers to look at costs and retain part of the risk.
The following must generally be established:
That an insured event, such as the destruction of goods, has occurred.
That the event has been caused by reasons protected by the insurance. This usually means that the loss is due to an external, sudden and accidental reason and not caused by the insured intentionally.
The claimant must provide the insurer with such documentation and information as is reasonably required to assess the insurer's liability, considering the opportunities available to the insurer to obtain this information (section 69, Insurance Contracts Act). Therefore, both the claimant and the insurer have obligations concerning the establishment of a claim.
There are no fixed requirements for the level of proof required; these depend on the circumstances. Usually, a claimant must complete a claims statement specifying the event, what happened and why. If this statement is made fraudulently the court will usually regard this as sufficient evidence to deny a claim. The insurer will always have the contractual right to investigate circumstances leading to the event.
However, claim requirements are generally becoming more liberal than in the past. In household insurance, for example, insurance companies usually have a more relaxed process, so as not to incur too much cost in settling claims.
The form of insurance policy will determine which claims are successful and which are not. It is generally easier to establish that an insurable event has occurred in an all risks policy than in a policy against named risks. In all cases, much will depend on the relationship between the insurer and the insured.
Third parties (not including parties named in the policy, beneficiaries under life assurance policies or legal successors to a contractual party) may have a statutory right to claim under an insurance policy. For example:
A person that has suffered bodily injury, property damage or financial loss under general liability insurance can claim compensation under the insurance contract directly from the insurer if (section 66, Insurance Contracts Act):
the insurance policy has been taken out under laws or regulations issued by the authorities;
the insured has been declared bankrupt or is otherwise insolvent; or
the general liability insurance has been mentioned in marketing efforts launched to promote the insured's business.
A direct claim can be made by an injured third party against the insurer under a motor liability policy (Motor Liability Insurance Act).
Unless otherwise agreed, a property insurance policy is in force for the benefit of:
the owner of the property concerned;
any party that has bought the property with reservation of title;
any pledgee or holder of a lien on the property; and
any other party exposed to the risk that the property is lost or damaged.
A third party could also be given a right under the policy to claim under a contract of insurance but this possibility is merely theoretical given the wide statutory rights.
Any claims based on an insurance contract must be made to the insurer within (section 73, Insurance Contracts Act):
One year from the date on which the claimant becomes aware that he may obtain compensation or benefit.
Within ten years from the occurrence of the event.
For this purpose, reporting the occurrence of an insured event equates to making a claim. If no claim is made within this period, the claimant loses his entitlement to compensation. If an insurance company rejects a claim, there is now a statute of limitations of three years to file a case in court.
It is probably possible to extend the period contractually, or to not invoke them as a defence in court (in which case the court would not apply it of its own volition). However, as it is sometimes difficult to prove when a person is entitled to compensation, the one year time limit is often not significant.
The Insurance Contracts Act does not apply to reinsurance contracts, and any provisions protecting third parties contained in the Act are not applicable to reinsurers (see Question 23). Finland has a rule similar to the English doctrine of privity of contract, and therefore a claimant cannot enforce claims directly against a reinsurer, even in a case of insolvency. In practice, however, the bankruptcy estate of the bankrupt primary insurer can claim the reinsurer's share of the insurance compensation it owes to the claimants to repay the insured.
In voluntary insurance, there are no governmental schemes guaranteeing the payment of insurance compensation (unlike the banking sector, where the government guarantees deposits up to a certain amount), although there is a possibility that insurance companies may participate in schemes established for reasons of emergency (Chapter 16, section 13, Insurance Companies Act).
In statutory insurance, such as pension insurance, motor liability insurance and work injury insurance, there are mandatory schemes organised among participating primary insurers to deposit funds for liabilities that individual insurers could not cover themselves.
When a policyholder, insured, or beneficiary breach the terms of the insurance contract the insurer can, depending on the circumstances, terminate the policy or limit compensation paid under the policy. An insurer is entitled to terminate a non-life insurance policy during an insurance period if (section 15, Insurance Contract Act):
Either the policyholder or the insured gave incorrect or incomplete information before the insurance was issued and the insurer would not have issued the insurance if it had been aware of the true circumstances.
There has been a change in the circumstances reported to the insurer by the policyholder or the insured at the time the contract was concluded, or recorded in the insurance policy, which:
materially increases the risk; and
the insurer cannot be considered to have taken into account when the contract was concluded.
The insured has wilfully or through gross negligence failed to comply with precautionary guidelines.
The insured has wilfully or through gross negligence caused the occurrence of an insured event.
The insured has, after the occurrence of an insured event, given in bad faith incorrect or incomplete information important for assessing the insurer's liability to the insurer.
The insurer can terminate the policy on 14 days' notice if the premium is unpaid (section 39, Insurance Contracts Act).
The insurer can limit compensation, for example, in the case of misrepresentation by the insured, depending on the circumstances, or because of the cause of the accident in transport insurance. The insurer can also limit or deny compensation when the policyholder or insured fails to observe security precautions.
There are certain remedies when the insurer breaches a policy. If the insurer or its representative, when marketing the insurance, failed to provide necessary information or gave incorrect or misleading information to the policyholder, the insurance contract is considered to apply as understood by the policyholder on the basis of the information he received (section 7, Insurance Contracts Act). This also applies where incomplete, incorrect or misleading information is given to the policyholder during the period of the insurance's validity and affects the policyholder's actions. It does not, however, apply to information given by the insurer or its representative on compensation or benefits payable after the occurrence of an insured event.
Directive 2001/17/EC on the reorganisation and winding up of insurance undertakings has been implemented into Finnish legislation under Chapter 23 of the Insurance Companies Act. There are separate provisions on reorganisation and bankruptcy. Other providers of insurance or reinsurance-related services are subject to general bankruptcy laws.
Where the insurance company's working capital is inadequate the board of the insurance company must call a shareholders' meeting to decide on a reorganisation. After that stage, executors are appointed to run the company and creditors are notified through public announcements. Under reorganisation, efforts can be made to continue the company's activities. Plans to this effect must be submitted to the Financial Supervisory Authority for approval.
Where continuing the company's activities is impossible, there must be a winding up and the executors must set out an account of how all the debts are to be paid. Insurance debts (that is, payment of claims) enjoy priority. If the executors find that the assets of the company are insufficient to pay the debts, bankruptcy proceedings must be initiated.
Although the funds of an insurance company can be allocated between different insurance classes, funds devoted to one class can be used to pay the claims of another in the event that there are insufficient funds to pay the claims of a particular class.
When an insurance company is insolvent, the reinsurer must still comply with its obligations under the reinsurance contract (see Question 25).
Insurance and reinsurance companies and other providers of insurance-related services are subject to tax on the company's income (based on the company's financial results) at the flat rate of 29%. Different tax rules apply to different business forms, such as partnerships or limited partnerships.
Insurance tax at 23% applies to premiums in Finland. Insurance tax is a substitute for value added tax (VAT). However, it is separate from VAT, and therefore VAT deductions cannot be deducted from insurance tax (or vice versa).
Rights under insurance contracts can be enforced through the courts. There are special court procedures for statutory insurance that is part of the social security system (most notably pensions), and for yacht insurance (see Question 19). An insurer can always be sued in the courts of its home jurisdiction (Insurance Contracts Act).
Arbitration may also be available if there is an arbitration clause in the agreement. However, arbitration almost never applies to statutory insurance disputes.
Out-of-court dispute settlement procedures can be used, particularly the Insurance Board (see Question 19). The Board can also be applied to, in limited circumstances, where insurance is provided under free provision of services from other EEA states. Finally, the policyholder, assured or beneficiary can complain to the Financial Supervisory Authority or, in the case of consumer insurance, to the Consumer Ombudsman. The statutory Consumer Disputes Board can also hear consumer insurance disputes. Other authorities, such as the Competition Office or the Data Protection Ombudsman, can rule on breaches that fall within their field of competence.
Reinsurance claims can be brought before state courts, but arbitration clauses are common (see Question 21). There are no special arbitral institutions for reinsurance cases, and ad hoc arbitration is more common than institutional arbitration.
Out-of-court dispute settlement before the Insurance Board is not used since the parties will want to settle their disputes confidentially. Probably the most important form of dispute settlement is negotiation, as reinsurance is largely based on trust rather than enforcement.
There are no major reforms anticipated as the main statutes are relatively modern and the Insurance Companies Act as well as the Insurance Contracts Act have been very recently revised. Finland is part of the EU and must implement EU directives, at present most notably Directive 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II).
Main activities. The Federation Finnish Financial Services is the central organisation of Finnish banks and insurance companies, including reinsurance companies. It has a number of responsibilities, including:
Lobbying in favour of its members.
Providing services to member companies and the industry in general by:
organising training end examinations;
statistical co-operation;
publishing activity.
It also provides a seat to many sector-specific insurance organs, statutory or otherwise, such as the Finnish Motor Insurers' Centre, the Finnish Patient Insurance Centre, the Finnish Pharmaceutical Insurance Pool, the Finnish Environmental Insurance Centre, and the Federation of Finnish Accidental Insurance Institutions.
T +358 29 000 6200
F +358 29 000 6201
E lauri.railas@krogerus.com
W www.krogerus.com
Qualified. Finland, 2005
Areas of practice. Civil liability and insurance; contract law; international trade and transport; electronic commerce; European law.
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