New Insurance Code - New Regulations on Insurance and Reinsurance Business

On January 1, 2016 the new Insurance Code came into force, which main goal was to implement into the Bulgarian legislation the provisions of Directive 2009/138 / EC on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), as well as the provisions of the Directive on Insurance Mediation and the Motor Insurance Directive.

The new aspects

Main place in the new Code has the new regime for determining the capital requirements of insurers and reinsurers, for calculation of technical provisions, as well as the new principles for investment of the assets as a guarantee for financial stability and fulfillment of obligations under insurance and reinsurance contracts. The Code stipulates for detailed requirements regarding the financial condition of the individual insurers and reinsurers, as well as for a detailed regulation of the financial requirements and supervision at the level of group of insurers and reinsurers. The so called “Solvency Capital Requirement” of the insurer, respectively reinsurer, is calculated so as to ensure the reduction of risk of insolvency to 0.5 per cent within one year.

Insurance companies that operate in Life Insurance and simultaneously have license to offer "Accident" or "Sickness" insurances should maintain a minimum capital, equal to the sum of the Minimum Capital Requirement for Life Insurance and the Minimum Capital Requirement for General Insurance.

The new Code eliminates the so far existing absolute prohibition on acquisition of shares in insurance or reinsurance companies against payment with borrowed funds. Now such acquisition is possible after a thorough assessment of the financial stability of the applicant.

The Code introduces also a new regime with respect to the supervision of insurers and reinsurers, where such regime must be risk-based and aimed in perspective. The Supervisory authorities assess the risk profile of the insurer in view of its market position and potential threat of financial difficulties and determine appropriate supervisory measures to prevent the occurrence of identified risks, respectively to remove existing violations or shortcomings in the work of insurers or reinsurers. The new supervision regulations also create certain obligations for the insurers and reinsurers who should now carry out their own risk and solvency assessment, as part of the risk management system and should publicly disclose annual reports on their solvency and financial condition. They are also obliged to give the Bulgarian Financial Supervision Commission a remote access to periodic reports, with content and format defined in a separate Ordinance of the Commission. The supervision of those insurers and reinsurers that are part of a group is strengthened. The legislative requirements for the auditors of insurers are now increased.

Insurance claims

In order to increase the protection of insurance services users, the new Insurance Code further develops new requirements regarding the insurance claims settlement procedure. The insurer is obliged to register the date of each filed claim, as well as to register the date of the subsequent receipt of any document concerning it, and verify each of those circumstances independently or in the inventory before the person who has filed the claim. Moreover, the insurance claim must be in writing and must contain precise data on the bank account by which the insurance payment shall be transferred. In order to stimulate the voluntary payment of insurance claims, such claims must be now mandatory brought first before the insurer. A claim can be then brought before the court or before an arbitration only in case that the insurer has not announced its position within the terms provided by the Code, or the payment has been refused, or if the claiming party does not agree with the designated insurance indemnity..

The Code introduces new definitive terms within which the insurer should rule on insurance claims that are not under high risk insurances - six months from the date of the filing of an insurance claim on all insurances, except for mandatory insurance “Motor Third Party Liability”, where the term is three months.

There is also a change in the terms for settlement of claims under high risk insurances which resulted in lots of discussions among the insurance services users - the term cannot be longer than six months from the submission of all documents by the claiming party, and in case such documents are not submitted - the term cannot be longer than one year.

The insurance contract

The new Code already provides for legal regulation of certain insurance institutes which have been applied for quite long on the Bulgarian insurance market on a contractual basis only. The insurance term is now regulated by the Code which gives the options for conclusion of an open-ended insurance contract, a multi-year insurance contract and a contract for an insurance term shorter than one year.  The Code also limits the possibility for automatic renewal of the insurance contract for just one new insurance term after the expiry of the agreed initial period and provided that the parties have expressly agreed so in the contract. The legislation already recognises the institutes of the retroactive and preliminary insurance cover, as well as the possibility for conclusion of an insurance contract for future insurance interest.

In the field of Life Insurance, the regulation of “Life Insurance on a Third Party” has been further developed by detailing the rights of the insurer, of the person whose life is subject of the insurance, as well as the rights of any third party, in whose favour such insurance could be concluded.

There is also a change in the legal regulation of the surrender value of Life Insurances having a savings element. So far the cumulative preconditions for payment of the surrender value were the expiry of at least two years from the beginning of the insurance coverage period and the timely payment of the insurance premiums. Now the Code gives an additional separate option for such payment, which is regardless of the expired term, i.e. the payment of at least 15 percent of the insurance premium. With regard to the "Accident" insurance, the Code regulates some of its varieties that were previously existing on the market – such as insurance for paying fixed amounts.

Mandatory insurance “Motor Third Party Liability”

The regulation of the mandatory insurance “Motor Third Party Liability” also undergoes changes. The payment of a single premium now ensures a coverage for the territory of the Republic of Bulgaria, the Member States of the European Union and European Economic Area, as well as for all countries that are members to the "Green Card" system. The Code now provides for an option for conclusion of the Mandatory insurance “Motor Third Party Liability” contract for a period of up to three years, as well as expands its coverage to certain cases where although there is no fault of the driver, the victims are entitled to compensation. Such cases are explicitly mentioned by the Code.

The insurance may now be concluded from a distance, provided that the insurer or the insurance broker establishes conditions for the user to send them a copy of the registration certificate of the vehicle, showing all the data concerning the vehicle and the factors forming the price of the insurance policy.

Insurer’s insolvency

The role of the assignee within an insurer’s insolvency proceeding will now be executed by the Guarantee Fund. Furthermore, the amount of the guaranteed insurance claims in case of a Life insurer’s insolvency is now equal to the amount of the guaranteed deposits of an insolvent bank, namely BGN 196’000 for one person with a certain insurer, regardless of the number of claims.