Published: Legal 500 Comparative Guides, April 2021
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1. How is the writing of insurance contracts regulated in your jurisdiction?
The Civil Code of Ukraine, the Law of Ukraine “On Insurance”, the Law of Ukraine “On Financial Services and State Regulation of Financial Services Market” are the main legal acts that regulate the insurance sector in Ukraine. The Ukrainian legislation establishes the requirements to the substance of insurance agreements, insurance rules, procedure for concluding insurance agreements, etc.
Ukraine is currently undergoing the reform in the supervision of the insurance market. The competence to supervise the insurance market has been transferred from the National Commission for State Regulation of Financial Services Market to the National Bank of Ukraine (the NBU). The NBU aims to significantly update current legislation, taking into account the respective EU legal acts, international principles, and best practices.
The NBU is currently working on the new Draft Law “On Insurance” that is expected to be sent to the Parliament for consideration in the nearest time.
2. Are types of insurers regulated differently (i.e. life companies, reinsurers?)
The insurance law contains some differences regarding the regulation of various types of insurers. For instance, the legislation provides for different minimum amounts of the authorised capital for life and non-life companies (refer to question 10). Moreover, life companies are prohibited from providing non-life insurance services. The Cabinet of Ministers of Ukraine has adopted a resolution that establishes requirements for an insurer to conclude a reinsurance agreement with a foreign company.
The insurance law also declares that an insurer’s share in other insurers’ authorised capital shall not exceed 30% of its own authorised capital, but this rule does not apply to non-life insurers who hold a share in the authorised capital of a life company. Life companies are also allowed to grant loans to other life insurers.
3. Are insurance brokers and other types of market intermediary subject to regulation?
The insurance law differentiates between the following types of insurance market intermediaries: insurance brokers, reinsurance brokers, and insurance agents. They are subject to registration to be able to conduct activities. In general, both legal and natural persons can act as intermediaries, but only legal persons may register as reinsurance brokers. To be registered, a person has to submit the respective application, a document that proves necessary qualification and economic reasoning of planned intermediary activities.
Foreign intermediaries may provide services only after they establish a subsidiary in Ukraine or register its branch office in Ukraine.
4. Is authorisation or a licence required and if so how long does it take on average to obtain such permission? What are the key criteria for authorisation?
In order to carry on insurance business, an undertaking has to obtain a licence for the respective type of insurance activity from the NBU pursuant to Article 38 of the Law of Ukraine “On insurance”. The Cabinet of Ministers of Ukraine establishes conditions for granting a licence to conduct insurance activities. To obtain a licence, an entity has to submit the respective application, a financial statement and a report on the financial activities, which are approved by auditors, a questionnaire prepared by the CEO and CFO, and insurance rules for each type of insurance applied.
Licence conditions require that the management of an undertaking have the established reputation and meet qualification criteria. Moreover, the authorised capital shall be formed and paid before the submission of the application.
The NBU has 30 working days from the moment of the application submission to decide upon whether to grant the licence or not. This term can be extended to 60 working days upon the decision of the NBU.
The Law of Ukraine “On Financial Services and State Regulation of Financial Services Market” stipulates that persons with a criminal record may not own or control an insurance company. It does not establish nationality requirements. Moreover, shareholders have to confirm the sources of origin of funds, from which the authorised capital is formed. Failure to meet these requirements results in inability of such a person to become a shareholder or in refusal to issue a licence.
The insurance law also provides that a share of one insurer shall not exceed 30% of its own authorised capital and shall not exceed 10% of other company’s authorised capital. However, these requirements are inapplicable if a non-life insurer owns a share in a life insurer’s authorised capital.
If a foreign insurer wants to conduct other activities, it should register a subsidiary in Ukraine.
All types of insurance or reinsurance activities in Ukraine are subject to licencing. Thus, it is prohibited to insure or reinsure risks in our jurisdiction without a licence.
7. Is a branch of an overseas insurer, insurance broker and/or other types of market intermediary in your jurisdiction subject to a similar regulatory framework as a locally incorporated entity?
The Ukrainian legislation provides a similar regulation for foreign entities to enter the insurance market by means of establishing a representative (branch) office. However, the insurance activities of the branch office of foreign insurers are subject to special restrictions. Namely, Article 2 of the Law of Ukraine “On Insurance” allows foreign insurers to conduct only the following activities in the territory of Ukraine: insurance of risks related to maritime transport, commercial aviation, space rocket launch and freight; reinsurance; insurance intermediary activities with respect to the aforementioned insurance; ancillary insurance services, such as advisory services, actuarial risk assessment and claims settlement.
If a foreign entity wants to conduct all types of insurance activities, it should register a subsidiary in Ukraine that would be deemed to be a Ukrainian insurer.
The Cabinet of Ministers of Ukraine has adopted a resolution that regulates the requirements for reinsurance by a foreign insurer. The Ukrainian insurer is allowed to conclude reinsurance contracts only if a foreign entity meets the following criteria:
- the law of the foreign state prescribes state supervision over insurance and reinsurance activities;
- a foreign (re)insurer conducts its activities for at least three years; and
- there are no known facts about the violation of anti-money laundering laws by a foreign (re)insurer.
A foreign entity has to submit the respective application and registration form, a copy of the certificate of the registration of a permanent establishment in Ukraine, a proof of registration in a foreign country, a statement from the bank proving the existence of a guarantee deposit, a certificate of management competence, a business-plan, a financial statement, etc. The legislation also provides for the minimum credit rating (e.g., “BBB” in Fitch Ratings). The state in which a foreign entity resides shall also be a party to an agreement with Ukraine on the prevention of tax evasion, take part in the international cooperation on prevention of money laundering, have no offshore status, etc.
Article 1668 of the Code of Ukraine on Administrative Offences provides a fine amounting to UAH 1,700 – UAH 4,250 (approximately EUR 50 – EUR 125) for the conduct of insurance activities without the respective authorisation.
These actions, if generating a significant income for an entity, are punishable by a fine amounting to UAH 34,000 – UAH 51,000 (approximately EUR 1,000 – EUR 1,500).
Due to the recent change of the main supervisory body (please refer to question 1), it yet remains unclear for now how rigorously the NBU will enforce legal provisions. Yet, the NBU declares to ensure that the insurance market is solvent, stable and competitive being guided by the principles of proportionality, forward-looking, early warning, professional judgment and legal certainty. For this reason, the NBU aims to “clean” the insurance market from dummy insurance companies used mostly for illegal transactions. The same was done by the NBU on the bank market in 2015-2016.
In general, the supervision is focused on the compliance with licence conditions, adherence to the provisions of financial and tax law.
At the same time, Ukraine still has some difficulties with the appropriate functioning of the law enforcement field, the judiciary and the execution of court judgments, which are extensively described in the case-law of the European Court of Human Rights.
According to the Ukrainian law, a non-life insurer shall have at least EUR 1 million of the capital, while for life insurers this threshold is established at the level of EUR 10 million. In order to additionally secure insurance obligations, insurers may establish an Insurance Guarantee Fund.
Under Article 30 of the Law of Ukraine “On Insurance,” insurers are required to comply with the following solvency criteria: existence of paid-up authorized capital for resident insurers or a guarantee deposit for branches of non-resident insurers and availability of the guarantee fund of an insurer; existence of insurance reserves sufficient for future payments of insurance sums and insurance indemnities; excess of the actual solvency margin of the insurer over the estimated regulatory solvency margin.
The NBU is empowered to supervise the solvency of insurers. It may initiate a forced restructuring procedure if an insurer for three months does not fulfil its contractual obligations to insureds, fails to meet the threshold for the authorised capital, etc. Within the forced restructuring, the NBU conducts a complex review of insurer’s activity, restricts the use of its property and may decide on the reorganisation or liquidation of the insurer.
11. What are the minimum capital requirements?
The Ukrainian law establishes different minimum capital requirements for life and non-life insurers. A non-life insurer shall have at least EUR 1 million of the capital, while for life insurers this threshold is established at the level of EUR 10 million. Along with that, the NBU plans to change these requirements and establish a minimum capital requirement for non-life and life insurers at the level of UAH 32 million (around EUR 1 million) and UAH 48 million (around EUR 1.4 million) respectively.
The authorised capital shall be formed in a monetary form. It is allowed to form the authorised capital of the insurer with securities issued by the state at their nominal value in the manner prescribed by the NBU but it shall not exceed 25% of the authorised capital.
12. Is there a policyholder protection scheme in your jurisdiction?
The protection of policyholders lies at the core of the insurance market regulation. The Law of Ukraine “On Insurance” contains various provisions which cannot be waived to the detriment of a policyholder.
For instance, in case an insurer undergoes the liquidation procedure, claims of policyholders are to be satisfied first. In case of liquidation of a branch office of a foreign entity, interested persons may satisfy their claims from the assets of the branch office, the guarantee fund and, as the last instance, the assets of a non-resident insurer.
The Ukrainian law also prescribes the establishment of industry-specific entities which guarantee payment of damages. For instance, the Motor (Transport) Insurance Bureau of Ukraine guarantees payments of damages caused by the owners and / or users of vehicles (Ukrainians abroad or foreign nationals in Ukraine) in case they possess the insurance certificate “Green Card”. All insurers in Ukraine which conduct insurance activities in the field of civil liability insurance of owners of land vehicles are obliged to join the Motor (Transport) Insurance Bureau of Ukraine.
The Nuclear Insurance Pool is formed in the field of civil liability insurance for nuclear damage. The participation in this pool is voluntary and it mainly conducts reinsurance activities.
The insurance law does not establish specific rules to regulate insurance groups. In this sphere, general competition rules at the stage of merger and acquisition are applied, supervised by the Anti-Monopoly Committee of Ukraine.
The Ukrainian legislation establishes fit and proper requirements for senior managers of insurers (CEOs and CFOs). The CEO shall have a master in law or economics degree and the CFO shall have a degree in economics. The CEO has to pass an advanced training and the exam to prove the necessary knowledge, must have minimum five years of working experience and at least 2 years in the managing position and must have an impeccable business reputation. In comparison, the CFO must have three years of relevant working experience, while other criteria are applicable as well.
15. To what extent might senior managers be held personally liable for regulatory breaches in your jurisdiction?
According to Article 1663(5) of the Code of Ukraine on Administrative Offences, the violation of regulations of the NBU by the managers in the field of non-banking financial services markets is fined up to UAH 1,700 (approximately EUR 50).
When insolvency of an entity occurs as a result of the actions of its founders or participants or other persons who are capable of influencing the actions of a debtor, these persons may bear subsidiary liability.
The Criminal Code of Ukraine provides that the founder (participant, shareholder) or the official of the company bears criminal liability (a fine equivalent to up to UAH 68,000 (EUR 2,000) with the prohibition to occupy certain positions or engage in certain activities for up to three years) for deliberate bankruptcy. Within the meaning of the criminal law, ‘deliberate bankruptcy’ means determined actions of the founder (participant, shareholder) or the official of the company that have resulted in the financial insolvency of the company and caused material damage to the creditors or the state (more than UAH 567,500 (approximately EUR 17,000)).
The Criminal Code of Ukraine also imposes a fine of up to UAH 17,000 (EUR 500) or provides for conditional imprisonment for up to four years for inserting false information into accounting documents for the purpose of concealing the facts of the bankruptcy of a financial institution.
The Ukrainian law establishes a list of mandatory insurances (medical insurance, civil liability insurance of vehicle owners, etc.). To be able to obtain licences for such activities, an insurer has to conduct insurance activity for at least two years, while for a licence for the insurance of liability for nuclear operators for damage that may be caused by a nuclear incident this term is extended to three years. The Ukrainian law does not establish criteria for regular and continuous activity of an insurer to maintain a licence.
The Ukrainian law does not establish restrictions on outsourcing activities which require no licence or authorisation. Thus, insurers may involve emergency commissioners, actuaries, etc. Insurers may also use the assistance of authorised intermediaries (please refer to question 3).
The Cabinet of Ministers of Ukraine establishes a list of spheres for insurers to invest into, including tourism, extraction of minerals, processing of mining and metallurgical waste, real estate, infrastructure, telecommunications and securities issued by Ukraine. The insurance law also establishes that the amount of investment income specified in a life insurance contract shall not exceed four percent per annum.
The Law of Ukraine “On Insurance” establishes the list of mandatory parts of insurance agreements and obliges an insurer to acquaint an insured with the conditions and rules of insurance. An insurer is obliged to provide an insured with the information regarding the scope of services, their prices, the management, financial conditions, the insurance agreement, mechanisms to protect rights, etc. The NBU’s Financial Services Consumer Protection Department supervises the consumer protection laws in the field of insurance. It reviews consumers’ applications and establishes requirements for insurers.
General rules on the regulation of advertisement are applicable to the sale of insurances. The Law of Ukraine “On Advertising” provides that advertisements must be lawful, accurate, reliable and not harmful.
The Ukrainian law does not provide specific rules pertaining to cross-border market activities. In order to be able to sell insurances on a cross-border basis, a foreign company may need to register a branch office in the territory of Ukraine or establish a subsidiary (please refer to question 6).
With respect to online sales, please refer to questions 26, 27.
The Law of Ukraine “On Insurance” establishes the list of mandatory parts of insurance agreements and obliges an insurer to acquaint an insured with the conditions and rules of insurance (please refer to question 19). Moreover, in 2019, the Ukrainian parliament adopted Law No. 122-IX aimed at consumer protection in the field of financial services market. Under this law, an insurer is obliged to provide an insured with the information regarding the scope of services, their prices, the management, financial conditions, the insurance agreement, mechanisms to protect rights, etc. It also increased the fines for the failure to provide a consumer with the necessary information (up to UAH 3,400 (EUR 100)).
The insurance law also prescribes specific requirements for the substance of life insurances. For instance, such insurance shall contain the list of insured persons and beneficiaries with respect to each insurance risk, indication of each insurance risk for which insurance is obtained in accordance with the life insurance contract, including the risk of survival, the amount of the sum insured and / or the amount of regular, consecutive insurance payments in the form of an annuity, etc.
In Ukraine, a separate court branch has been set up to review solely commercial disputes and judges are expected to deal specifically with complex commercial claims. The courts review insurance disputes relying on the evidence collected for an insurance case and documents between the parties. The courts usually decide the case on the basis of examination of the causes of an insurance event and potential insured’s violations. These findings require special knowledge which judges do not possess.
The insurance law provides that the claims regarding insurance payments and validity of insurance contracts are subject to court review. Even though it does not preclude the parties from getting the assistance of mediators or referring the dispute in other aspects to the arbitration, alternative dispute resolution is not very popular in Ukraine, and the insurance sphere is no exception.
The Ukrainian legislation does not envisage any specific rules on voluntary sales or transfers of books of (re)insurance. However, in case of reorganization of an insurance company (merger, joinder, demerger, etc.), an action plan for the transfer of insurance policies is prescribed by the law. Pursuant to this plan, the insurance policies remain valid and binding for a new insurer, while the latter has to take care of some formalities related to official notifications and possible inspection of the supervision body. The general rules on assignment of claims under a civil agreement are envisaged by the Civil Code of Ukraine.
The insurance law establishes comparatively high minimum capital requirements for life insurers (EUR 10 million), while the requirement for non-life insurers is EUR 1 million. Moreover, the procedure for obtaining a licence, given the bureaucracy and lack of transparency, is not easy. The NBU defines imperfect legislation, lack of proper regulation and supervision of the activities and market behaviour of insurers and intermediaries as key problems of the market.
Many insurers utilise the benefits of digital innovation quite well. They provide clients with the possibility to conclude agreements online, make online payments and communicate using available messengers and insurer’s application.
The NBU also plans to use the digital innovation to improve the supervision of the market. The NBU considers the possibility of collecting granular data using modern IT technologies, which will allow the regulator to more deeply analyse and assess the risks of insurance companies, their compliance with regulatory requirements, and will enable insurance companies to optimise the cost of preparation and submission of reports.
The Law of Ukraine “On Financial Services and State Regulation of Financial Services Market” allows to conclude insurance agreements by electronic means:
- as an electronic document created in accordance to the Law of Ukraine “On Electronic Documents and Electronic Documents Circulation”;
- by way of a client joining a contract, which can be provided to him or her for review in the form of an electronic document on the insurer’s website; and
- in the way prescribed by the Law of Ukraine “On Electronic Commerce”.
These laws allow to use an electronic signature to conclude contracts. Moreover, taking actions that are considered as acceptance of an offer to enter into an electronic contract may also be acceptable. Insurers have similar obligations concluding such contracts but have to send a confirmation of the electronic transaction in the form of an electronic document. The documents concluded electronically have the same legal force as those with physical signatures.
It is also welcomed to handle claims digitally. The NBU accepts complaints sent to their email or by filling in a special form on the webpage.
Insurers’ use of customer data is subject to general rules of data protection. For instance, it is prohibited to use the collected data for the purposes other than those agreed upon by a client. The composition and content of personal data must be relevant, adequate and not excessive in relation to the specified purpose of their processing. Moreover, the Law of Ukraine “On Financial Services and State Regulation of Financial Services Market” specifies data protection as one of the principles of state regulation of the financial services market.
The Ukrainian law does not prescribe specific rules for sharing customer data on a cross-border basis. Accordingly, the Law of Ukraine “On Protection of Personal Data” is applicable.
In our opinion, agricultural, health and property insurance would be the fastest growing areas of the market in the next five years.
The land reform that aims to make Ukrainian agricultural land available for sale may boost this industry overall and the insurance in this sphere specifically. In addition, there is a growing demand for a livestock insurance in animal industry.
The health insurance was booming the previous year due to the pandemic of COVID-19 and greater attention of the clients to their medical needs. Given the situation, Ukrainian insurance companies launched COVID-19 insurance policies last year, which were popular among the employers, especially in the service business.
Over the last years, the Ukrainian government and the NBU has taken steps aiming to increase the amount of new loans. This could fuel the property insurance market, namely demand for insurance coverage of the mortgage and pledge.
Besides, a green energy sector is among leaders in the number of insured. The renewable energy production has a sufficient growth and many new green energy stations were covered by the insurance policies. We believe this sector of the market could hold its position in the next years.
As to the current trends of the insurance market, we see an active growth of online sales. As of today, multi-service platforms and mobile applications are being developed, while new “insurance tech” products are launched. A significant part of automobile and tourist insurance has already been sold online, just as a life insurance is moving the same way – more and more insurers offer a life and health insurance via websites and applications.