New law for the insurance market – what will change for companies and consumers of their services

insurance license in Ukraine

The National Bank of Ukraine welcomes the adoption by the Verkhovna Rada of the new version of the Law of Ukraine “On Insurance” on November 18, 2021. 235 people’s deputies cast their votes “for” the adoption of the bill # 5315 as a whole.

Having become the new regulator of the non-banking financial market, the National Bank has identified one of its priorities to update the outdated legislation that meets neither the needs of market participants, nor the request of consumers of these services.

The new law changes a whole range of requirements for licensing insurers, assessing their solvency and liquidity, corporate governance and risk management, company termination and transfer of insurance portfolio, etc.

New requirements for insurers to enter the market

First, insurers must have transparent ownership structures, disclose information about all owners of significant participation and key members of the company. Founders and owners are required to have an impeccable business reputation, as well as a satisfactory financial and property situation. The National Bank will carry out the obligatory approval of the owners of substantial participation.

Secondly, when registering, insurance companies will have to provide business plans for three years.

Thirdly, requirements have been introduced for the corporate governance system of the company (in particular, the work of the council and the board). They will be proportional, that is, they will depend on the importance of the company (for large institutions – more requirements).

The law enhances the role and importance of the professional activities of those responsible for the performance of key functions (risk management, compliance, internal audit and actuarial function). In particular, the new actuarial function should be able to adequately and independently assess and advise on technical reserves, the underwriting process and the insurer’s pricing policy.

In addition, insurance executives and those responsible for key functions must meet the qualifications for professional suitability and business reputation. The National Bank will coordinate their appointment to positions. It is also expected that the National Bank will assess the collective suitability of members of the supervisory board or the executive body of the insurer.

Fourth, the law establishes a differentiated approach to the minimum size of the authorized capital of insurers: UAH 32 million for non-life insurers and UAH 48 million for life insurance companies, insurers licensed for classes of liability insurance, loans, sureties and insurance activities reinsurance.

New requirements for the solvency of insurers

Insurers will comply with solvency capital and minimum capital requirements.

At the same time, the law establishes two different approaches to solvency requirements – simplified (Solvency I) and basic (Solvency II). In particular, the basic approach will be applied to life insurers, companies with licenses for classes of liability insurance, loans, sureties and large insurance companies.

The new capital requirements will be introduced in stages. For the first three years after the introduction of the new law, all insurers will have to meet the solvency requirements under the simplified approach.

Flexible approaches to insurance licensing

The new law allows insurance companies to obtain just one license instead of a whole number for each separate type of service. Thus, according to international practice, the National Bank will move from licensing certain types of insurance to licensing by class.

Also, the insurance company will be able to change the scope of the license – add new classes or, on the contrary, reduce the scope of the license. The law distinguishes five classes within the framework of life insurance (life) and 18 classes in the direction of non-life insurance.

However, companies will not be able to combine life and non-life insurance services.

In BMG you can order a service for: setting up an insurance company, licensing insurance activities, obtaining an insurance license.

For the first time, there will be clear requirements for insurance intermediaries

The settlement of this issue is important primarily from the point of view of protecting the interests of consumers of services. Thus, the new law provides for the obligatory registration of intermediaries in a single register, establishes requirements for their training and level of competence, avoiding conflicts of interest, expanding the list of information that is disclosed to the consumer, etc.

Transparent conditions for the termination of activities of insurers

For the first time, an effective and clear mechanism for the termination of the activities of insurers will appear in the Ukrainian legislation.

Exit from the market can be both voluntary (due to reorganization, transfer of the insurance portfolio, liquidation, etc.), and compulsory. Actually, the law clearly established the grounds for classifying an insurance company as insolvent and for compulsory revocation of a license. It also provides for the possibility of introducing a temporary administration to the insurance company to protect the interests of clients.

The new edition of the Law of Ukraine “On Insurance” comes into force the next day after publication and is fully enacted two years later.

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