The Portuguese insurance and reinsurance market is based on a developed industry, and is supported by:
- an established insurance tradition and market acceptance;
- a relevant display of compulsory insurances; and
- the presence of large national and international financial groups in the sector, and of several of the major international insurance companies and insurance intermediaries in the market.
Life insurance distribution is still mostly performed through banks, acting as intermediaries. Despite this, life insurance, investment products and pension funds schemes have been gathering more acceptance and relevance in the market.
With regard to non-life insurance, compulsory insurance products make up the bulk of the operations. They mainly concern civil liability products; however, there are large portfolios of health, damage and loss insurance products in the market, mainly placed through banks and big retailers, acting as intermediaries or under the connected contract exemption.
Despite this, new products have become more popular, such as bond insurance, investment products and cyber insurance products.
The legal framework enjoys some stability and benefits from acts being updated and adapted fairly frequently. The Insurance and Reinsurance Access and Exercise Legal Framework Act (the Insurance Legal Framework), which is the main piece of legislation, entered into force in 2016 (last updated in 2018); and the Insurance Contract Legal Framework Act (ICLF), which establishes the general framework on insurance contract execution and performance, entered into force in 2009 and was last updated in 2015. Notwithstanding this, the market operators and the legal framework are adjusting to several pieces of EU legislation that became applicable from the second half of 2017 to the second half of 2018, in particular: Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 (the Insurance Distribution Directive (IDD)), and Regulation (EU) No. 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (the PRIIPs Regulation).
The Portuguese regulatory framework is based on Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 (Solvency II), and its delegated, implementing and transposing acts.
The general provisions on prudential and market behaviour regulation are set forth in the Solvency II transposing act and the Insurance Legal Framework.
The Portuguese Insurance and Pension Funds Supervisory Authority (ASF) is the main supervisory and regulatory authority related to prudential and market conduct rules compliance by insurance and reinsurance undertakings and intermediaries, covering both the access and the pursuit of insurance and pension funds distribution in Portugal, or in EU territory when the activity is pursued by Portuguese companies and persons.
The ASF is also the supervisory and regulatory authority concerning market conduct rules for insurance-based investment products and open pension funds distribution.
Although the Ministry of Labour, Solidarity and Social Security supervises the distribution of provident and mutual benefit products similar to insurance products, where they are provided by authorised provident and mutual benefit institutions, the ASF shares the supervision over provident and mutual benefit institutions whose quotas or financing funds surpass the amounts determined in the new Mutual Benefit Institutions Code approved under Decree-Law 59/2018 of 2 August 2018.
i Position of non-admitted insurers
Only authorised insurance undertakings and authorised provident and mutual benefit institutions can provide insurance and similar products in Portugal.
According to the Insurance Legal Framework, the provision of insurance products or insurance schemes by non-authorised insurers is a crime punishable by a sanction of up to five years in prison or a fine.
Furthermore, the company that commits the infraction may be subject to compulsory administrative liquidation, and the company and the persons involved may be subject to a five-year prohibition on insurance activities.
ii Position of brokers
Insurance and reinsurance mediation was governed by Decree-Law 144/2006 of 31 July 2006 (the Insurance Mediation Law), and by the ASF's Regulation 17/2006-R of 29 December 2006, both implementing the rules set forth by Directive 2002/92/EC (the Insurance Mediation Directive), although the market commenced the gradual implementation of the IDD rules transposed through the Insurance and Reinsurance Distribution Legal Framework (IRDLF), approved through the Law No. 7/2019 of 16 January.
The legal and regulatory framework establishes three types of insurance mediators: brokers, who are fully independent insurance mediators; agents, who are insurance mediators that pursue mediation in the name of and on behalf of one or more insurance undertakings; and insurance intermediaries, who are 'tied insurance mediators' as defined under the Insurance Mediation Directive.
The different types of mediators are subject to different rules pertaining access to the market, namely those regarding prudential requirements and authorisation procedures, as well as regarding market conduct.
iii Requirements for authorisation
The ASF is responsible for the authorisation and registration of Portuguese insurers, reinsurers and brokers, as well as for the authorisation and registration of foreign insurers, reinsurers and brokers established or providing services in Portugal, and some provident and mutual benefit institutions.
Authorisation is required for any creation or implementation measure. There are several prudential conditions that must be complied with in order for the authorisation to be provided, covering the type of company, system of governance, funds, fit and proper requirements and other aspects.
The ASF authorises insurers to render services regarding specific types of cover. Therefore, insurers must appoint the types of cover that they propose to distribute, and prepare the application and respective submission documents accordingly. Insurers may request alterations to their authorisation, which, if minor, do not require further authorisation, although they may require a notification to the ASF.
EU insurers, reinsurers and brokers enjoy EU passporting rights, which provide a simplified procedure for access to the Portuguese market and other EU markets via freedom of establishment and freedom to provide services rights.
EU companies providing services in Portugal under the right of establishment or freedom of services (FOS) are subject to market behaviour rules set forth in Portuguese law, as well as other general interest conditions concerning compulsory insurance provisions, such as claims handling procedures and other aspects of insurance distribution. Most of the prudential regulation rules are set forth by the principal company legal and regulatory framework, although the ASF must be notified of relevant alterations that may have an impact on Portuguese market sustainability or the conditions for the rendering of services in Portugal.
However, EU companies accessing the Portuguese market under FOS must appoint a claims representative who must reside or be established in Portugal, and, when providing motor liability insurance, EU companies must also become associated with the Portuguese Green Card Bureau.
iv The distribution of products
Portugal has only approved the laws, regulations and administrative provisions necessary to comply with the IDD in 2019. Nevertheless, the market commenced adjusting to the preliminary IDD transposition draft law (the IDD Draft Law) released by the ASF in 2018.
The IDD Draft Law authorises the ASF to approve and publish the regulations deemed necessary in order to duly and fully transpose the IDD, but no draft regulation has been disclosed so far.
The IDD Draft Law and the IRDLF establish new rules concerning insurance products approval, adequacy assessment and distribution, and information requirements, including information on intermediaries' fees and the obligation to deliver the insurance product information document. They also set new rules regarding authorisation procedures and requirements, system of governance, fit and proper requirements, and conflict of interest rules.
Finally, the IRDLF alters the previously existing connected contract exemption (CCE), setting less restrictive rules for the applicability of the new ancillary insurance intermediaries exemption conditions set forth in Article 1(3) of the IDD.
v Compulsory insurance
The non-life insurance market in Portugal is based on compulsory insurance products. There are dozens of compulsory insurance products, including classes (as defined under Solvency II) for accident; fire and natural forces; other damages to property; motor vehicle liability; and suretyship.
Under the Insurance Legal Framework and the ICLF, compulsory insurance products distributed in Portugal are subject to the applicable Portuguese legal and regulatory provisions concerning the compulsory insurance.
The insurer must deliver the terms and conditions of any compulsory insurance in the Portuguese language, unless the parties agree that it shall be worded in another language and the policyholder requires the delivery of the policy in another language.
The ASF has the power to issue standardised policies and command any insurer to comply with these standardised policy terms. Insurers are obliged to register the general terms and conditions of any compulsory insurance products with the ASF, which in return must declare whether the terms and conditions are compliant with the applicable rules.
Furthermore, insurers offering compulsory insurance distribution in Portugal by way of FOS are required to appoint, register with the ASF and divulge the identity of a claims representative and a client ombudsman, both of which must be resident or established in Portugal.
vi Compensation and dispute resolution regimes
Under the Insurance Legal Framework, the ASF is responsible for any mitigation, recovery or liquidation process concerning insurance and reinsurance companies. Despite this, there is no general compensation regime for the event of an insurer or a mediator bankruptcy.
Nonetheless, there are several applicable compensation and dispute resolution regimes concerning specific insurance products, such as motor insurance and accidents at work and occupational diseases insurance, which cover any payments owed by the insurer to the insured person or company, the beneficiary or the injured party.
Regarding motor insurance, the Portuguese Motor Insurance Legal Framework, approved under Decree-Law 291/2007 of 21 August 2007, established the Motor Insurance Guarantee Fund, to which all insurers that provide motor insurance in Portugal must contribute. It is responsible for compensating for damage suffered by the injured persons whenever the person liable for the damage caused by a motor vehicle is unknown, fails to comply with the obligation to enter into a valid compulsory motor insurance or, for some reason, is exempt from this obligation.
Insurers do enter into non-binding compensation regimes, in order to expedite claim-handling and payment. The most relevant example is the Insured Person Direct Liquidation Protocol (the Liquidation Protocol),2 applicable, under certain requirements, when the persons involved in a motor vehicle accident between two vehicles duly covered by motor insurance contracts agree on the circumstances of the accident, and under which the insurer of the injured party directly compensates the damage suffered and subsequently obtains reimbursement from the insurer of the liable persons.
As established under the Liquidation Protocol, any dispute arising between insurers concerning the interpretation and execution of the compensation regime shall be committed to arbitration.
The existing general and mandatory dispute resolution regimes are applicable to disputes opposing insurers and policyholders, insured persons, beneficiaries or injured parties, and, as such, will be addressed below.
vii Proposed changes to the regulatory system
There is an ongoing discussion regarding the necessity of a new financial supervisory and regulatory structure, and the general principles and positions that should be followed on this matter.
For the time being, there are no final decisions on a new financial supervisory and regulatory structure. The current structure comprises three authorities, the ASF, the CMVM and the Bank of Portugal, and a consultation and coordinating entity, the National Council of Financial Supervisors. The Financial Supervision Reform Working Group favours the substitution of the current sectorial supervision with a twin-peaks supervision model, where insurance, banking and securities market behaviour supervision would be assumed by a single authority.3
The CMVM's supervisory and regulatory functions pertaining to market conduct rules for insurance-based investment products and open pension funds distribution have been transferred to the ASF, which also has supervisory and regulatory responsibilities for some significant provident and mutual benefit institutions. Considering these proposed changes, it is expected that the ASF will regulate insurance distribution, particularly concerning insurance-based investment products, open pension funds, and provident and mutual benefits in 2019.
III INSURANCE AND REINSURANCE LAW
i Sources of law
The Portuguese legal framework is based on statutory law. There are no binding case law precedents, and customary law is subject to highly restrictive requirements.
There are several insurance contracts ruled under specific statutes, such as motor liability, bond and credit, and marine insurance contracts. Despite this, the basic insurance law framework is set out in the ICLF as amended, approved under the Decree-Law 72/2008 of 16 April 2008, which establishes the general rules regarding insurance contracts, specific rules applying to damages and personal insurance, and several special rules applying to certain covers.
The ICLF shall apply to any insurance contract regulated under specific legislation, and, whenever the ICLF does not cover the subject matter, the Civil Code and the Commercial Code shall apply.
There are also several ASF and CMVM regulations establishing relevant provisions concerning insurance contracts, notably the ASF regulations on compulsory insurance standardised policies.
ii Making the contract
The ICLF does not define the concept of an insurance contract, although it expressly determines that should be a contract through which the insurer undertakes to perform the agreed obligation (which might be a pecuniary charge) in the event of a specified uncertain future event (although Portuguese law admits past events to be covered, under very strict requirements). The policyholder undertakes the obligation to pay the premium (which will always consist of a pecuniary charge that can be paid through cash, bank cheque, postal order or payment services transactions).
The making of the contract commences with the provision of legally and regulatory compliant pre-contractual information to the policyholder, as well as any information and clarifications that might be necessary for the policyholder to comprehensibly understand the contract. Whenever the insurer is distributing an investment product, it must also provide the policyholder with the key information document.
The policyholder is required to file and deliver to the insurer a contractual proposal with the information considered necessary by the insurer. In contrast to other countries' legislative frameworks, according to the ICLF, the policyholders are subject to a pre-contract obligation to provide the insurer with any information that the policyholder is aware of and can reasonably find relevant for the insurer to evaluate the risks to be covered, regardless of whether this information is expressly requested by the insurer.
Whenever the policyholder delivers to the insurer or the broker the filed contractual proposal and any other required information and documents, the insurer has 14 calendar days to accept, deny or require any further information or documents. The omission of any action determines the contract to be considered accepted.
After the contract is entered into by the parties, the insurer is required to issue and deliver the insurance policy to the policyholder immediately (or in 14 calendar days, when the insurance is a 'mass-insurance' contract), worded under specific legal and regulatory requirements, comprising all the contractual terms. The policyholder has 30 calendar days to submit any complaint regarding the insurance policy. After this period has elapsed, the insurance policy is considered to validly reflect the parties' agreement, and this assumption can only be challenged with written documents containing divergent information.
The Insurance Legal Framework requires the insurer to number the contracts and maintain an insurance and investment products electronic register, containing information on the parties and in the contract itself.
iii Interpreting the contract
Although the contract may be concluded in any form the parties choose, the insurer must always issue and deliver the insurance policy, which will serve as the basis for the contract interpretation. Nevertheless, insurance contracts are normally construed under general terms and conditions proposed by the insurer.
Insurance contract interpretation should be based on the insurance policy and should be construed objectively, with the meaning that a normal policyholder in the conditions of the specific policyholder would give to the terms. However, under the rules applicable to general terms and conditions, dubious terms shall be interpreted in the most favourable way for the policyholder.
Insurance policies usually contain three sets of terms and conditions: general terms, special terms (setting specific rules on certain covers, premium payments or other items of the contract) and particular terms ('schedule'), which comprehend the concrete aspects of the insurance contract, such as the identity of the policyholder, insured persons and beneficiaries, the premium amount or calculous method, the insured good, the insurance period or the insured amount. Special and particular terms cannot change the nature of the cover as determined by the insurance type.
General terms and conditions declared null in judicial courts are registered and divulged so that claimants and insurers are informed of the judicial interpretation. Although there is no case law precedent in Portugal, decisions involving insurance contracts clauses are considered by insurers when drafting new terms and conditions.
iv Intermediaries and the role of the broker
Portuguese Law allows for three types of registered insurance mediators, as well as non-registered intermediaries acting under the Insurance Mediation Directive CCE.
Insurance mediators can act on behalf of the insurer or on behalf of the policyholder. When doing so, the mediator must comply with the information obligations that the party he or she represents is subject to.
Alongside this, the Insurance Mediation Law provides a number of conduct rules for insurance mediators, such as:
- the obligations to provide information to clients, insurers and the ASF;
- the prohibition to intermediate the conclusion of insurance contracts that fail to comply with any legal or regulatory rules;
- the obligation to act accordingly with the orders received, namely from the policyholder, and to render accounts;
- the obligation to keep a record of the contracts that he or she has intermediated; and
- a prohibition on imposing an insurance contract crossed sale.
The intermediary is subject to the anti-money laundering (AML) prevention obligations set forward in EU and Portuguese law and, as such, must comply with the applicable customer due diligence measures.
Although an intermediary does not necessarily assume the representation of one of the parties in the insurance contract, whenever it acts in the name of the insurer or of the policyholder, any communication that might be delivered to it is considered to have been delivered directly to the party it represents.
In the event of a false representation, the actions performed by or through the intermediary are deemed contractually ineffective, although the insurer can ratify the performed actions. Despite this, the ICLF establishes that an insurance contract entered into through an intermediary that has presented itself as acting in the name of an insurer can be binding to the insurer, provided that there are objectively valid and acceptable reasons to sustain the policyholder's belief in the intermediary's good faith and legitimacy, and if the insurer has in any way contributed to the formation of such conviction.
Under the ICLF, the policyholder, the insured person and the beneficiary must present any claim to the insurer within eight calendar days of becoming aware that the insured event has occurred, or in a wider period determined in the insurance contract.
The claimant must state the causes, circumstances and consequences of the event, as well as render to the insurer any clarifications that it might request.
The ICLF does not establish a specific consequence for failure to present the claim in the given period, but the insurance contract may establish the reduction of the due instalment according to the damage suffered by the insured because of the delay. The contract may also determine the exclusion of coverage whenever the delay is wilful and causes significant damage to the insurer. However, these contractual terms cannot be opposed (1) when the insurer has taken knowledge of the event or (2) in any circumstances, to injured persons in order to prevent payment of instalments due under civil liability compulsory insurances contracts.
The insurer must pay within 30 calendar days of having determined the causes, circumstances and consequences of the claim. To ensure correct and fair claim handling and overall market behaviour by the insurer, Portuguese law imposes the obligation to create, register, implement and divulge claim and complaint policies.
There are also several provisions established in the law to guarantee that the policyholders, insured persons, beneficiaries and injured persons are aware of their rights, with emphasis on motor insurance or life insurance products and schemes registers.
The ICLF determines that the pre-contractual document and the insurance policy must indicate the claim presentation procedures and channels, as well as the procedures and channels for presenting complaints regarding claim handling by the insurer.
Insurers also have an obligation to appoint a client ombudsman to serve as an appeal instance regarding claim-handling disputes.
IV DISPUTE RESOLUTION
i Jurisdiction, choice of law and arbitration clauses
The general rules on international jurisdiction are set out in Articles 10 to 16 of EU Regulation No. 1215/2012 of the European Parliament and of the Council of 12 December 2012, on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast).
Portuguese law states that the injured party whose damages are covered by a liability compulsory insurance can always bring actions directly against the insurer or be joined in proceedings held against the insured. These possibilities are extended to liability non-compulsory insurance when the insured has previously informed the injured party on the existence of the insurance, and the injured party and the insurer have commenced negotiations.
In some cases (e.g., insurance contracts covering large risks), the parties are allowed to commit the dispute to a different jurisdiction, although the requirements for a valid choice of jurisdiction are narrow.
The general rules on choice of law are set out in Article 7 of the Rome I Regulation, and in Articles 5 to 10 of the ICLF.
Insurance contracts covering large risks are governed by the law chosen by the parties, or, in the absence of choice, by the law of the country where the insurer has its habitual residence, unless the contract is manifestly more closely connected with another country, in which case the law of that country shall apply.
Other insurance contracts are governed by the law chosen by the parties, although the parties can only choose from certain specified laws.
In the absence of a valid choice of law, the insurance contract shall be governed by the law of the Member State in which the risk is situated at the time of conclusion of the contract.
There are three provisions of the ICLF that establish rules of the upmost importance with regard to choice of law:
- the ICLF determines that consumer protection mandatory rules are to be considered as overriding mandatory provisions;
- compulsory insurance is governed by Portuguese law; and
- regardless of whether they are covered by Portuguese law, insurance contracts offering cover that is forbidden in Portugal are null.
When contracts are submitted under Portuguese law, the ICLF allows the parties to commit the dispute to arbitration, whatever the type of insurance, cover or claim.
Most disputes arising from an insurance contract interpretation or execution demand a judicial review of the circumstances and, therefore, demand a declarative proceeding to be held.
Portuguese law establishes specific proceedings and jurisdiction for claims against public and private persons or entities regarding their liability for acts and omissions in the exercise of state authority. Other civil proceedings are regulated under the general provisions of the Portuguese Civil Procedure Code. Nonetheless, all declarative proceedings are adversarial and comprehend mandatory mediation phases held by the trial judge.
Generally, the burden of proof relies on the plaintiff and written evidence does not bear higher evidential value than other types of evidence. However, written evidence tends to supersede oral evidence.
The parties can appeal the decisions before the higher court and, under certain circumstances, before the Supreme Court of Justice. Final decisions are directly enforceable.
Portugal has successfully diminished the duration of proceedings by creating the CITIUS platform, an internet platform through which proceedings actions concerning almost all civil proceedings must be performed. Despite this, civil proceedings are still perceived as costly for natural persons. To reduce the negative impact, the law establishes higher court costs for mass litigators and establishes that the winning party can demand that the losing party reimburse the incurred costs.
Law 63/2011 of 14 December 2011 establishes the general rules on voluntary arbitration. Parties can submit disputes arising from insurance contracts to arbitration, although the arbitration, when applied to consumers, cannot diminish consumers' procedural guarantees as provided by state proceedings.
A valid arbitration clause prevents the parties from submitting the dispute to state jurisdiction if they fail to agree on the submission, and the arbitration decision is enforceable, although the parties can appeal the decision before state courts.
Insurance arbitration is fairly well developed in Portugal. The most representative private insurance arbitration centre is the Centre for Insurance Information, Mediation, Ombudsman and Arbitration (CIMPAS), which settles disputes concerning motor insurance, and, up to certain claim amounts, multi-risk and civil liability insurance. It may settle disputes arising from other types of insurance, with the exception of large-risk insurance. In addition, it does not settle disputes arising from events that have not occurred in Portugal or that have resulted death or permanent disability.
The arbitration is always preceded by a mandatory mediation phase, which is usually expedited (three to six months until the final decision), and the arbitration fees are settled as 3 per cent of the claim amount.
iv Alternative dispute resolution
The most significant alternative dispute resolution (ADR) system is the client ombudsman, which serves as a voluntary instance to which policyholders, insured persons, beneficiaries and injured parties can appeal claim-handling decisions and actions taken by the insurers.
Any insurer that provides services in Portugal must create, implement, register and divulge a client ombudsman policy, and appoint a client ombudsman habitually resident or established in Portugal.
Other than the client ombudsman, the law and the insurance market have established, developed and implemented arbitration and mediation systems that have been increasingly embraced by insurance claimants.
Law 29/2013 of 19 April 2013 establishes the general rules on civil and commercial mediation. Under its provisions, parties can only submit to mediation disputes concerning material interests, and the submission of disputes to mediation is always based on free and informed consent by the involved parties, that the parties can retract at any time and by any cause. Nevertheless, if the parties agree on the mediation, the decision is enforceable through state courts.
Voluntary mediation is developing in Portugal as consumers become more aware of the existence of state-held and private mediation centres, such as the mediation centre provided by justices of the peace and CIMPAS.
Portuguese declarative proceedings have a mandatory mediation phase, led by the trial judge before the trial hearings.
V YEAR IN REVIEW
The Portuguese insurance and reinsurance market grew consistently throughout 2018, although it had to adjust to the Fourth Anti-Money Laundering Directive (4th AML Directive), the PRIIPs Regulation, the IDD and the General Data Protection Regulation, in a time-consuming and resource-intensive process that is still underway.
The exposure of insurance companies to foreign financial markets and the broad restructuring of European insurance companies and banks has continued to determine portfolio sales and mergers and acquisitions (M&A) operations between insurance undertakings. This is expected to continue in the coming years and will result in more concentration in the Portuguese market.
The insurance industry is based on mandatory insurance products and banking operations-related insurance products, which means that many of the most relevant life insurance companies in the Portuguese market are part of larger financial corporate groups and have banks as their main distributors.
Regarding non-life insurance companies, the main players have a large number of compulsory insurance products.
The relevance of compulsory insurance products and the concentration of the market on non-life insurance brings some risks – the Portuguese Competition Authority has initiated proceedings against five insurance undertakers for alleged constitution of a cartel aimed at market share and price-fixing.
VI OUTLOOK AND CONCLUSIONS
The year 2018 was exceptionally challenging for insurance undertakings and distributors as regards to their respective adjustments to the EU and Portuguese insurance legal and regulatory frameworks, in a process that will continue throughout 2019.
As mentioned in Section V, the implementation of the 4th AML Directive, the PRIIPs Regulation, the IDD and the GDPR have introduced significant changes to insurance undertakings and distributors market-behaviour rules, requiring demanding operations, policies, procedures, terms and conditions, marketing strategies and documentation, and distribution arrangements, which means they must be reviewed and restructured.
In addition, the prudential and market-behaviour supervisory and regulatory powers of the ASF will require the authority to accommodate the supervision and regulation of new matters previously subjected to the CMVM or the Ministry of Labour, Solidarity and Social Security.
Therefore, market operators will have to continue to adjust to the regulatory provisions during 2019.
However, despite the above, the Portuguese insurance market is consistently growing and attracting international players. M&A activity and portfolio sales are expected to continue throughout 2019. There are also expected to be innovations regarding insurtech, namely risk management, predictive models, fraud prevention, and marketing strategies and procedures.
1 Miguel Duarte Santos is a managing associate at Gouveia Pereira, Costa Freitas & Associados, Sociedade de Advogados, SP, RL.