The Insurer's View of Insurance Contracts

Expert Group on European Insurance Contract Law Meeting of 25-26 June 2013 DISCUSSION PAPER 1 3: INSURANCE CONTRACT LAW- GENERAL PART 1. DEFINITION OF INSURANCE CONTRACT A significant approximation of national insurance laws of all Member States is a fact, yet, there are no uniform general rules covering the whole life-cycle of an insurance contract. Although three generations of EU insurance legislation have created a certain legal framework for the insurance business, there is for instance no definition of insurance contract in the acquis. Definitions of insurance products in each Member States might vary from the point of view of contract law, commercial law, tax law and consumer protection law. Supervision authorities in the Member States tend to show a different level of scrutiny when assessing each insurance product which might result in different views on what an insurance product should be. Furthermore, the viewpoint of each of the players in the insurance market could lead to different notions about insurance contract. A product a customer regards as an insurance contract of a certain type have a different nature for an insurer or an intermediary. A product that is offered and advertised as an insurance contract by the insurers might not at all look like one to and might not be recognised as such by an uninformed customer. Different definitions for an insurance contract could lead to the application of different rules to similar or even the same products offered by the same insurer throughout several Member States. This may create uncertainty amongst the customers as to whether the same or similar products in different Member States would actually provide the same or similar contract terms, coverage, payments. Different understanding of what an insurance contract is may also create uncertainty among the insurers as to whether the business conditions in different Member States are comparable. Illustration: 2 A foreign insurance company is entering the market of a MS by offering a life insurance product. A few months later it is officially notified by the financial market supervisory authority of 1 This paper does not reflect the view of the Commission as an institution. 2 The illustrations are based on theoretical assumptions. 1

that Member State, that the product offered is regarded as investment product under the national law and the company is required to comply with all the conditions for establishing investment business and sales of investment products in that country. Questions on section 1: 1. Do you think that diverse definitions of insurance contract create impediments to cross-border trade? If so, can you provide examples to illustrate your answer? 2. Do you think the lack of a uniform definition of insurance contract might be an obstacle for developing new products which encompass insurance obligations as well as other elements and/or services? 3. Do you think the existing different perceptions for insurance contract prevent the customers from freely choosing insurance products from different Member States? If so, please provide examples. 4. Would there be a need for adaptations of the contract terms because of existing different definitions of insurance contract if a policy is offered in different Member States? 5. Would the adaptations affect the contract terms alone? 6. Would the adaptations also affect the product characteristics and lead to changes in the product design? 7. Would the adaptations lead to a re-assessment of the risk on a different actuarial basis? 8. If relevant, what would be the costs for adaptations in this area (including time and legal costs)? 9. Are B2B and B2C insurance contracts affected equally or are there differences? Could you give examples? 10. Does it make a difference whether large or mass risks are insured? 11. If the differences in the definition of an insurance contract create an obstacle for cross-border trade, does this apply to all kinds of insurance products or are certain kinds of insurance products more affected than others? If the latter is the case, which ones? 2

2. ELEMENTS OF THE CONTRACT 2.1. INSURABLE INTEREST A superficial survey of the insurance law in several Member States 3 revealed that the existence or not of an interest for the insured to enter into a contract for insurance is subject to different regulations. In some Member States the existence of insurable interest, i.e. the reason that leads the party to enter into a legally binding agreement, is a key element to the contract. It is defined either in the law or, at least, in the jurisprudence. Some legal systems 4 go even further by expressly declaring null and void any insurance contract that is concluded without insurable interest. Others 5 display a more nuanced approach by declaring an insurance contract void only where the policyholder has insured a non-existent interest with the intention of thereby gaining an illegal pecuniary benefit. By contrast in some other legal systems the lack of an insurable interest at the moment of conclusion of the contract does not entail such severe consequences. The existing various rules on the relevance of the insurable interest to the insurance contracts and the diverse legal consequences they lead to may create barriers to the cross-border supply of insurance products. As already suggested by several members of the Expert Group during the previous discussions, a product an insurance company is offering in some of the Member States might need serious adaptations before being offered in other Member States only because of different consequences that respective national laws attribute to the insurable interest. A customer who is willing to obtain in another Member State an insurance product (s)he is familiar with from its home market might find himself/herself in a situation where no such product is admitted by the legal system of that Member State because of a lack of insurable interest. Question on sub-section 2.1: 1. Do you think different rules on the insurable interest are likely to lead to adaptation of insurance products when offered cross-border? Do you think different rules on the insurable interest are likely to prevent insurers from offering even a modified version of an insurance product to certain Member States? If so could you give examples? 2. Would it matter if it is insurance of large risks or mass risks? 3. In case adaptations are needed, what would be their impact on the respective insurance product? 3 United Kingdom, Germany, Austria, Italy, Bulgaria. 4 Bulgaria. 5 Germany. 3

Would those adaptations lead also to costs for the insurers? 2.2 RISK It is generally acknowledged that insurance contracts are concluded to provide cover against specific events which are largely regarded as risk. It is also generally accepted that the risk is an event or incident that is uncertain and does not depend on the will of the insured. Nevertheless, there seem to be different perceptions as to the need for such a definition, its scope and its key parts. A life insurance contract that contains an investment element clearly does not match the above definition as the aim of that contract is more than just to provide cover against a given event, moreover that event is not uncertain. Yet, such contracts are a significant part of the life-insurance sector and are undoubtedly referred to as insurance. Further examples of existing insurance products reveal that insurance is often sought and offered for events that are not regarded as negative in general and thus can hardly be described as risks in the strict meaning of this term; sometimes those are anticipated or even desired events. Insurances in cases of marriage or birth of child are such examples. The birth of a child, for instance, is an uncertain, yet desired event that usually entails significant expenses and it is therefore understandable that customers are searching insurance cover for such an event. However not all legal systems of Member States seem to attribute equal importance to the risk. In some of them there are legal definitions of what risk is 6 while in others there are not. In some countries no general definition of risk exists but there are definitions for specific risks, e.g. large risk 7. Questions on sub-section 2.2: 1. Do you think that existing different rules on what risk is are likely to lead to adaptation of insurance products when offered cross-border? If so could you provide examples? 2. In case adaptations are needed, what would be their impact on the respective insurance product? Would those adaptations lead also to costs for the insurers? 3. Do you think that existing different rules on what risk is are likely to prevent marketing of certain insurance products cross-border? If so- could you provide examples? 6 For instance, the Bulgarian Code for insurance, Art.195 and point 34, Additional Provisions. 7 Italian Code for Private Insurance, D.lgs. 209 7/9/2005, Art.1(1)r. 4

2.3 PAYMENT OF INSURANCE MONEY The main obligation of the insurer is to pay an amount of money agreed once the insured event occurs. A clear distinction exists as to whether the insurer agreed to compensate the policyholder or a third party for damages that arise as a result of an insured event or the contract was concluded for payment of fixed sums. This obligation is traditionally perceived as a purely monetary one the insurer is to pay what was agreed or within the limits agreed. It is also defined as such in some Member States' legislations 8 while others avoid doing so. Some national laws 9 provide for a broader definition of the obligation of the insurer - to perform what is agreed in the contract. Indeed, plenty of examples exist at today's insurance market which seems to point out that the notion of the main insurer's obligation being purely monetary is somewhat restrictive. For instance, it is common for the contracts for health insurance to give the right to the policyholder to receive not only payment, but also access to certain health services instead of payment. Some insurance products also envisage the insurer offering assistance or legal advice to the policyholder under certain conditions. Last but not least, in some types of insurances and particularly with regard to liability insurance the insurer's obligation might vary a lot: it is a common approach in the legislation of some of the Member States to allow the insurer to repair or arrange for reparation of the damages instead of paying. There are, nevertheless, substantial differences in the national laws with regards to the main obligation of the insurer. If the obligation is perceived as purely monetary, then the existence or nonexistence of limits to the payments for certain types of insurance products is the most obvious example of such differences. It is also one of the most illustrative as to the consequences different national laws might have on the cross-border offer of insurance products as already pointed out during the Expert Group discussions, different limits on the payments prevent insurers from entering a foreign market where the limit, i.e. the risk for them, might be higher. Those different limits could also prevent customers to search for products on a cross-border basis because those products might not adhere to certain mandatory rules at their national markets. Furthermore, depending on the circumstances customers might be searching for monetary compensation for damages or prefer rather reparation of damages. Those preferences, combined with the uncertainty with regard to the cross-border offering due to the abovementioned differences, might prevent customers from buying insurance products abroad. 8 Austria, 1 VersVG; DE, 1 VVG; Italy, Art. 165 D.lgs. 209 7/9/2005 ; Bulgaria, Art. 183 Code for Insurance. 9 Luxemburg, art. 1 er, Loi modifiée du 27 juillet 1997 sur le contrat d'assurance. 5

Questions on sub-section 2.3: 1. Do you think different definitions of the main insurer's obligation lead to need for adaptation of some insurance products when offered cross-border? If so to which products? 2. Do you think different definitions of the main insurer's obligation are likely to prevent customers from actively searching for insurance products cross-border? 2.4 PAYMENT OF PREMIUM A superficial survey of the insurance law in several Member States showed that a rather uniform definition of the main policyholder obligation appears to exist. That obligation is invariably defined as a monetary one the policyholder has to pay the premium. Furthermore it is generally accepted that premium can be paid as a single sum or at several instalments throughout the duration of the contract. 10 Question on sub-section 2.4: 1. Are there differences in the national laws as to the obligation for payment of premium? If so - can you provide examples for that? Is there any impact of such examples on the offering of and demand for insurance products and if so, what is the impact? 3. PRE-CONTRACTUAL INFORMATION Before the conclusion of the insurance contract the insurance undertaking or insurance intermediary is usually required to provide pre-contractual information to the customer. The aim of pre-contractual information rules is to ensure that the prospective policy holder takes a decision to enter into an insurance contract on an informed basis. For this purpose, several information items may be relevant: information on the provider, information on the applicable law and redress, information on the product and contract terms and information on the service offered by the provider for the product. Furthermore, there are rules specifying in what manner this information should be provided. 10 The consequences of non-payment and possible differences with regards to those will be discussed during the following EG meetings. 6

The area of pre-contractual information has been harmonised to a large extent at European level. Pre-contractual information requirements are set out in Solvency II, 11 in the Directive on Electronic Commerce, 12 in the Distance Marketing of Financial Services Directive 13 and in the Insurance Mediation Directive. 14 While the requirements in these directives are co-ordinated, all relevant Directives have a different scope and apply to different situations. 15 For instance, the range of information items to be included in the contract varies depending on whether the product is offered by an insurance undertaking or an intermediary, whether the contract is to be concluded electronically or by other distance sales channels, whether the customer is a consumer or a business user, whether the risk insured qualifies as mass or large and finally whether the insurance contract falls within the area of non-life or life insurance. 3.1. REQUIREMENTS RELATING TO PRE-CONTRACTUAL INFORMATION ITEMS 3.1.1. EUROPEAN LEGISLATION The information requirements under the relevant Directives could be grouped in the following categories of information items: Information on the provider: The main purpose of this information is to help the customer identify the provider, their place of business, contact details and if relevant the name and address of the representative acting on behalf of the provider. In case of distance sales additional information 11 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance, Official Journal 335, 17.12.2009, p. 1 155 (Solvency II). Art. 310 of Solvency II repeals Directives 64/225/EEC, 73/239/EEC, 73/240/EEC, 76/580/EEC, 78/473/EEC, 84/641/EEC, 87/344/EEC, 88/357/EEC, 92/49/EEC, 98/78/EC, 2001/17/EC, 2002/83/EC and 2005/68/EC. 12 Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market, Official Journal L 178, 17.07.2000, p. 1-16 (Directive on Electronic Commerce) 13 Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning distance marketing of consumer financial services and amending Council Directives 90/619/EEC, 97/7/EC and 98/27/EC, Official Journal L 271, 09.10.2002, p. 16-24 (Distance Marketing of Financial Services Directive). 14 Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation, Official Journal L 009, 15/01/2003, p. 3 10 (Insurance Mediation Directive) 15 For instance Solvency II contains specific rules on pre-contractual information for non-life and life insurance. Some requirements apply to natural persons alone, other apply to all mass risks, while the requirements for large risks are most limited. The Directive on Electronic Commerce also applies to B2B and B2C transactions concluded online, but some rules may be derogated from for B2B contracts. The Distance Marketing of Financial Services Directive applies only to distance contracts with consumers. The Insurance Mediation Directive currently applies only to services rendered by insurance intermediaries and thus excludes insurance undertakings. It should be noted that the re-cast Insurance Mediation Directive II proposal aims to extend the scope of the requirements also to insurance undertakings, but for the purpose of this paper the text of the Directive as it stands will be taken into account, given its current implementation into national laws. 7

items may include the registration number in trade registers and VAT number, as well as an indication of membership of professional organisations or adherence to codes of conduct. The circumstances in which these information items have to be provided include: life insurance contracts, 16 in case of non-life insurance provided on the basis of freedom of establishment or services for mass risks, 17 in case of electronic sales 18 and for all distance sales to consumers, 19 as well as when an insurance contract is offered by an intermediary. 20 Information on applicable law and redress: The main purpose of this type of information is to inform the policy holder about the law governing the contract or about the possibility to choose this law. In addition, there is information on the competent courts, complaints handling arrangements and out-of-court dispute resolution mechanisms, which is relevant for dispute resolution. The circumstances in which these information items need to be provided include: life insurance 21 contracts, in case of non-life insurance when the policy holder is a natural person, 22 in case of distance sales to consumers 23 and when an insurance contract is offered by an insurance intermediary. 24 Information on the contract conclusion and withdrawal: This information is mainly relevant for contracts concluded at a distance, where specificities occur in relation to the technical means of concluding the contract. Furthermore, some specific rights, such as the right of withdrawal, may be relevant for distance sales in particular. The circumstances in which this information is normally required are limited to distance sales. 25 In case of distance sales to consumers the range of information items is broader than information requirements for businesses contracts and includes details on the conclusion of the contract and right of withdrawal. 26 In case of electronic sales specific information on the technical steps for the conclusion of the contract is required both for business and consumer contracts, but the requirement 16 Solvency II, Art. 185. 17 Solvency II, Art 184. 18 Directive on Electronic Commerce, Art. 5. 19 Distance Marketing of Financial Services Directive, Art. 3. 20 Insurance Mediation Directive, Art. 12. 21 Solvency II, Art. 185. 22 Solvency II, Art. 183. 23 Distance Marketing of Financial Services Directive, Art. 3. 24 Insurance Mediation Directive Art. 12. 25 Information on the right of withdrawal has to be provided also in case of face-to-face sales of life insurance products. 26 Distance Marketing in Financial Services Directive, Art. 3. 8

can be derogated from by contractual agreement in case of B2B contracts. 27 However, in case of life insurance contracts 28 the information on the right of withdrawal needs to be provided irrespective of whether the contract is provided by way of a distance sales or face-to-face, as the right of withdrawal applies to both situations. 29 Information on the product characteristics and contract terms: The purpose of this type of information is to inform the customer about the main characteristics of the product, including product features, cover, exclusions, possible risk exposure and price. The circumstances in which these information items need to be provided are: In case of any insurance products sold at a distance to consumers, extensive information has to be provided on the characteristics of the product and its price. 30 In case of any insurance products sold to businesses or consumers by electronic means, information on the price of the product needs to be provided. 31 In case of life insurance products, the information on the right of withdrawal needs to be provided irrespective of whether the contract is offered at a distance or not. 32 Information on the service: This type of information aims to clarify to the customer whether the provider has considered a wide range of products before making a specific offer. Furthermore, there is the question whether the provider has analysed a sufficient number of offers in the market, so as to be in a position to recommend a product which is adequate to meet the customer's needs. The circumstances when this information is required currently relate to the activities of insurance intermediaries. 33 The specificity of the activity of insurance intermediaries is that they may be in a position to offer a wider range of products from different insurance undertakings. Thus, this precontractual information requirement takes account of possible contractual arrangements of intermediaries which may limit the range of products they offer only to products designed by one or several insurance undertakings. However, there is an exemption from this rule for large risks. 27 Directive on Electronic Commerce, Art.10. 28 Solvency II, Art. 185. 29 Solvency II, Art. 186. 30 Distance Marketing of Financial Services Directive, Art.3. 31 Directive on Electronic Commerce, Art. 5. 32 Solvency II, Art.185. 33 Insurance Mediation Directive, Art. 12. 9

3.1.2. NATIONAL LEGISLATION Member States have implemented the relevant European legislation in their national laws. As the majority of the relevant Directives 34 are based on minimum harmonisation, Member States have the possibility to add a higher level of protection and they have indeed taken advantage of this possibility. This is often achieved in two ways: - First, by adding more information items to the requirements set out in European legislation; - Second, by extending the scope of application of the requirements under European legislation to more situations. A number of additional requirements have been introduced in relation to the information items bellow at national level. However, the requirements of different EU countries are likely to differ among themselves, as not all countries have introduced the same additional requirements or have extended the scope of the rules to the same situations. Therefore, even in harmonised areas, there are likely to be substantial differences in the rules on pre-contractual information at national level. Different EU countries have taken different approaches to pre-contractual information. Information on the provider: For instance, in relation to unit linked life insurance products, many Member States have introduced additional requirements or have extended the scope of existing requirements, as evidenced by a Report of the Committee of European Insurance and Occupational Pensions Supervisors 35 (formerly CEIOPS, currently the European Insurance and Occupational Pensions Authority, EIOPA). In relation to insurance undertakings, 36 one Member State requires the provision of an insurance undertaking's entry number in a commercial register (not only in case of electronic sales alone, pursuant to the Directive on Electronic Commerce). Another Member State requires an identification of the financial group to which the undertaking belongs. Additional requirements for intermediaries include: indicating the scope of the services, possible business connections between the insurance intermediary and the insurance undertaking (including 34 The Distance Marketing in Financial Services Directive is based on the full harmonisation principle. However, this principle does not apply to pre-contractual information requirements. Pursuant to Art. 4(2) "Pending further harmonisation, Member States may maintain or introduce more stringent provisions on prior information requirements when the provisions are in conformity with Community law." 35 CEIOPS Report on National Measures regarding Disclosure Requirements and Professional Requirements for Unit-Linked Life Insurance Products, which are additional to the Minimum Requirements of the CLD and IMD, CEIOPS-DOC-20/09, 2 July 2009, p.15. ("CLD" stands for Consolidated Life Insurance Directive - Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance; IMD stands for the Insurance Mediation Directive. 36 CEIOPS Report on National Measures regarding Disclosure Requirements and Professional Requirements for Unit-Linked Life Insurance Products, which are additional to the Minimum Requirements of the CLD and IMD, CEIOPS-DOC-20/09, 2 July 2009, p.15. 10

partners, directors, controllers or managers) or where applicable, the intermediary's capacity as an employee of insurance undertaking. 37 Information on applicable law and redress: For instance, Italian law introduces an additional requirement to provide information on the period of prescription for the exercise of the rights of the policy holder. This information needs to be included into a specific information note accompanying the contract (Art. 185 D. lgs. 209 7/9/2005). Information on the service: Some Member States have introduced additional information requirements, for instance in relation to unit linked life insurance products. They require information on whether the intervention of the intermediary terminates upon signature of the contract or whether it also includes assistance during the period of validity of the insurance contract. 38 Furthermore, a number of Member States have introduced additional requirements for the disclosure of costs and charges associated with the management of the contract (e.g. annual fund management charge, annual advisor remuneration, additional charges, such as early cash-in/surrender charges or charges due to tax or regulatory changes). 39 Information on the product characteristics and contract: Member States have introduced a number of additional requirements. For instance, in France the insurer must hand over either a copy of a draft contract with all its annexes, or a note containing detailed information on the insurance cover, including exclusions and duties of the policy holder. 40 In Germany the insurer has to inform the policy holder in writing of the terms of the contract, including the general terms and conditions of insurance, as well as of information set out in a statutory ordinance. 41 In Italy there is an obligation for the insurer to provide to the policy holder a comprehensive information note, attached to a copy 37 CEIOPS Report on National Measures regarding Disclosure Requirements and Professional Requirements for Unit-Linked Life Insurance Products, which are additional to the Minimum Requirements of the CLD and IMD, CEIOPS-DOC-20/09, 2 July 2009, p.15 38 CEIOPS Report on National Measures regarding Disclosure Requirements and Professional Requirements for Unit-Linked Life Insurance Products, which are additional to the Minimum Requirements of the CLD and IMD, CEIOPS-DOC-20/09, 2 July 2009, p.15 39 CEIOPS Report on National Measures regarding Disclosure Requirements and Professional Requirements for Unit-Linked Life Insurance Products, which are additional to the Minimum Requirements of the CLD and IMD, CEIOPS-DOC-20/09, 2 July 2009, p.12-13 40 This reference as well as further references to national legislation where no specific legal provisions are specified is based on the comparative law analysis of Member States' legislations in the Notes sections of the Principles of European Insurance Contract Law (PEICL), Sellier, European Law publishers, 2009. 41 Section 2 of 7 of the VVG. 11

of the insurance contract. 42 Intermediaries in Italy are required to provide information on the relevant products and complete price information. 43 The Bulgarian law contains a catalogue of 13 information items, which the insurer or intermediary have to provide to the "user of insurance services" (a concept including both consumers and businesses). Additional information requirements include amongst others, information on the coverage and excluded risks, possibilities for amendment of the contract, the term and ways of termination of the contract and the conditions and terms for pay-out of a claim. 44 An exception from these requirements is set out for large risks. In relation to unit linked life investment products, one Member State requires that the consumer signs that he received a written guide containing information about the product with sufficient evidence about a life assurance policy. Another Member State requires that the consumer has to confirm by signature that descriptions of investment options chosen by him have been presented to him before concluding a unit linked life insurance contract. 45 3.2. REQUIREMENT ON THE WAY OF PROVISION OF PRE-CONTRACTUAL INFORMATION 3.2.1. EUROPEAN LAW These requirements do not relate to the content of the information, but to the way in which the relevant information items need to be provided. Under European legislation the requirements on the presentation of information are formulated as general principles on the timing and presentation of the information. As regards the timing, the general principles are either that the information is provided before the conclusion of the contract or placing an order 46 or in "good time" before the conclusion of the contract. 47 As regards the way of presenting the information, there are requirements to present it in a clear and accurate manner and in writing 48 or in a clear and accurate manner comprehensible to the 42 Art. 185 D. lgs. 209/ 7/9/2005. 43 Art. 120.d.lgs. 209/7/9/2005. 44 Art. 185 of the Bulgarian Insurance Code. 45 CEIOPS Report on National Measures regarding Disclosure Requirements and Professional Requirements for Unit-Linked Life Insurance Products, which are additional to the Minimum Requirements of the CLD and IMD, CEIOPS-DOC-20/09, 2 July 2009, p. 19. 46 Solvency II Art. 183, Art.184a and Art. 185; Directive on Electronic Commerce, Art. 10. 47 Distance Marketing in Financial Services Directive, Art. 3. 48 Solvency II, Art. 185. 12

customer, 49 or clearly, comprehensively and unambiguously. 50 In the case of distance sales to consumers the applicable rule is more detailed and requires the information to be provided in "a clear and comprehensible manner in a way appropriate to the distance communications used, with due regard, in particular to the principles of good faith in commercial transactions, and the principles governing the protection of those who are unable, pursuant to the legislation of the Member States, to give their consent, such as minors". 51 3.2.2. NATIONAL LAW When implementing the European rules, some Member States have introduced additional requirements. For instance, Italian law requires that an additional information note is attached to the contract. The Italian Supervisory authority is empowered to determine the content, form and structure of the note. 52. In relation to third party motor liability insurance, in Italy, amongst others, there is a requirement to provide a personalised quote upon request of the customer. 53 The quote should contain amongst others clear indication of the premium, the commission received by the intermediary (indicated by percentage and absolute value). Any specific exclusions or limitations of the rights of the customer should be highlighted. 54 In addition there are detailed rules on the contents and lay-out of the website where the quote may be provided. 55 In relation to unit linked life investment products, some Member States require additionally that key items are brought to the attention of the consumer, that the method of presentation must not disguise, diminish or obscure important information, statements and warning, that comparative information is meaningful and presented in a fair and balanced way and a requirement for a product information sheet which shall be clearly identified as such and placed in front of other information. 56 Furthermore, there are likely to be differences in implementation and interpretation of some of the principles on the presentation or timing of information in national case-law, as the principles are 49 Insurance Mediation Directive, Art. 13. 50 Directive on Electronic Commerce, Art. 10. 51 Distance Marketing in Financial Services Directive, Art.3. 52 Art. 185 D. lgs. 209 7/9/2005. 53 Art.5 of ISVAP Regulation 23/2008. 54 Art.5 of ISVAP Regulation 23/2008. 55 Art.6 of ISVAP Regulation 23/2008. 56 CEIOPS Report on National Measures regarding Disclosure Requirements and Professional Requirements for Unit-Linked Life Insurance Products, which are additional to the Minimum Requirements of the CLD and IMD, CEIOPS-DOC-20/09, 2 July 2009, p.17. 13

defined relatively broadly in European legislation. For instance, the national case law on the meaning of the concepts of "in-good time means", "unambiguous", "accurate and comprehensive" manner is likely to differ. Questions on section 3: 1. Would there be a need for adaptations of the pre-contractual information for the same insurance product if it was offered in different Member States? 2. If relevant, what information items are most concerned? Please provide examples. 3. If relevant, to what extent do rules on the way of provision of information differ in national laws? Please provide examples. 4. If relevant, what is the extent of the necessary adaptations? 5. If relevant, what would be the costs for adaptations in this area (including time and legal costs)? 6. Are B2B and B2C insurance contracts affected equally or are there differences? Could you give examples? 7. Does it make a difference whether the relevant provisions are mandatory or can be derogated from? 8. Does it make a difference whether large or mass risks are insured or whether a mandatory insurance is concerned? 9. If the differences in the respective contract law area create an obstacle, does this apply to all kinds of insurance categories or are certain kinds of insurance categories more affected than others? If the latter is the case, which ones? Could you give concrete examples? 4. THE CUSTOMER'S DISCLOSURE DUTIES AND DUTIES AFTER THE CONCLUSION OF THE CONTRACT 4.1. PRE-CONTRACTUAL DUTY OF DISCLOSURE Before concluding an insurance contract the insurer must be able to assess the risk that he is about to accept. This is because the insurer has to calculate the premium to make it commensurate with the risk in order to avoid the dangers of an adverse selection process that leaves him only with the bad risks and not the good risks. Normally those factors which are crucial for the risk assessment are 14

to be found in the sphere of the policyholder. That is why the national laws require the policyholder to disclose to the insurer all material information affecting the risk. As the applicant s pre-contractual duty of disclosure has not been harmonised by EU legislation, legal systems of Member States have approached this issue completely differently. Although Member States seem to recognize a duty of the insured person to disclose information, the extent of these disclosure obligations varies from Member State to Member State. 57 Some Member States 58 foresee a spontaneous duty to disclose any material information by the insured person, although there seem to be tendencies to abandon or at least to soften this duty by putting the burden of identifying the relevance of the information which needs to be disclosed on the insurer. In some Member States the duty of spontaneous disclosure is limited to information of evident importance for the assessment of the risk. In any case, the insured person does not have to disclose facts which are either known or presumed to be known by the insurer. This might also apply to facts which diminish the risk of the insurer. In other Member States 59 the law does not impose on the policy holder such a general spontaneous disclosure duty, but the obligation to respond to a pre-defined set of questions. Insurers have to ask specific questions or to submit a questionnaire. If the applicant has answered all the questions correctly he does not have to disclose further facts. In some countries 60 this seems even to apply to cases where the applicant is aware of a certain fact and also aware that the knowledge of this fact might be crucial for the insurer s assessment of the risk. However the differences between the groups of countries implementing the two approaches have recently been decreasing, due to a tendency to move away from the doctrine of a spontaneous disclosure duty towards more policy holder friendly rules on disclosure. For instance, the situation in the UK has evolved in the last decade. The main change concerns the regulation of B2C contracts, and is implemented by means of the Consumer Insurance (Disclosure and Representations) Act 2012 61 (Consumer Insurance Act), which is to come into force in 2013. 62 Thus, the consumer is no longer obliged to spontaneously declare the characteristics of the insured risk. 63 Instead, the 57 The considerations stated in the subsequent paragraphs below are to a large extent based on the Notes in PEICL, p. 80. 58 Italy (Art. 1982, 1893 Civil Code), Luxemburg, United Kingdom, Ireland. 59 Germany ( 19 Insurance Contract Act), France. 60 France, Spain, Finland. 61 http://www.legislation.gov.uk/ukpga/2012/6/pdfs/ukpga_20120006_en.pdf 62 Cp. website of the Law Commission: http://lawcommission.justice.gov.uk/areas/insurance-contract-law.htm 63 Section 2 (2) of the Consumer Insurance Act 15

consumer is only obliged to take reasonable care not to make a misrepresentation to the insurer. This mandatory regime of reasonable care 64 will replace all so far existing pre-contractual duties of disclosure of the consumer. With regard to business insurance contracts, the English Law Commission and the Scottish Law Commission, whose preliminary studies have led to the Consumer Insurance Act, have also recently proposed a new non-mandatory regime with an applicant's precontractual duty of disclosure and a set of remedies which are both similar to the proposed act on B2C insurance contracts. 65 The Irish Law Reform Commission has also published a Consultation Paper on Insurance Contracts (Consultation Paper) in December 2011. 66 The Irish Law Reform Commission recommends the long established applicant's pre-contractual duty of disclosure, derived from case-law to be retained, but that it should in accordance with authoritative case law in Ireland be restricted to circumstances of which the applicant has actual knowledge. Hence, the duty of disclosure would on a mandatory basis no longer extend to every material circumstance which ought to be known by the applicant (constructive knowledge) 67. Additionally for B2C insurance and mass market insurance contracts, the applicant's duty to give true answers would be replaced by a duty to answer specific questions of the insurer honestly and carefully. 68 The legal consequences in case of violation of these disclosure duties also diverge: 69 In common law EU countries 70 the insured person loses all insurance cover even if the nondisclosure was innocent or had no relation to the insured event. This approach however will change for consumer insurance contracts in UK. For instance, pursuant to the Consumer Insurance Act, the insurer's remedies for the consumer's breach of the disclosure duty will vary substantially depending on whether the representation made by the consumer was deliberate, reckless or careless. 71 Other Member States 72 limit the sanction to cases of negligence or gross negligence. Furthermore they require a causal link between the non-disclosure and the insured event. In 64 Section 3 of the Consumer Insurance Act 65 The Law Commission Consultation Paper No 204 and the Scottish Law Commission Discussion Paper No 155: Insurance contract law: The business insured's duty of disclosure and the law of warranties, 3. Update 2012. 66 http://www.lawreform.ie/_fileupload/consultation%20papers/cp65insurancecontracts.pdf 67 Consultation Paper, paragraphs 3.22, 3.28. 68 Consultation Paper, Paragraph 4.34. 69 The considerations stated in the bullet points below are to a large extent based on the Notes in PEICL, p. 83-85. 70 England and Wales and Ireland. 71 Consumer Insurance Act, Art. 4 and Schedule 1. 72 Austria, Greece, Portugal, Germany. 16

these cases the all-or-nothing approach applies. However, this principle is precluded if the insurer would have nevertheless concluded the contract albeit under different conditions. Other European countries distinguish between innocent, negligent and fraudulent breach of the duty of disclosure. 73 They foresee a proportional reduction of insurance money and deny the protection in particular to the fraudulent applicant. These systems differentiate between the situations before and after the insured event in order to make it possible for the insurer to terminate or adjust the contract based on wrong disclosure. One country 74 does not provide for a reduction of the applicant s cover on a strictly proportional basis, but in accordance with what is reasonable in the light of the significance which the fact would have had for the insurer s risk assessment, whether such disregard was intentional or negligent and other circumstances. Many countries' laws allow the variation of the contract as well as the termination which normally is excluded in case of innocent breach. However, it seems that these sharp differences as described above are not reflected in the results in insurance practice. In case of fraudulent breach the contract can be avoided. Whereas many Member States exclude the right of avoidance for mistake as in their view the rules on disclosure are in this respect leges speciales, others allow nevertheless avoidance for mistake. Questions on sub-section 4.1: 1. Would there be a need for adaptations of the contract terms because of different rules on disclosure duties in this contract law area if a policy is offered in different Member States? 2. If relevant, what is the extent of the necessary adaptations? 3. Would the adaptations affect the contract terms alone? 4. Would the adaptations also affect the product characteristics and lead to changes in the product design? 5. Would the adaptations lead to a re-assessment of the risk on a different actuarial basis? 73 Amongst others, Belgium, Denmark, France, Finland 74 Sweden 17

6. If relevant, what would be the costs for adaptations in this area (including time and legal costs)? 7. Are B2B and B2C insurance contracts affected equally or are there differences? Could you give examples where they are affected equally and where they are not? 8. Does it make a difference whether the relevant provisions are mandatory or not? 9. Does it make a difference whether large or mass risks are insured or whether a mandatory insurance is concerned? 10. If the differences in the respective contract law area create an obstacle, does this apply to all kinds of insurance categories or are certain kinds of insurance categories more affected than others? If the latter is the case, which ones? Could you give concrete examples? 4.2. DUTIES DURING THE DURATION OF THE POLICY After the conclusion of the insurance contract the insurer has to bear the insured risk. However, events that occur after the conclusion of the contract may influence whether the risk actually materialises. In the course of the insurance contract the insured risk might aggravate. To avoid that the occurrence of such events harms the adequacy of the premiums as against the services supplied by the insurer, all European countries impose duties on the policyholder designed to uphold the contractual balance during the duration of the policy by requiring the policyholder or the insured to perform or not to perform certain acts in order to prevent an insured event from occurring. Also the insurance contracts very often impose duties on the policyholders, be it by promissory warranty or by obligation. Fire insurance, for example, usually provides that the policyholder must avoid alterations that might increase the risk of fire. In some countries 75 these duties ( Obliegenheit ) cannot be enforced by the other party. Instead the insurer may raise breach of the duty as a defence against any claim of the policyholder. Insurance contract laws of some countries 76 do not speak of precautionary measures as such. These duties or obligations can be imposed on the policy holder by promissory warranties, whereas in other countries these contractual or statutory duties or obligations are subject to policy holder-protective (semi)-mandatory provisions. Moreover, Member States' laws and the equivalent contractual terms differ as to the relevance of fault and causation and the legal consequences of a breach of the duty or obligation of the policy holder. 75 Germany, Austria. 76 United Kingdom. 18

Questions on sub-section 4.2: 1. Would there be a need for adaptations of the contract terms because of different rules on disclosure duties in this contract law area if a policy is offered in different Member States? 2. If relevant, what is the extent of the necessary adaptations? 3. Would the adaptations affect the contract terms alone? 4. Would the adaptations also affect the product characteristics and lead to changes in the product design? 5. Would the adaptations lead to a re-assessment of the risk on a different actuarial basis? 6. If relevant, what would be the costs for adaptations in this area (including time and legal costs)? 7. Are B2B and B2C insurance contracts affected equally or are there differences? Could you give examples where they are affected equally and where they are not? 8. Does it make a difference whether the relevant provisions are mandatory or not? 9. Does it make a difference whether large or mass risks are insured or whether a mandatory insurance is concerned? 10. If the differences in the respective contract law area create an obstacle, does this apply to all kinds of insurance categories or are certain kinds of insurance categories more affected than others? If the latter is the case, which ones? Could you give concrete examples? 4.3. AGGRAVATION OF THE RISK An obligation of the policy holder to disclose the risk aggravation enables the insurer to adapt the contract to a change in circumstances. The approaches in national legislations to the policy holder's duty to disclose risk aggravation differ. In some Member States 77 the insured person is obliged by law to disclose to the insurer the aggravation of the risk. Such rules are often accompanied by a related notification duty of the insured, which aims to inform the insurer about the changes in circumstances, within a reasonable time, thus enabling them to react accordingly. The deadlines for the notification duty however vary. 78 77 Germany, Italy, Poland. 78 Germany, Greece and Portugal. 19

In other EU countries, 79 in particular those belonging to the common law legal system, there is no such statutory requirement. The issue of risk aggravation is usually dealt with at contractual level. Thus, the duty of the insured to disclose risk aggravation may be set out in the contract. Under the common law insurers tend to protect themselves against aggravation of risk by contractual terms, known as promissory warranties. A promissory warranty is a warranty by the policy holder that circumstances will remain unchanged throughout the duration of the insurance policy, therefore ensuring that the level of risk would not increase. In the alternative, the insurer could use the failure of a promissory warranty as a defence against a claim. However, jurisprudence 80 and self-regulatory initiatives 81 have imposed a number of limitations on the use of promissory warranties. The legal consequences of the breach of the policy holder's duty to disclose risk aggravation are similar to the breach of the policy holder's duty of disclosure at the time of the conclusion of the contract. The insurer's remedies in case of a breach of the duty to disclose risk aggravation include the right to termination or avoidance of the insurance contract, rejection of any claim and denial of liability. The rationale of the insurer's right to terminate or avoid cover in the event of aggravation of risk is that the insurer would possibly not have concluded the insurance contract at these conditions if he had known the relevant circumstances. However, also milder forms of remedies exist, such as an adaptation of the premium. 82 Different approaches may be observed, in particular among common and civil law jurisdictions. For instance, under common law the legal consequences of a breach may lead to an automatic rejection of a claim and denial of the insurer's liability on the basis that the contract has been avoided due to non-disclosure of the risk aggravation. By contrast, the laws in the civil law countries grant the insurer the right to terminate the contract, but only in respect of future liability (even though under 79 United Kingdom, Netherlands. 80 Rühl, Common Law, Civil Law, and the Single European Market for Insurances = ICLQ 2006, 879, (903 ff.), p. 903. English courts have effectively limited the scope of promissory warranties and have assessed their fairness. They have applied a reasonable interpretation of the contractual terms, in order to protect the policy holder against overly burdensome obligations. 81 In this respect, point 8.1.2(3) of the FSA Insurance Conduct of Business Sourcebook 81 stipulates that an insurer's rejection of a consumer policy holder's claim is unreasonable if it is for breach of promissory warranty unless the circumstances of the claim are connected to the breach (requirement of causation) and unless the warranty is material to the risk and was drawn to the policy holder's attention before the conclusion of the contract (requirement of fault on the part of the policy holder), available at: http://fsahandbook.info/fsa/html/handbook/icobs/8/1. 82 Cousy, The Principles of European Insurance Contract Law: the Duty of Disclosure and the Aggravation of Risk = ERA Forum (2008), 119 (131), p. 131; Rühl, Common Law, Civil Law, and the Single European Market for Insurances = ICLQ 2006, 879 (903 ff.) p. 900, p. 903. 20

certain conditions the insurer can also repudiate liability for losses that have occurred since the time of the breach). 83 Questions on sub-section 4.3: 1. Would there be a need for adaptations of the contract terms because of different rules on aggravation of the risk in this contract law area if a policy is offered in different Member States? 2. If relevant, what is the extent of the necessary adaptations? 3. Would the adaptations affect the contract terms alone? 4. Would the adaptations also affect the product characteristics and lead to changes in the product design? 5. Would the adaptations lead to a re-assessment of the risk on a different actuarial basis? 6. If relevant, what would be the costs for adaptations in this area (including time and legal costs)? 7. Are B2B and B2C insurance contracts affected equally or are there differences? Could you give examples where they are affected equally and where they are not? 8. Does it make a difference whether the relevant provisions are mandatory or not? 9. Does it make a difference whether large or mass risks are insured or whether a mandatory insurance is concerned? 10. If the differences in the respective contract law area create an obstacle, does this apply to all kinds of insurance categories or are certain kinds of insurance categories more affected than others? If the latter is the case, which ones? Could you give concrete examples? 5. CONCLUSION AND FORM OF CONTRACT There are few areas where harmonisation of the Member States' laws with regard to the conclusion of insurance contracts exists. Following Art.9 of the Directive on Electronic Commerce conclusion of contracts is allowed in each Member States through electronic means. In compliance with Art.199 of Solvency II legal expenses insurance should be a separate contract or a separate section of the insurance policy with the legal expenses cover and, possibly, the amount of premium expressly 83 Rühl, Common Law, Civil Law, and the Single European Market for Insurances = ICLQ 2006, 879, p. 905. 21

specified. Those areas of harmonised laws are however too specific and too narrow to be interpreted as some sort of general rules. Different approaches exist in the Member States national laws with regards to conclusion of insurance contract. Some legislation leave that matter entirely to the general contract law rules, while others pay special attention to the rules on conclusion of insurance contracts by introducing specific rules either in the respective special chapter in their civil codes or in the insurance codes. 5.1 OFFER AND ACCEPTANCE Member States national laws vary with regard to who is the offeror and offeree in an insurance contract. Even more significant are differences with regard to whether the offer is binding or not and under what conditions it could be revoked. Some national laws do not consider the offer binding, while others do. In the latter case the possibilities for revocation of the offer under the respective national law are quite restricted and the offeror is bound by its offer. These differences in the approaches of Member States may cause problems for the party who is not aware that he or she may be making a binding offer, in particular, for the policy holder, as illustrated below. Illustration: A EU citizen from a country where the offer is not binding is settling in another Member State where, on the contrary, it is binding and is willing to obtain insurance for his new property there. He goes to the nearby insurance office just to make an initial inquiry on the price, coverage, terms and conditions, etc., not intending to conclude a contract. He is asked to fill in a form with some details about the property in order to get answers to his questions and is informed that the insurance contract will be ready within a couple of days. To his protests that he had no intention to enter into such a contract, he is told that according to the local insurance legislation he is considered an offeror, his offer is binding and can hardly be revoked. 5.2 FORM OF CONTRACT There is a general trend in the Single Market towards non-formal consensual contracts which is even more obvious when it comes to distance or on-line contracts. Nevertheless, a few national laws expressly provide for a written form of the insurance contracts. While the majority of those rules are only relevant for evidentiary purposes, in some cases written form is perceived as form for validity of 22

the contract. 84 Insurance companies also tend to require delivery of certain documents or written declarations by the policyholder. In addition, there are a number of rules within the national laws of the Member States that provide for written form of notices, general terms and conditions and other communications between parties. Thus, the policyholder, while complying with its obligation to disclose some important information, is usually requested to answer in writing to certain questions the insurer might have. In a number of Member States 85 the insurer is obliged to provide an insurance policy or other documents proving the existence of the contract to the insured, and also to provide contract terms and general conditions on durable mediums. One could reasonably argue that the combination of all those rules actually leads to a written form of the contract, a form requirement that is however not provided for by law and, hence, is too obscure and unclear. Furthermore, in special cases like motor liability insurance some national laws require an even more sophisticated form of the contract, for instance special vignette stickers, and make it clear that lack of such a form is equal to a lack of an insurance contract. 86 The existence of such complicated form is likely to create additional administrative costs for foreign insurers that plan to enter the market in that particular Member State. It is also likely to prevent or at least to significantly limit the use of certain distribution channels that facilitate cross-border offer of insurance products. Illustration: A UK insurance company is planning to enter the Bulgarian insurance market by offering the mandatory third party motor insurance mainly through on-line distribution. The market assessment reveals that according to local legislation the insurance policy for that type of insurance is a special numbered form printed in accordance with the state procedure for printing securities. Furthermore, the policy has to be supplemented by a special sort of vignette issued by the Guarantee fund and only the combination of the two makes the contract valid. The costs for providing the policy and the vignette are not negligible. The on-line offer of this type of insurance in BG market hardly exists, because, due to the complicated form of the policy and the importance of the special vignette attached to it, customers clearly prefer to buy this product on-premise. The insurance policy is the key document that contains and proves the main elements of the contract. That document seems to be subject to formal requirements that differ from one Member States to another. Some Member States 87 have adopted a detailed regulation on its content and form. The policy is declared as the form of the contract and thus is a document that needs the 84 Bulgaria. 85 Germany. 86 Bulgaria, Code for Insurance, Art. 261. 87 Bulgaria, Code for Insurance, Art. 184. 23

signature of the parties to that contract. Other Member States 88 have only a few rules on the policy content and regard it rather as a document with evidentiary significance. Hence, they only impose an obligation for the insurer to provide the policy to the insured. Illustration: A German citizen living in Italy is concluding a distance contract for motor insurance with a local company. In a few days he receives the policy with a request to sign it and return it signed to the insurer. Relying on similar rules as those in his home country, the German citizen believes that the contract is already concluded and is not in a hurry to sign and send the policy back as that is of no obvious significance to him. 5.3. STANDARD TERMS AND CONDITIONS An important aspect of any insurance contract is the agreement of the parties on the standard terms and conditions that actually determine the content of the contract. There appears to be a diversity of approaches in the Member States with regard to those terms and conditions. Standard terms and conditions might be subject to various degrees of control by national supervisory authorities acting in the insurance/financial market field or in the consumer protection field. The result would be different approaches towards the same or similar terms and conditions. There is a distinctive difference as to the moment the insurer is expected to submit the standard terms and conditions to the customer. In some Member States 89 the general rule is that the customer has to be provided with those before agreeing to the contract. According to other Member States legislations 90 terms and conditions have to be provided only at the moment of conclusion of the contract. Furthermore, some legislations 91 require that the insured expresses in writing the acceptance of the terms and conditions and stipulate that without such written form the terms and conditions are not applicable to the contract. Questions on section 5: 1. What is the impact of the existing different approaches with regards to the conclusion of the contract on the cross-border offer of insurance product? 2. What is the impact of the existing different rules on the form of the contract and on the documents required on the cross-border offer of insurance product? 88 Germany, sections 3 and 4, Insurance Contract Act 2008. 89 Germany, section 7, para.1 Insurance Contract Act 2008. 90 Bulgaria, Art.186 Code for Insurance. 91 Bulgaria. 24

3. Do those differences entail additional costs for adaptation of the contracts? 4. Do you think there is a need for adaptation of insurance products because of different national rules with regard to the form of the insurance contracts? If so would there be any costs incurred by the insurers? 5. Do you think those adaptations are likely to lead to a change in the substance of the product? 6. Does it make a difference whether large or mass risks are insured or whether a mandatory insurance is concerned? 7. Do you think that existing different rules on what information each of the party to the contract is obliged to provide in writing leads to a need for amendment in the insurance products? Are those differences leading to additional costs for insurers? 6. RIGHT OF WITHDRAWAL AND WITHDRAWAL PERIOD There is a certain degree of harmonisation at EU level when it comes to the customer right to withdraw from insurance contracts under certain conditions. Art. 186 of the Solvency II Directive is relevant as to the life insurance contracts and Art. 6 of the Distance Marketing of Financial Services Directive contains such rules for B2C distance offers of insurance products. The level of harmonisation however is different and the scope of it is actually somewhat limited. For instance, the Distance Marketing of Financial Services Directive is only relevant to distant offering of insurance products and even within that scope, Art.6, para. 2 excludes the right to withdrawal for certain types of insurance products. In the areas of life insurance or where no harmonisation of that right has taken place at all Member States have taken different legislative approaches, both regarding the period for withdrawal and the scope of application of the said right. While the Member States have adhered to the standards set by the EU acquis, some of them have gone a bit further offering a broader scope of the right to withdrawal and/or longer periods. Member States appear to have different approaches also with regard to the limitations of the scope of the right to withdrawal some of them stick to the harmonised EU level of protection for the customers and others have more detailed and explicit rules. 25

Questions on section 6: 1. Do you think that the differences in the national contract laws with regards to the right of withdrawal are likely to cause additional costs for insurance business? If so - can you provide examples? Do you think that the possibility to have a higher number of withdrawals from contracts in a given MS might hinder foreign companies to offer their insurance products there? 2. Are the existing different national rules on the right of withdrawal likely to prevent insurance businesses from entering new markets? If so to what extent? 3. Do you think that existing different national rules on the right of withdrawal influence the customer's choice whether to search for an insurance product abroad or not? 7. WAITING PERIODS Waiting periods are time periods in insurance contracts during which the insurance contract has already been concluded, but the insurer is not yet (or not yet fully) obliged to pay in the case the insured event occurs. Waiting periods are most common in health insurance contracts where certain costs such as e.g. those of hospitalisation are not compensated at all or only partially to the insured before a certain amount of time (usually several months) has passed after the conclusion of the contract. The reason for waiting periods is that the insurer is not supposed to be obliged to pay for diseases which have their roots in the time before the conclusion of the insurance contract. Therefore, there are usually no waiting periods in the case of accidents. The duration of waiting periods depends on various factors such as the type of the insurance and the amount of the premiums paid. In certain cases, waiting periods can be shortened though the payment of higher premiums. There are upper limits for waiting periods in national laws. Under some laws there is e.g. a maximum waiting time of 3 months for hospitalisation costs and of 8 months for dental treatment. 92 In other laws 93 there is a waiting period of 2 years for life insurances in the case of suicide of the insured. There are also laws 94 where there is no rule on waiting periods and as a default, the contract enters into force from the payment of the premium, however, parties are free to agree on those. Waiting periods exist also in pension insurance and in legal expenses insurance contracts. 92 Germany, 179 VVG. 93 Italy, Art. 1927 Civil Code. 94 Bulgaria, Code for Insurance. 26

There are no rules on waiting periods at the European level. Different waiting periods may, however, have an impact on the possibilities of cross-border insurance, for example insurers might not be willing to enter the market of a Member State where the waiting period is too short. In the case of health insurance contracts, the question to which extent a previous insurance in a different Member State is recognised in the context of a waiting period may be of particular relevance. For instance, if a citizen has to purchase a new health insurance when moving to another EU country, this person may incur high medical costs, due to the bills she or he would have to pay during the waiting period. Furthermore, should the citizen's health condition have deteriorated in the meantime, he or she would be offered a new health insurance policy for a higher premium. Questions on section 7: 1. Would there be a need for adaptations of the contract terms because of different rules on waiting periods if a policy is offered in different Member States? 2. Would the adaptations affect the contract terms alone? 3. Would the adaptations also affect the product characteristics and lead to changes in the product design? 4. Would the adaptations lead to a re-assessment of the risk on a different actuarial basis? 5. If relevant, what would be the costs for adaptations in this area (including time and legal costs)? 8. MULTIPLE INSURANCE Multiple insurance means that the same interest is insured against the same risk with not only one, but with two or more insurers. Insurance contracts and/or national insurance laws often contain rules on multiple insurance. Their substance differs to a significant extent, in particular with regard to the questions whether or not multiple insurance is permitted and whether or not the insured must give notice of multiple insurance to the insurer(s). Under some national laws, multiple insurance is not permitted and the second contract concluded by the insured for the same risk is considered void if the insured was aware of the multiple insurance and was thus in bad faith. 27

By contrast to that, many national laws 95 consider multiple insurance as legal. If, however, the policyholder has concluded multiple insurance with the intention of thereby gaining an illegal pecuniary benefit, 96 each contract made with that intention may be void under such national insurance laws. National laws of most Member States 97 provide that the insured must give notice of multiple insurance to the insurer(s). In other national laws, such an information duty does not exist, but may be foreseen in insurance contracts. Under many national insurance laws, the indemnity principle applies. This means that in the case of multiple insurance, the insured is not entitled to recover more than the loss he has actually suffered. Many national insurance laws foresee that in the case of multiple insurance, each insurer is fully liable and that the insured is free to choose from which of them he seeks compensation. That insurer can, however, request contributions from the other insurers. By contrast, in the UK contracts provide usually only for a pro rata liability of each insurer in the case of multiple insurance. In the case of cross-border multiple insurance, such differences in national laws may lead problems. For instance, a policy holder who is not aware that in one country multiple insurance is illegal could incur unnecessary costs paying for multiple insurances or even run the risk that their insurance contract is considered void. Questions on section 8: 1. Would there be a need for adaptations of the contract terms because of different rules on multiple insurance if a policy is offered in different Member States? 2. Would the adaptations affect the contract terms alone? 3. Would the adaptations also affect the product characteristics and lead to changes in the product design? 4. Would the adaptations lead to a re-assessment of the risk on a different actuarial basis? 5. If relevant, what would be the costs for adaptations in this area (including time and legal costs)? 6. Are B2B and B2C insurance contracts affected equally or are there differences? Could you give 95 Germany, Italy, Bulgaria. 96 See 78 (3) VVG, Germany. 97 Germany, Italy. 28

examples where they are affected equally and where they are not? 7. Does it make a difference whether the relevant insurance products are mandatory or not? 8. Does it make a difference whether large or mass risks are insured? 29