FUNDAMENTAL PRINCIPLES OF RUSSIAN INSURANCE CONTRACT LAW The

FUNDAMENTAL PRINCIPLES OF RUSSIAN INSURANCE CONTRACT LAW The Week of Russian Commercial Law in London, 19 November 2010

FOUR BASIC PRINCIPLES OF INSURANCE CONTRACT LAW Compensation Equivalence Freedom of Contract Warranty of Indemnity in Compulsory Insurance

PRINCIPLE OF COMPENSATION AND CLASSIFICATION OF INSURANCE CONTRACTS

VARIOUS CLASSIFICATIONS OF INSURANCE CONTRACTS Insurance against Insured Losses Amounts Based on the method of determining the indemnity amount Insurance against Life Insurance Losses Based on the character of relations (compensational/ accumulative) Damage to Property Based on the insurance object Personal Injury This classification best matches the principle of compensation Ааа The basis of classification

RUSSIAN CLASSIFICATION ª Property – personal mixed, as being based on the object of insurance and on the method of determining the indemnity amount ü does not fully correspond to the principle of compensation ü leads to a number of problems a) types of insurance being not precisely determined b) disputes regarding the method of calculation of losses c) disagreement as to the nature of insurance value ü ª Sooner or later the Russian classification will be brought in line with the principle of compensation

FREEDOM OF CONTRACT AND PROTECTION OF THE INSURER’S CLIENTS

DISPROPORTIONS IN THE INSURANCE MARKET ª Informational The insured is far less informed about the service provided, and his knowledge being rather limited compared to that of the insurer ª Contractual The insurer cannot work otherwise than in compliance with the standard terms of insurance ª Freedom of contract must not be used to profit from disproportions

WELL-KNOWN MEANS OF ELIMINATING DISPROPORTIONS ª The common requirement of good faith ü ª when signing, executing and interpreting a contract Specific tools of response to bad faith setting aside unfair contractual provisions ü prevention of unfair business practices ü application of consumer protection law ü ª ª Means of «soft law» ü ü standards of best practices methods of alternative dispute resolution ü an important aim of insurance supervision is protection of rights of the insurer’s clients Supervision

ELIMINATION OF DISPROPORTIONS IN RUSSIAN LAW ª The common requirement of good faith ü ª absent in the Civil Code of the RF at present, but offered in the Concept of Development Specific tools of response to bad faith unfair provisions are stricken just occasionally, as a rule, at the discretion of courts ü legal measures of preventing unfair business practices are absent, as well as the notion thereof ü non-application of consumer protection law to property insurance contracts ü

OTHER TOOLS TO ELIMINATE DISPROPORTIONALITY ª Consumer law ü consumer law does not apply to property insurance contracts ª ª ª Tools of «soft law» ü not yet developed on the insurance market Supervision ü a means of deterrence rather than of elimination of disproportions Legal means of elimination of disproportions are so far absent in Russian law

EQUIVALENCE AND FINANCIAL STABILITY OF INSURERS

WELL-KNOWN MEANS OF ENSURING EQUIVALENCE ª Requirement of disclosure of information on risks ü ü when signing an insurance contract while the contract is valid ª Keeping insurance statistics ª Rate making ü ª actuarial calculations based on insurance statistics Valuation of assets and liabilities valuation of assets at market value ü actuarial valuation of liabilities based on insurance statistics ü

ENSURING EQUIVALENCE IN RUSSIAN LAW (dislosure of information) ª Requirement of disclosure of information on risks applied, but, as well as all over the world, courts are becoming more reluctant to view it as a must duty of the insurer ü the insured will only experience adverse effects if he intentionally concealed important information ü the consequences are stretched in time, i. e. refusal of indemnity is impossible –first the agreement has to be declared invalid ü

ENSURING EQUIVALENCE IN RUSSIAN LAW (other legal means) ª Keeping insurance statistics ü ª Rate making ü ª actual insurance statistics is not systematical, but occasional methods of calculation are but the simplest, therefore insurers have to apply to the system of coefficients determined by the rule of thumb Valuation of assets and liabilities ü ü ü there exists environment (claim adjusters, standards, legislation) for valuation of assets (including property), but one cannot rely on it in complicated disputes – valuation of one and the same property by different claim adjusters can differ by 50%, if not 100% state claim adjusters whose opinions courts are guided by use oldfashioned 1970’s methods with adjustment factors no obligatory actuarial valuation of the insurer’s liabilities

ENSURING EQUIVALENCE IN RUSSIAN LAW ª Russian insurance law is now passing from «salary schemes» to actual insurance, and, in my viewpoint, reliable actuarial calculations will soon be in demand

WARRANTY OF INDEMNITY IN COMPULSORY INSURANCE

THE PRINCIPLE OF WARRANTY OF INDEMNITY IN COMPULSORY INSURANCE Freedom of Contract Compensation Equivalence The Principle of Warranty

THE INFLUENCE OF THE PRINCIPLE OF WARRANTY ª The principle of warranty ties up the other principles in the following manner relationships between an insurer and a beneficiary are regulated by law and must not depend on mutual relations between the policyholder and an insurer ü refusal of indemnity is only possible in the event there is no loss occurrence ü the insurer cannot refuse to provide insurance coverage, even if the premium payment is overdue ü ª However, these legal means are so far absent in compulsory insurance law

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