Insurance and reinsurance in the Russian Federation: overview
A Q&A guide to insurance and reinsurance law in the Russian Federation.
The Q&A gives a high level overview of the market trends and regulatory framework in the insurance and reinsurance market; the definitions for a contract of insurance and a contract of reinsurance; the regulation of insurance and reinsurance contracts; the forms of corporate organisation an insurer can take; and the regulation of insurers and reinsurers, including regulation of the transfer of risk. It also covers: operating restrictions for insurance and reinsurance entities; reinsurance monitoring and disclosure requirements; content requirements for policies and implied terms; insurance and reinsurance claims; remedies; insolvency of insurance and reinsurance providers; taxation; dispute resolution; and proposals for reform. Finally, it provides websites and brief details for the main insurance/reinsurance trade organisations in the Russian Federation.
To compare answers across multiple jurisdictions visit the Insurance and Reinsurance Country Q&A tool.
This Q&A is part of the global guide to insurance and reinsurance. For a full list of jurisdictional Q&As visit www.practicallaw.com/insurance-guide.
Market trends and regulatory framework
The number of companies in the market reduced in 2013-2014, due to several liquidations. However, there was a significant increase in transactions in the insurance market, despite the general economic slowdown.
Most experts note a slowdown and high loss ratio for retail insurance in 2013-2014, but with growth in corporate insurance products.
In 2013 the Federal Finance Market Service (FFMSC), which supervised and controlled insurance activity in Russia, was incorporated into the Central Bank of the Russian Federation (Bank of Russia) becoming the largest regulator in Russia.
Insurance activities (including reinsurance) are primarily regulated by the following legislation:
Law "On the Organisation of Insurance Activity in the Russian Federation" of 1992 (Insurance Law), which is main source of regulation regarding insurance activities.
Civil Code of the Russian Federation.
Code of Merchant Shipping of the Russian Federation.
Air Code of the Russian Federation.
Federal Law "On the Basis of Obligatory Social Insurance".
Federal Law "On Mutual Insurance".
As set out in the legislation, insurance activity involves the following parties:
Insurers. These are legal entities that perform insurance activities, reinsurance activities and mutual insurance activities under a licence. Insurers can only perform either individual insurance or individual and property insurance.
However, some insurers operating on the basis of foreign investment are limited in their insurance activities. For example, an insurer that is a subsidiary of a foreign investor, or that has more than 49% foreign investment in its charter capital, cannot, among other things, perform individual life insurance or property insurance connected with supply and contract work for the state, state and municipal entities.
In addition, such an insurer, as a subsidiary of a foreign investor, can perform insurance activity only if the foreign investor is an insurance company with at least five years' practice in the foreign jurisdiction.
Insurance agents/ insurance brokers. These are individual entrepreneurs or legal entities providing intermediary services to insurers or insured persons in relation to insurance activities (such as the selection of a counterparty under an insurance agreement and negotiation of its terms and conditions).
Insurance activity is also subject to general legal principles. For example, insurers are prohibited from insuring illegal interests, damages caused by gambling, or expenses related to hostage recovery.
Insurance activity was previously controlled and supervised by the Federal Finance Market Service (FFMSC). However, as a result of administrative reforms in 2013, the FFMSC was incorporated into the Bank of Russia. The regulatory functions of FFMSC are now performed by the relevant department of the Bank of Russia.
Regulation of insurance and reinsurance contracts
Under a contract of insurance, the insurer is obliged to cover the insured's damages and other negative consequences (such as loss of property, payment of contractual damages to third parties, disability and personal injuries), if an event stipulated in the contract occurs. The exact amount of compensation paid to the insured must be indicated in the insurance contract as well as the amount of premium paid to the insurer for its services.
The contract of insurance must be in a simple written form executed by the parties. In practice, most insurers offer standard drafts of insurance contracts which may be non-negotiable.
A reinsurance contract creates an obligation for the insurer to cover the insured's damages or other negative consequences. Such contracts may be entered into between the initial insurer under the insurance contract and a subsequent insurer which undertakes to cover the initial insurer's expenses related to payments to the insured under the insurance contract.
The following types of insurance contracts are regulated by the legislation:
Property insurance contracts.
Individual insurance contracts (covering life and health).
Social insurance contracts (covering retirement or disability).
Civil responsibility insurance contracts (covering responsibility towards third parties).
Business risks insurance.
An insurer can take any form of corporate organisation recognised under the applicable law. In practice, Russian insurers usually take the form of:
An open joint stock company (commercial corporation).
A limited liability company (commercial corporation).
A mutual insurance company (non-commercial organisation similar to an association or union).
Regulation of insurers and reinsurers
In general, obligations under an insurance contract (insurance portfolio) are transferable. However, such transfers can only be performed on certain conditions being fulfilled, for example:
The new insurer must comply with the rules of financial stability and assets requirements stipulated in the Insurance Law.
The new insurer's licence must allow the insurance activity of the transferred insurance contracts.
Authorisation or licensing
All insurance or reinsurance activities must be licensed by the Bank of Russia. A party seeking a licence must provide a number of documents specified in the Insurance Law to the Bank of Russia (such as licence application, foundation documents, legal entity state registration documents and shareholders information, among others).
Within 60 days of receiving these documents, the Bank of Russia will grant a licence or decline an application on a limited number of specific grounds. The grounds for refusal of the grant of a licence are, among others:
Using a company (applicant) name that is already used by another insurance company.
Outstanding breach of the legislation.
Discrepancies or false information in the licence application documents.
A non-expunged conviction record of the sole executive body or chief accountant.
All insurance or reinsurance activities (including mutual insurance activities and broker insurance activities) are subjects to licensing by the Bank of Russia.
Restrictions on ownership or control
There are no expressly stated restrictions on ownership or control of insurance-related entities. However, Russian governmental bodies have a right to refuse acquisition of control over an insurance-related entity in certain circumstances:
The Federal Anti-monopoly Service (FAS) can prohibit the purchase of shares in a major insurance company if this transaction breaches anti-monopoly requirements.
The Government Commission has a veto right over transactions related to the acquisition of Russian companies by foreign investors.
See above, Insurance/reinsurance providers.
Owners or controllers of an insurer must obtain such approval from the Bank of Russia before:
Increasing the insurer's charter capital through foreign investment.
Selling the insurer's stocks and shares to foreign investors.
In addition prior approval of the FAS or Government Commission may be needed if changes in control or ownership over the insurer fall under anti-monopoly or foreign investment legislation.
See above, Insurance/reinsurance providers.
Ongoing requirements for the authorised or licensed entity
Entities that perform insurance activities must:
Provide reports regarding their activities and financial stability to the Bank of Russia every three months.
Provide the Bank of Russia with any information that it requests from time to time.
See above, Insurance/reinsurance providers.
Penalties for non-compliance with legal and regulatory requirements
The Bank of Russia can issue a warning to an insurer if it fails to comply with applicable legal and regulatory requirements by, among other things:
Performing a prohibited activity.
Violating the insurance funds set-up requirements.
Violating statutory rules on providing reports to the Bank of Russia.
If the insurer fails to comply with the warning requirements, the Bank of Russia can either:
Limit the insurer's licence, so that they cannot conclude certain types of insurance agreements.
Suspend the insurer's licence, so that they cannot conclude any insurance agreements, reinsurance agreements or broker insurance agreements.
If the insurer fails to comply with the warning requirements after a licence is limited or suspended, the Bank of Russia can recall the licence altogether. In the case of a licence recall, the insurer can apply for a new insurance licence in the future. However, this is unusual as a licence recall usually leads to insolvency.
Within six months after its licence has been recalled, the insurer must:
Adopt a corporate decision to cease insurance activity.
Perform any outstanding obligations under existing contracts of insurance.
Perform the transfer of its obligations following from the contract of insurance or terminate its contract of insurance, for example, by transferring all insurance policies to another licensed insurer or terminating insurance contracts (if allowed by the applicable legislation/contract terms).
A policyholder who has done business with a non-approved entity can both:
Ask for a criminal investigation to be undertaken in relation to a non-approved entity.
Claim damages arising from business with a non-approved entity.
See above, Insurance/reinsurance providers.
Restrictions on persons to whom services can be marketed or sold
Reinsurance monitoring and disclosure requirements
Insurance and reinsurance policies
Content requirements and commonly found clauses
Form and content requirements
Insurance contracts must be concluded in writing. They can be either:
Individually negotiated and signed by both parties.
A standard policy of the insurer that the insured agrees to and signs.
In addition, insurance contracts must include the following terms:
The insured property, property interest or individual.
The event that triggers the insurance.
The amount of insurance.
The insurance agreement's duration.
Commonly found clauses
Clauses commonly found in insurance policies include:
A provision that the insurance does not cover moral damages, lost profit and other implicit damages.
A provision that insurance coverage should not exceed the real value of the property.
A one-year term for the contract of insurance.
Facultative reinsurance is more common. Treaty (or obligatory) reinsurance is not recognised under Russian law.
Commonly found clauses
Commonly found clauses are the same as for insurance policies (see Question 18, Commonly found clauses).
Russian law does not recognise the concept of follow-the-fortune as a separate doctrine, but in practice when risks have been ceded, the reinsurer takes on the same terms as the ceding company for that risk.
The insured can terminate the insurance contract at any time. If this is the case, the insurance premium may be retained by the insurer (although the insurance agreement may provide otherwise).
The insurance contract can stipulate the cancellation procedure and the exact rules for policy cancellation by the insurer. However, this is not common.
Standard policies or terms
Insurance and reinsurance policy claims
Establishing an insurance claim
The insured must notify the insurer without delay if an event specified in the insurance contract occurs. The law does not specify the form of notification and what proof must be provided. The insurance contract usually stipulates that the insured must both:
Notify the insurer as soon as possible when an event specified in the insurance contract occurs (by phone, e-mail or fax).
Provide the insurance company with supporting documents within the period specified in the contract. The contract usually specifies the documents that must be provided.
If the insured fails to notify the insurance company in time, the insurance company can refuse to pay insurance compensation under the contract, unless the insured proves in court that either:
The insurance company became aware of the insured event in good time.
Failure to notify the insurance company could not have influenced the obligation of the insurance company to pay insurance compensation.
Third party insurance claims
There are time limits outside of which the insured/reinsured is barred from making a claim:
Under property insurance contracts: two years.
Under contracts insuring liability for damage caused to the life, health or property of other persons: three years.
The parties cannot amend the statutory limitation periods by agreement.
The original policyholder cannot enforce the reinsurance contract against the reinsurer. Under a reinsurance contract, the insurer under the main insurance contract is responsible to the original policyholder.
In relation to insolvent insurers, see Question 29.
If there is a breach of an insurance policy, the non-defaulting party can seek termination of the insurance contract and damages.
There is no concept of aggravated damages in Russian law and recovery of damages is generally difficult.
If the insurance company fails to provide insurance compensation, the insured can bring a claim for recovery of insurance compensation plus interest. These claims are usually dealt with within nine to 12 months in commercial courts (including consideration of the case by the court of appeal and the court of cassation).
Punitive damage claims
Insolvency of insurance and reinsurance providers
The Federal Law "on Insolvency" regulates insurance companies' insolvency. The policyholder can both:
Terminate the insurance contract within one month from notification of the insurer's insolvency.
Seek a proportional rate of insurance compensation.
The insolvency procedure can be started under any of the following circumstances:
The insurance company is not in a position to satisfy creditors' claims in the amount of RUB100,000 in 14 days.
The insurance company is not in a position to satisfy creditors' claims under a court decision in 14 days.
The insurance company's assets' value is not enough to satisfy creditors' claims.
Taxation of insurance and reinsurance providers
Insurance and reinsurance dispute resolution
Arbitration clauses in insurance and reinsurance contracts are generally enforceable. Under recent court practice, if the court finds that the arbitral institution that the parties have agreed on financially depends on one party (which raises reasonable doubts regarding impartiality), then an arbitration clause is not enforceable.
The parties can choose any arbitration centre or ad hoc arbitration to resolve their dispute.
The parties are free to agree on a venue to resolve their dispute within the Russian court system (a particular court of general jurisdiction or a particular commercial court can be agreed on). The parties are also free to choose any foreign law as an applicable law, if there is a foreign element in the contract (for example, one of the parties to the contract is a foreign company). If parties to the contract come from different jurisdictions, they can agree that a dispute will be resolved by the court of a foreign jurisdiction.
Proposals for reform of the law include:
Adoption of an Insurance Code in order to organise a significant number of legal acts.
Elimination of discrepancies between the Insurance Law and the Civil Code.
Introduction of legal definitions of insurance concepts such as franchise and abandon.
Legal definition of the principle of damages compensation.
Elimination of discrepancies in tax legislation regarding insurance companies.
Implementation of insurance principles regarding insurance of nuclear, space, aero and military risks.
Harmonisation of the legislation with Directive 2002/83/EC on life assurance, Directive 73/239/EEC on direct insurance and Directive 2001/17/EC on the reorganisation and winding up of insurance entities (Insurers Reorganisation and Winding-up Directive).
Main insurance/reinsurance trade organisations
VTB Insurance (ВТБ Страхование)
Main activities. Property insurance, private insurance, third party general and professional liability insurance.
Main activities. Property insurance, private insurance, mortgage insurance, life insurance, transport insurance.
Main activities. Property and personal insurance, including special insurance programmes for enterprises in different industries.
Description. The site is maintained by the Government of the Russian Federation as an official public source of legislation published in Russian.
Description. The site is unofficial and maintained by the commercial organisation "Garant". It is relatively trusted and up-to-date, however it is not free of charge.
Professional qualifications. Russia, Advocate
Areas of practice. Insurance dispute resolution; commercial litigation; arbitration.
- Acting for Vítkovice Power Engineering a.s. in a dispute with one of Russia's largest commercial banks regarding collection of EUR6.5 million under a bank guarantee issued in the form of a SWIFT message.
- Representing one of Russia's largest banks in a famous IP case. The claimant alleged that the bank infringed the claimant's copyright. The claimant's case was dismissed.
- Acting for M. Video Management in a dispute in an arbitration court with a Russian developer regarding the execution of a preliminary lease agreement.
Languages. English, Russian
Professional qualifications. Russia, Solicitor
Areas of practice. Commercial law; corporate law (including M&A transactions and joint ventures); securities markets.
Languages. English, Russian