Global Link | linking local events to global solutions

    RU: Compulsory TPL Insurance Regulations for Industrial Hazardous Objects

    In November 2010, Aon issued a Global Risk Alert (see attached) that provided information on Federal Law No. 225-FZ which amends the compulsory Third Party Liability (TPL) insurance requirements for companies in Russia maintaining hazardous industrial and hydro-technical objects.
    The Government of the Russian Federation has now approved further clarifications and the premium rates for this coverage, all of which will become effective on January 1, 2012. This law affects most of the manufacturing companies in Russia, as well as property owners. This Alert provides an overview of the new law's requirements.

    The limits of liability to be insured will apply per hazardous object individually and will depend on each risk category and the estimated quantity of people injured. The following limits apply to most hazardous objects:

    • RUR50 million for chemical, petrochemical and oil upstream industries;
    • RUR25 million for gas networks;
    • RUR10 million for other hazardous objects.
    For companies obligated to issue an Industrial Safety Declaration (ISD), as per the previous Alert, the limits range from RUR10million to RUR6.5 billion in the aggregate (see the attached Alert for details).

    Premiums are also calculated individually for each hazardous object.
    • Premium rates range from 0.02% to 4.94% per annum.
    The following premium reducing coefficients can be used:
    • From January 1, 2012 until December 31, 2013 – up to 0.9
    • From January 1, 2014 until December 31, 2015 – up to 0.7
    • From January 1, 2016 – this will depend on the hazardous object safety quality

    Unlike most of other insurance lines in Russia and common market practice, the insurer maintains subrogation rights against the insured in the following two cases:
    • If damages resulted from non-compliance with the requirements issued by the supervising government body; or
    • If damages were caused as a result of willful negligence of the insured's employees.

    The authorities have also announced that there will be penalties for companies that do not have the required insurance policy in place by April 1, 2012:
    1. Further use of the hazardous object not insured will be prohibited by the supervisory body.
    2. Financial penalties will apply, ranging from RUR 15,000 to RUR 20,000 to be paid by the offending company's management and from RUR 300,000 to RUR 500,000 by the company owning the object.
    Policies can be issued only by a locally licensed insurer that is a member of the National Liability Insurers Association (NSSO). Currently there are over 50 members. NSSO also operates as a reinsurance pool.

    Although the vast majority of global programs and associated locally admitted policies cover most of the potential damages, a stand-alone policy for hazardous objects is legally required. Coverage provided within a global program can be used as excess of primary compulsory insurance only. It should be noted that reinsurance of the risk outside the NSSO pool is not permitted and premium and risk cessions to either a global carrier or captive insurer are prohibited for this coverage.

    Both limits of liability and premiums are increasing substantially, particularly for industries such as mining, oil and gas, steel and non-ferrous metals, chemical, etc. It is imperative to prove the existence of local coverage in order for companies to obtain a license to operate their hazardous machinery. Therefore, we recommend companies operating such machinery contact Aon Russia as soon as possible to calculate premium amounts under the new compulsory requirement and arrange necessary policies well in advance of the deadlines set.

    CN: New Anti-Bribery Laws Effective May 1, 2011

    While the People's Republic of China (PRC) has long banned the making of bribes to PRC officials, legislation has now been passed which will legally prohibit the payment of bribes to non-PRC public officials. On February 25, 2011, the PRC legislature passed 49 amendments to the PRC Criminal Law. One of these amendments – Amendment No. 8 of the PRC Criminal Law – criminalizes the payment of bribes to non-PRC government officials and to international public organizations. While the Amendment is brand new and no interpretive guidance has been issued, it appears to be the PRC's analogue to the United States Foreign Corrupt Practices Act ("FCPA"). This amendment became effective on May 1, 2011 with an unofficial English translation as follows: "Whoever, for the purpose of seeking illegitimate commercial benefit, gives property to any foreign public official or official of an international public organization, shall be punished in accordance with the provisions of the preceding paragraph (1)…""

    Who Does Amendment No. 8 Apply To?
    Amendment No. 8, as part of the PRC Criminal Law, applies to all PRC citizens (wherever located); all natural persons in the PRC regardless of nationality; and all companies, enterprises, and institutions organized under PRC law. Therefore, in addition to PRC domestic companies, the PRC Criminal Law applies to all business entities organized under PRC law, including joint ventures, wholly foreign-owned enterprises and representative offices. Both PRC companies and non-PRC companies alike must, therefore, be compliant with the Amendment. Any businesses formed under PRC law may be criminally liable under the Amendment.

    What Property is Considered a "Bribe"?
    The law refers to bribes paid to public officials for the purpose of "seeking illegitimate commercial benefit" (a phrase yet to be interpreted). Depending on the final interpretation of this definition, the PRC may, as we have seen in other similar laws, interpret this to mean in violation of laws, regulations, rules or policies, or requiring the other party to provide assistance or facilitation in violation of laws, regulations, rules, policies or industry codes of practice. If such a broad definition is applied, the Amendment will criminalize the making of bribes to foreign officials in exchange for any commercial advantage. This would almost certainly include the securing of new contracts/renewal of existing ones, and would likely include other benefits such as procurement of favorable contract terms in otherwise lawful contracts.

    Who is a "Foreign Public Official"?
    If the PRC adopts a broad definition of "foreign public official," (to include members of the United Nations, for example), companies will need to be careful when dealing with any persons who have any connection to the public functions of a foreign country or state-owned businesses.

    Global companies entering into joint ventures or other business collaborations organized under PRC law, or with a representative office in the PRC, must take steps to ensure that neither they nor their business partners offer bribes to non-PRC public officials for the purpose of obtaining an unfair business advantage. Penalties for violating this Amendment can include up to 10 years in prison and a fine.
    As individuals, entities or any party that initiates the alleged bribe can be found liable, this raises the issue of insurance coverage for defense costs and/or payment of fines. At this time, local Directors and Officers liability (D&O) policies in China do not provide coverage for such defense costs or fines. There may be some "Difference in Conditions" coverage provided under global master programs issued to a corporate parent of a Chinese subsidiary, which would potentially allow the parent to centrally recoup some of these local costs. Due to non-admitted regulations in China, however, local claims cannot be paid directly to a Chinese subsidiary.
    From a risk management perspective, therefore, it will be extremely important for global companies to conduct thorough due diligence on any company with which they seek to form a joint venture or other similar business entity. Before teaming up with another company in the PRC, companies should carefully vet the potential partner and identify any red flags suggesting that the partner may engage in corrupt business practices. In conducting this due diligence, companies should identify and assess any relationships that the potential business partner has with non-PRC public officials themselves, as well as any state-owned business from outside the PRC.

    EU: European Union (EU) - Solvency II Status Report

    A unified framework of legislation in the European Union (EU) continues to develop. Solvency I, the original EU Directive relating to the capitalization and solvency of EU insurers was originally introduced in 1973 to protect policyholders against insolvency of insurance companies. The increased sophistication of risk management systems since that time necessitates updated governance of insurers and their operating capital. In 2009, regulators introduced Solvency II Directive 2009/138/EC which is expected to take effect by January 2014.

    Solvency II and EU Passports 
    Solvency II will continue to require insurers qualify for an "EU Passport" (a single license allowing them to freely operate in the EU) as in Solvency I but with amended requirements. Insurance policies affected by Solvency II include:

    • Locally placed policies with local individual insurers.
    • Policies issued as part of a global program by a licensed local operating subsidiary.
    • Fronting/local policies reinsuring to captives or insurance companies located outside of the EU.
    Highlights of Solvency II Framework
    Solvency II should not be confused with other EU legislation known as Basel II, which outlines governance and capital requirements for financial institutions operating in the EU member states. Insurance companies are NOT governed by Basel II, as they are not considered to be financial institutions. However, for insurers governed by Solvency II there is a similar framework to Basel II, utilizing three main regulatory pillars as follows:
    Pillar 1 The quantitative component - how much capital an insurer must hold.
    Pillar 2 Governance/supervision proposed by insurers to be approved by local regulatory body.
    Pillar 3 The stipulated requirements for disclosure and transparency by insurers.

    Estimated Time-Line for Insurers' Compliance
    The below dates are a guideline to the estimated future time-frame for Solvency II, however whether regulators will adhere to the below dates can not be confirmed at this time.
    • March 2013 – EU member states must implement Solvency II in their national law (subject to timeline approval by EU Parliament).
    • July 2013 – All insurers must send their implementation plans to local regulators.
    • January 2014 – Solvency II officially launched.

    Solvency II Readiness 
    The full impact of Solvency II will not be known until the final details are released by regulators. There are some preparations that can be made for Solvency II to ensure that insurance coverage is not disrupted.
    1. Since the publication of Solvency II in 2009, many insurers covering risks in the EU have developed Solvency II readiness plans. Aon's dedicated market security group is responsible for reviewing and tracking financially viable markets for our clients. This group is currently developing the appropriate process for including Solvency II into the market security review process to ensure compliance issues may be highlighted for clients, whether insurance buyers or captives.
    2. Clients purchasing locally admitted policies in EU member states may wish to begin reviewing which local insurers are currently utilized in order to prepare for Solvency II commencement in 2014.
    3. Captive companies may wish to formulate their plans for completing Solvency II compliance studies. Aon Global Risk Consulting (AGRC) is actively engaged with clients and regulators in conducting capitalization analyses of all clients' captives to evaluate their readiness status. For clients not currently retaining AGRC who may need guidance on this issue, attached is some additional information regarding captives and Solvency II with AGRC specialists and contacts noted on the attached document for further details.

    Future Developments 
    There are some additional countries not located in the EU that provide direct or captive-related insurance services for EU risks that are applying for equivalent "EU Passport" licensing status – Bermuda, Switzerland and Japan. The result of these applications is not currently known.
    In addition, there has been some discussion in countries such as Australia, South Africa and the United States to consider implementation of legislation similar to Solvency II however it is early to predict how these will progress.

    RU: Updated Clinical Trials Life Insurance Regulations as of June 2, 2011

    In 2010 we issued publications (see attached) outlining regulations that now apply to companies conducting clinical trials in Russia and their legal obligation for providing life insurance to patients participating in local clinical trials.
    On June 2, 2011, the Russian Ministry of Health ("MOH") approved updates to these life insurance coverage specifications, with immediate effect. The following are highlights of the regulation amendments that affect insurance coverage to be provided and policies to be issued.

    Regulations Prior to Amendment
    Policy Issuance

    Original regulations stated that a preliminary insurance contract must be issued before permission would be granted by MOH for a trial. Once permission for the trial is granted, the final insurance contracts are issued along with an invoice.
    Coverage Provided for Patients
    Prior to the recent amendments, only bodily injury to patients as a result of taking the drug was covered in the policy. This left gaps in coverage for other causes of injury, including significant causes such as medical malpractice and medical procedures and omissions. In addition, randomized patients were covered, but patients during "screening" were not.

    June 2, 2011 Amendments
    Policy Issuance
    The June 2, 2011 amendments eliminate the need for preliminary insurance contracts. Permission to conduct a trial may now be obtained without a preliminary policy, with the main insurance policy then issued upon receipt of permission.
    Compulsory life and health coverage for new patients joining a trial will be included in the main policy, with subsequent individual policies providing evidence of insurance for new patients issued as attachments to the main policy. Copies of individual policies do not need to be maintained at the site or sent to insurers, but a log register of patient ID codes must be sent to insurers.

    Coverage Provided for Patients
    The definition of bodily injury as a result of participation in the clinical trial has been expanded and now also includes the following risks:

    • Taking a drug in accordance with the trial (previously included)
    • Medical malpractice
    • Medical procedures and omissions
    • Both screening and randomized patients are now protected by insurance.

    Additional regulations
    1. Each patient will now receive an individual, anonymous patient ID code to protect their anonymity. Insurers will provide clinical research organizations ("CROs") with certificates containing patient ID numbers to be sent to the trial site and to the patients via investigators. ID codes may be provided to insurers either by investigators or CROs for entering into blank policies.
    2. A contract of compulsory insurance must contain a maximum number of insured patients.
    3. Fixed premium rates per patient, and the factors decreasing these rates remain unchanged from our previous Alert. However, please bear in mind that premiums are fixed in RUB, so rates of exchange may vary.


    XK: Legislation - Compulsory Motor Third Party Liability

    In July 2011 the new compulsory motor third party liability (MTPL) law was passed by parliament; it was gazetted on 14 July 2011 and became effective from 28 July 2011. Apart from introducing a bonus-malus premium system, the new law principally maintains the minimum amounts of cover required which are EUR 1mn for bodily injury and EUR 200,000 for property damage. For damage caused when operating motor vehicles to transport hazardous materials, there shall be double minimum cover.

    TR: Regulation - Compulsory Catastrophe Insurance

    On 13 May 2011 a regulation was issued setting out the general conditions of the compulsory catastrophe insurance for dwellings on privately-owned land. It does not apply to commercial and publicly-owned buildings. The rules, which took effect on 16 May 2011, also explain how the sum insured should be fixed, set out the responsibilities of the insured and the insurer and establish the claims procedure.

    US: Regulation - Compulsory Insurance

    According to regulations issued on 21 March 2011 by the Federal Motor Carrier Safety Administration (FMCSA), interstate trucking companies or freight forwarders have minimum financial responsibility requirements for the interstate transport of cargo or hazardous materials which can be met by insurance or a surety bond. Minimum amounts are: USD 750,000 in respect of freight vehicles of 10,001 pounds or more carrying non-hazardous cargo; USD 5mn in respect of freight vehicles (regardless of weight) carrying hazardous cargo (explosives, poisonous gases, permitted radioactive materials); USD 1mn in respect of freight vehicles of 10,001 pounds or more carrying other hazardous cargoes as defined This eliminated the requirement for certain motor carriers of property and freight forwarders to maintain cargo insurance (for minimum amounts of USD 5,000 per vehicle and USD 10,000 per occurrence). This does not apply to household goods and they continue to be subject to the cargo insurance requirement.

    VE: Regulation - Intermediaries' Commissions

    In June 2011 the Superintendency of Insurance Activity (Superintendencia de la Actividad Aseguradora) published in Gaceta 39702 a norm by which brokers' commissions are limited to 30% for fire, earthquake and loss of profits, 10% for group healthcare and 12.50% for individual healthcare. The norm also regulates the payment of profit commissions and incentive payments.

    TW: Regulation - Non-Admitted - Intermediaries

    New regulations issued under the Insurance Act in 2011 make an insurance broker's principal officer personally liable for breaches of the non-admitted rules, with fines and/or imprisonment.


    BE: Belgium Implements mandatory terrorism coverage law

    Industry Relevance: All companies with local operations or subsidiaries in Belgium.

    On May 15, 2008 the Belgian government published the "Law of April 1, 2007" which effectively imposes mandatory insurance coverage of terrorism risks to be provided by all insurers covering Belgian risks for certain lines of insurance, effective May 1, 2008.

    The law also implements a joint intervention between the Belgian State and most (90%) of the local insurance and reinsurance companies which have joined a pool called the Terrorism Reinsurance and Insurance Pool (TRIP).

    Applicable risks 

    1. The law provides a broad definition of the term terrorism and how it is to apply. The mandatory coverage will apply to all risks located in Belgium in accordance with art. 2 par. 6-8 of the law on the insurance sector which includes (but is not limited to):
    - Clients that are Belgian residents
    - Any insured goods located in Belgium
    - Vehicles registered in Belgium

    2. The risks for which this coverage is mandatory are:
    - Workmen's compensation
    - Automobile liability
    - Strict liability in case of fire & explosion (Law of July 30th 1979)
    - Accident & illness coverage
    - Life insurance
    - Property insurance for risks defined as "simple risks", the definition of which is:
    Small risks with an insured value below approximately Euro 1,3 million or Large risks with an insured value below approximately Euro 42 million such as dwellings, office buildings, schools, museums, hospitals, universities, libraries, etc. The list can be extended by Governmental decree.

    3. The law is not applicable to policies that insure:
    - Bridges, tunnels or airports
    - Nuclear liability or damages to nuclear facilities
    - Liability related to trains, airplanes, or ships or damage caused to such vehicles.
    - Life insurance where the law is not applicable on the theoretical withdrawal value of such a contract.
    -Large property risks which are usually insured under an All Risks (industrial) policy. While terrorism coverage is not mandatory for these risks, if they are not insured, it should be mentioned in the exclusions.

    Limits and Premiums
    Coverage is limited to Euro 1 billion per year (indexed) which is provided by direct insurers and reinsures in the following amounts

    Direct insurers Euro 300 million
    Reinsures Euro 400 million
    Belgian Government Euro 300 million

    These limits are only valid for the insurers and reinsures that have joined the pool (TRIP). For insures who are not part of the pool, coverage is still mandated by law but limits are not stipulated. At this time there is no additional premium required for terrorism coverage. Committee Regulating the Pool In order to ensure the pool's operations are regulated, the "law of April 1, 2007"imposes the creation of a committee (members are the Government and representatives of the TRIP) whose tasks are to: - Define if the act of terrorism falls within the definition set by this law. - Split the costs of the terrorism claim between the members. - Track the evolution of these costs. - Prioritize indemnities in claims for death, bodily injury and moral damages. - Fix the percentage amount to be paid by each member for claims where costs exceed the Euro 1 billion limit. Summary Where until now it has not been mandatory by law, most policies issued for property "simple risks", workmen's compensation, strict liability and auto liability have included terrorism coverage within their wordings. However policies covering illness and life insurance did not include terrorism coverage prior to this law. For these additional lines of insurance, insurers will add the coverage by endorsement. If such policies were issued prior to May 1, 2008, the terrorism coverage will be mandatory as of the next annual policy renewal but can be added midterm upon request. Insurance companies issuing new insurance policies after May 1, 2008 must provide the coverage immediately. Some companies may have historically provided coverage for their Belgian risk under a non-admitted global program (for example covered in another European territory under the Freedom of Services agreement) or captive that does not provide terrorism coverage. In these cases, a careful review must be made and a localized policy considered because in the event of a terrorist act the new law will require that the non-admitted insurer pay claims even if the insurer considers them uninsured.
      BE: Strict liability insurance

    Strict liability insurance is compulsory (law of 30th July 1979) in Belgium and is meant for owners and/or users and/or operators of certain premises that are accessible to the public with a surface of a certain amount of square meters. Those owners and/or users or operators can be held liable for any damage to third parties caused of fire and explosion within their premises.

    Insured amounts are: 14.873.611,48 Euro for bodily injury and 743.680,57 Euro for property damage.

    Premises that categorize: - Dancing's, bal rooms and similar
    - Restaurants, cafés and similar : surface of 50 m² or more;
    - Hotels and motels with at least 4 rooms and accommodation for at least 10 people;
    - Retail shops with total surface including adjacent storage: 1.000 m² or more;
    - Youth hostels;
    - Circuses, casino's and cabarets;
    - Theatres and cinemas;
    - Rooms for presentations, public meetings, halls…;
    - Stadiums;
    - Exhibition buildings/halls and trade fairs;
    - Hospitals, services flats,…;
    - Schools;
    - Commercial arcades;
    - Offices buildings accessible for third parties of 500 m² or more;
    - Subways, train stations, airports…;
    - Churches, chapels, … : surface 1.000 m² or more;
    - Courts, ;…
    - Resort parks ;…

    The insurance is subject to specific local taxes of 18.25% and generates annual insurance certificates for the local administration. Limits are subject to annual revaluation (so called indexation).

      French construction insurance issues

    Failure to provide evidence of a Dommages-Ouvrages insurance can jeopardize a registration of the sale transaction.

    Builders are presumed to be responsible for ensuring public safety for the decade following the date of Acceptance of Works. This is a matter of public policy, which cannot be waived or altered by contract.

    Any constructor of works is legally presumed to be liable to the principal or the purchaser of the works for damage. Even if it results from a defect in the ground, which endangers the stability of the works or which, by affecting one of its components parts or items of equipment, renders them unsuitable for their intended use. Such liability does not arise if the constructor proves that the damage arises from an extraneous cause. This is called the decennial liability under article 1792 of the French Civil code. Any constructor whose decennial liability can be exposed under this article of the French Civil code must therefore purchase insurance to cover that liability. Every constructor is therefore required to carry decennial liability insurance for all works unless the work is listed in art. L243-1-1 of the French insurance code. The builder who is denied insurance coverage may call upon the Central Tariff Bureau (BCT), an independent administrative authority, to determine rate conditions and deductible in view of securing the required coverage. Unfortunately this is a very lengthy procedure.

    Beside the builder also the principal, usually the future owner is required to take out a cover which applies during 10 years following acceptance and benefits to the successive owners of the construction. This Dommages-Ouvrages insurance provides pre-financing for any repair work made necessary by damage of a decennial nature caused by the various parties involved in the construction. Therefore if there is an insured defect in the building, the owner claims against the Dommages-Ouvrages policy for repairs to be carried out. The Dommages-Ouvrages insurer then has rights of recourse against the building contractor's decennial liability policy. Although the Decennial and the Dommages-Ouvrages are compulsory insurances, it's very difficult to find solutions for foreign contractors. There are only a selective number of carriers who handle these insurances and these insurers tend to be very selective. Partly because foreign contractors may only have one construction project in France and purchasing covers generally takes quite a long time and requires a lot of information. Beside this these covers last for ten years. It is therefore necessary that constructor and principle seek coverage as soon as project planning begins, because in order to take out a Dommages-Ouvrages insurance all constructers must show evidence they have a decennial insurance cover. In case no evidence of a Dommages-Ouvrages insurance can be provided it can jeopardize the registration of the sale transaction.

More information