Insurance & Reinsurance 2024 Comparisons

The insurance and reinsurance legal framework is constructed from various regulations and laws, as follows. 

• Title VIII of Book II of the Code of Commerce, About Insurance in General and in Particular about Non-marine Insurance (Article 512 et seq).
• Title VII of Book III of the Code of Commerce, About Marine Insurance (Article 1158 et seq).
• The Insurance Companies Act (DFL 251), which regulates insurance companies.
• Supreme Decree 1055-2013, which establishes regulation of auxiliaries to the trading of insurance and procedures for loss adjustment.
• Resolutions issued by the Chilean regulator, the Commission for the Financial Market (CMF). This also includes the previous resolutions issued by its predecessor, the Securities and Insurance Superintendency (SVS).
• General provisions relating to the interpretation of contracts found in the Civil Code (Articles 1560 et seq).

Since Chilean law and practice follows a civil law system, precedent and court rulings are generally not mandatory. Strictly speaking, each ruling or award only relates to the subject matter of the case. Nonetheless, the criteria established by Chilean higher courts (the Courts of Appeal and the Supreme Court) and their judgments are usually followed.

In Chile, insurance and reinsurance companies, local insurance and reinsurance brokers, and loss adjusters are mainly regulated by the CMF.

Who Is Entitled to Write Insurance and Reinsurance Business?

Insurance and reinsurance companies can be stock corporations incorporated in Chile, as long as they provide only these services and complementary activities as authorised by the CMF through rules of general application, and comply with the special regulations established in Title XIII of the Chilean Corporations Act (companies subject to special regulations).

The selling of insurance in Chile can be undertaken by a general insurance company (first group) or a life insurance company (second group). The former covers the risk of loss or damage of goods, or patrimony. Life insurance companies, on the other hand, cover risks of persons or guarantee them within or on termination of a certain term, capital, paid-off policy or rent for the insured party or its beneficiaries. Exceptionally, personal risk and health may be covered by both types of company. Risks related to credit can be insured only by general insurance companies having the sole purpose of covering this type of risk, which could also cover surety and fidelity.

Notwithstanding this, foreign insurers that are incorporated abroad may commercialise and sell direct insurance cover in Chile relating to international marine transportation, international commercial aviation and cargo in international transit and satellites.

In addition, companies incorporated abroad are allowed to establish branch offices in Chile. These branch offices are subject to the general procedure provided by the Chilean Corporations Act for the incorporation of agencies of foreign companies and must obtain authorisation from the CMF (as per Titles XI and XIII of the Chilean Corporations Act). In addition, the branch offices must prove to the CMF that they comply with all requirements established for the authorisation of insurance companies, and must follow further publication and registration formalities.

Reinsurance of contracts subscribed to in Chile is contracted by insurance and reinsurance companies with the following entities:

• national corporations whose exclusive scope of business is reinsurance;
• national insurance companies that can only reinsure risks from the group they are authorised to operate in; and
• foreign reinsurance entities that are classified by two different risk classification agencies approved by the CMF, and ranked at least within the BBB risk category or its equivalent.

Reinsurance can be provided by the aforementioned foreign reinsurance entities either directly or through reinsurance brokers registered in the Registry of Foreign Reinsurance Brokers, which is managed by the CMF.

No different rules apply to the underwriting of excess layers or to reinsurance contracts.

Product Regulation

Insurance and reinsurance companies must word their contracts using the models of policies and clauses contained in the Register of Policies of the CMF. Exceptionally, they may use non-registered models:

• where they relate to general insurance;
• where the insured or the beneficiary is a legal entity; and
• where the annual premium is higher than 200 Chilean UF (an indexed unit of account) (eg, in the case of large risks).

In addition, non-registered models can also be used for cargo, transport, marine or aircraft hulls, or for related insurance.

Areas of compulsory insurance cover in Chile include:

• motor liability;
• employers’ liability for occupational accidents and diseases; and
• brokers’ errors and omissions.

In addition, Decree-Law 3500 of 1980, which regulates the Chilean pension system, also establishes a compulsory insurance in connection with, inter alia, disability and social security life annuities to be contracted jointly by all companies authorised to manage the covering pension funds.

Standards That an Insurer Must Satisfy

The minimum capital of a Chilean insurance company must be 90,000 Chilean UF. In the case of Chilean reinsurance companies, this is 120,000 Chilean UF for any of the authorised groups in which they may operate.

To meet the obligations of underwriting insurance and reinsurance business, Chilean-regulated insurers and reinsurers must establish technical reserves in accordance with the current principles, procedures, mortality charts, interest rates and other technical parameters within the time limit and in the format established by the CMF through general rules.

Generally, if the insurance is contracted in Chile, its premium is subject to a 19% value-added tax (VAT). If the insurance is contracted abroad (due to the insured’s decision), the premium is subject to a 22% withholding tax and exempted from VAT (a couple of cases are exempted from the aforementioned withholding tax, such as P&I and H&M). Reinsurance is subject to a 2% withholding tax.

Anyone is free to take out insurance in Chile. Except for compulsory insurance, taking out insurance abroad is not forbidden, but insured parties are subject to the legislation governing international charges and taxation.

Foreign insurers cannot sell insurance directly in Chile (exceptionally, they can do so in connection with international marine transportation, international commercial aviation and cargo in international transit).

Fronting is not expressly defined under Chilean law; however, the foregoing is an accepted practice, notwithstanding the fact that the cedant company will always remain as the responsible party to pay the indemnity to the insured under the local policy. Direct actions of the insured against the reinsurer are not valid unless otherwise agreed in the reinsurance contract or as per an assignment of rights after the loss from the reinsured to the insured. In this respect, under Chilean regulations the insurer cannot postpone the payment of the indemnity to the insured due to the existence of a reinsurance contract.

The transfer of business or portfolios and mergers or divisions of insurance entities requires special authorisation from the CMF, and must be carried out in conformity with the general rules established by it for this purpose. In any case, the insureds must be informed, and the conditions of the transfer may not encumber their rights or modify their guarantees.

Insurance products must be sold mainly in accordance with the CMF regulations and the Consumer Protection Act.

Under Chilean law, the main obligation of the insurer is to pay the indemnity, provided that there is coverage. The insured is subject to the following obligations:

• sincerely stating all circumstances required by the insurer to identify the insured object and risks;
• reporting about other insurances covering the same object, if required by the insurer;
• paying the premium in the agreed manner and term;
• acting as the diligent head of family for preventing a loss (in the case of an imminent loss, the insurer must reimburse the expenses reasonably incurred by the insured to comply with this obligation);
• not aggravating the risk, and informing the insurer in a timely manner about circumstances that may constitute an aggravation;
• adopting all measures to save the insured object or keep its remains (the insurer must reimburse the expenses reasonably incurred by the insured to comply with this obligation);
• notifying a loss to the insurer as soon as feasible upon knowledge of the occurrence of any circumstance that may constitute a loss; and
• establishing the occurrence of the loss and sincerely stating, with no reticence, its circumstances and consequences. 

As regards the insurer’s obligation to reimburse per the fourth and sixth point above, such reimbursement cannot exceed the insured amount.

Chilean law recognises the concept of utmost good faith, and the insured must respond to an insurer’s request for information about a risk by honestly disclosing the information requested, to allow insurers to identify the object of the insurance and assess the nature of the risk. For these purposes, it suffices that the insured reports exclusively as per the insurer’s request.

As regards the insurer’s obligation to sincerely state all circumstances required by the insurer to identify the insured object and risks, if the insured incurs errors, reticence or inaccuracies before a loss in connection with information requested by the insurer and which are determinant for the insured risk, the insurer can rescind the contract.

In addition, if the insured provides information that is false, the insurer can avoid the policy and return the premium. The insured must also disclose circumstances that increase the risk during the policy period.

That said, if the insurer fails to request information at the placement stage, the insurer may not then allege any errors, reticence or inaccuracies by the insured, as well as those facts or circumstances that are not included in the request for information.

Intermediaries and the Role of the Broker

Among others, Chilean law regulates the activities of insurance and reinsurance brokers, and loss adjusters. Their main licensing requirements can be summarised as follows.

Insurance brokers

Insurance brokers are defined as natural persons or legal entities who have been registered as such with the CMF and who act as independent intermediaries in the contracting of insurance policies with any insurer.

Reinsurance brokers

Reinsurance brokers are subject to specific rules contained in SVS General Rule No 139/2002. In general, they must be registered in the Registry of Reinsurance Brokers kept by the CMF and comply with the following requirements.

• They cannot be registered as insurance brokers.
• They must establish a liability insurance policy for no less than 20,000 Chilean UF or one third of the premium intermediated in the immediately preceding year, whichever is higher (the policy must not be subject to any deductibles).
• Foreign reinsurance brokers must be legal entities, and must certify that they have been legally incorporated abroad and are entitled to intermediate risks ceded from abroad. In addition, foreign reinsurance brokers must designate an attorney with a broad range of faculties to act on their behalf in Chile, including the power to serve and be served with court proceedings.

Loss adjusters

Unlike in many jurisdictions, in Chile the loss adjuster is appointed to act as an impartial claims specialist and must be licensed and supervised by the CMF. The loss adjuster’s role is to investigate and review the circumstances of the loss or damage, and to report on the validity of the policy coverage in respect of the claim. The loss adjuster’s report is released both to the insured and to the insurer.

Agencies and contracting

As regards agency issues, brokers are also subject to the general agency provisions of both the Civil Code and the Commercial Code.

Under Chilean insurance law, an insurance contract is defined as an agreement whereby one or more risks are transferred to an insurer, in exchange for a premium, who becomes obliged to indemnify the damage suffered by the insured or to satisfy capital, income or other agreed provisions.

The essential ingredients of an insurance contract are thus:

• the insured risk;
• the insurance premium; and
• the insurer’s conditional obligation to indemnify.

The absence of any of these ingredients renders the contract void.

Insurance policies must contain the following basic provisions and information:

• the identity of the insurer, insured and beneficiary (if applicable);
• the insured subject matter;
• the insurable interests;
• the risks taken by the insurer;
• the policy period;
• the insured amount;
• the value of the insured subject matter;
• the premium;
• the policy date and the insurer’s signature; and
• the insured’s signature when mandatory by law.

In addition, Chilean law defines reinsurance as an agreement whereby the reinsurer undertakes to indemnify the reinsured within the limits and modalities set forth in the agreement, for liability affecting its patrimony as a consequence of the obligations it has undertaken in one or more insurance or reinsurance contracts. When construing the will of the parties, Chilean law considers international reinsurance practice.

Reinsurance is subject to the principle of freedom of contract with a few mandatory restrictions, such as the fact that it cannot alter the terms of the insurance contract and that the insurer cannot delay payment of the indemnity due to the reinsurance.

Direct actions of the insured against the reinsurer are not valid unless otherwise agreed in the reinsurance contract or as per an assignment of rights after the loss from the reinsured to the insured.

Under Chilean law, beneficiaries are defined as those parties who are not the insured but who have the right to indemnity in the case of a loss. Where the insurance policy includes a beneficiary, it must specify their identity or how their identity may be determined.

As stated in 2.2 The Writing of Insurance and Reinsurance, insurance companies must word their contracts using the models of policies and clauses in the CMF’s Register of Policies. The Register of Policies is meant to be a publicly available deposit which concentrates the contents of the insurance policies, forms and clauses available in the market as approved by the CMF.

Exceptionally, insurers may use non-registered models:

• where these relate to general insurance;
• where the insured or the beneficiary is a legal entity; and
• where the annual premium is higher than 200 Chilean UF (for larger risks).

In addition, non-registered models may also be used for transport insurance, marine or aircraft hulls, or for related insurances.

As previously stated, reinsurance is subject to the principle of freedom of contract, with a few mandatory restrictions (see 6.4 Legal Requirements and Distinguishing Features of an Insurance Contract).

ART transactions are not regulated in Chile.

See 7.1 ART Transactions.

As discussed in 1.1 Sources of Insurance and Reinsurance Law, insurance and reinsurance contracts are subject not only to the Code of Commerce, but also to the general provisions relating to the interpretation of contracts in the Civil Code (Article 1560 et seq) and certain provisions contained in DFL 251.

The Chilean position on insurance and reinsurance contracts can be broadly summarised as follows.

• The provisions of Chilean insurance law are in general mandatory, unless stated to the contrary. However, if a clause is deemed to provide an insured with a greater benefit than is provided under the law generally, the specific terms of a policy will prevail over the Code of Commerce.
• Chilean law considers it of paramount importance to determine the intentions of the parties at the time of contracting and to give effect to those intentions even if they are not reflected in the literal words of the contract.
• A Chilean tribunal will strive to facilitate clauses in contracts with the goal of ensuring that the parties’ intentions are fulfilled. Actions can include amending the contract if no provision is made for a given state of affairs.
• Under Chilean law, it is permissible for a tribunal to ascertain the parties’ intention by looking outside the contract at, for example, the negotiations between the parties and market practice at the date of contracting.
• In construing the intention of the parties to a reinsurance contract, Chilean law will consider international reinsurance practice.

Under Chilean regulations, insurers must ensure that the contracted policies are drafted in a clear and understandable fashion. Where there is doubt regarding the meaning of a provision when using model policies or clauses registered with the CMF (see 2.2 The Writing of Insurance and Reinsurance), the interpretation that is more favourable to the insured prevails.

Under Chilean law, insurance warranties are defined as “the requirements aiming to confine or decrease the risk, which are stipulated in the insurance contract as conditions that must be met to allow payment of an indemnity after a loss”.

In Chile, conditions precedent are not regulated. However, the insurer or reinsurer can achieve similar effects if they are treated as essential conditions of the contract, which are defined by the Chilean Civil Code as those without which the contract does not produce effects at all or degenerates into a different contract.

Under Chilean law, there is no strict need for dispute resolution clauses as insurance disputes are subject by default to arbitration. Nevertheless, an insured has the right to make a claim in the local courts where the sum in dispute is less than 10,000 Chilean UF. In this respect, the arbitrator must be appointed when the dispute arises.

As regards limitation periods for starting proceedings in respect of (re)insurance claims, under Chilean law the general principle is that any action relating to non-marine (re)insurance is time-barred after four years. Marine (re)insurance disputes are time-barred after two years.

As stated in 6.5 Multiple Insured or Potential Beneficiaries, the insurance policy must identity beneficiaries or contain the mechanism to determine them. Other third parties may enforce an insurance through assignment of rights, as per Chilean regulations.

According to Article 29 of the Insurance Companies Act (DFL 251), any dispute arising from insurance and reinsurance contracts governed by the law shall come under the jurisdiction of the Chilean courts. This rule is mandatory and cannot be repealed by agreement of the parties. Therefore, although there is contractual freedom to agree on the applicable law, any dispute must be settled in principle in the Chilean courts.

Nevertheless, once a reinsurance dispute effectively arises, the parties to the reinsurance policy are entitled to resolve disputes under Chile’s international commercial arbitration rules (Law 19971, which is based on the UNCITRAL Model Law on International Commercial Arbitration).

Stages of Litigation

Generally, in Chile, civil and commercial disputes at first instance comprise three main phases:

• discussion (exchange of pleadings);
• evidence; and
• judgment.

Unless remedies are waived, the right of appeal arises when the decision of the inferior tribunal causes grievance to one or more parties (there are no specific causes). The appeal remedy is available for most first-instance court rulings and is usually heard by a court of appeal. The appeal remedy must comply with basic form requirements. The regular term for appealing is five days but, in the case of final decisions, the period is ten days counted as of the service of the decision. Depending on the subject of the trial and the type of decision appealed, the processing of an appeal can take up to two years.

There is only one appeal stage, and the second-instance tribunal is allowed to review both factual and legal issues. Nonetheless, it is possible to challenge the decision of a second-instance tribunal through exceptional remedies such as cassation (these remedies are heard by the Supreme Court).

Evidence

There are no discovery obligations in Chile, but the parties are free to submit evidence based on:

• documents;
• witnesses;
• parties’ confessions;
• inspections ordered by the court;
• expert reports; and
• presumptions.

In insurance and reinsurance disputes, ordinary and arbitration courts are entitled to the following specific faculties relating to evidence issues:

• at the request of a party, to accept additional means of proof to those pointed out above;
• to decree evidentiary measures ex officio at any stage of the trial;
• to request recognition of documents and deal with objections; and
• to assess evidence under the “sane critic” doctrine.

Costs

Except for minor expenses associated with service, paperwork and auxiliary officers, there are no court fees payable in Chile. Lawyer fees can be recoverable, but only if the judge rules that there was no reasonable basis to litigate. Arbitrators fix their fees in accordance with the parties.

Enforcement of Foreign Judgments and Arbitral Awards

Foreign judgments and arbitral awards are enforced through a process called exequatur. This process is contemplated in the Civil Procedure Code under which judgments issued in a foreign country shall be given force in Chile by existing treaties. For their enforcement, the procedures set out in Chilean law shall be followed unless they have been modified by such treaties. If there are no treaties related to the matter, Chile shall grant to the judgment the same force granted to Chilean judgments by the jurisdiction in which the judgment was made. Where the judgment comes from a jurisdiction that does not enforce Chilean judgments, it shall not be enforced in Chile.

If none of the previous rules may be applied, foreign judgments shall be enforced in Chile provided that:

• they contain nothing contrary to the laws of the Republic of Chile, though procedural rules to which the case would have been subject in Chile shall not be considered;
• they are not contrary to national jurisdiction;
• the party against whom enforcement is sought was duly served with process, though such party may still be able to allege that for other reasons it was prevented from making a defence; and
• they are not subject to appeals or further review in the country of origin.

A duly legalised copy of the judgment – officially translated into Spanish, if necessary – must be presented to the Chilean Supreme Court to begin the exequatur process. In the case of an arbitral award, its authenticity must also be certified by attestation of a high court of the originating jurisdiction.

Notice of the enforcement request must be served on the party against whom it is sought. Such party shall have 15 days (which may be extended depending on where the party is domiciled) to respond. An opinion from an independent court official is also requested by the Supreme Court.

The Supreme Court entertains the matter in a hearing at which the parties may make oral statements.

After enforcement is allowed, the judgment must be presented to the competent civil court to commence an executive proceeding (by which the defendant’s assets can be foreclosed, if applicable).

For arbitral awards, a law on international commercial arbitration – based on the UNCITRAL Model Law – was passed in 2004. Its Article 35 regulates the recognition and enforcement of foreign arbitral awards. Article 36 lists the defences that can be asserted against enforcement, and regulates orders of stay. Chile is also a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. In this respect, Chilean courts have enforced all foreign arbitral awards that comply with the rules set out in the law regarding enforcement.

As stated in 9.1 Insurance Disputes Over Coverage, insurance disputes are generally subject to arbitration. Also, as stated in 9.2 Insurance Disputes Over Jurisdiction and Choice of Law, any dispute arising from insurance and reinsurance contracts governed by the Insurance Companies Act (DFL 251) must come under the jurisdiction of the Chilean courts. However, once a reinsurance dispute effectively arises, the parties to the reinsurance policy are entitled to resolve disputes under Chile’s international commercial arbitration rules.

As described in 9.4 The Enforcement of Judgments, arbitral awards are enforced in the same way as court judgments but are subject to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Chilean adoption of the UNCITRAL Model Law on international commercial arbitration, if applicable.

Apart from arbitration, there are no other industry-specific settlement mechanisms in Chile, and alternative dispute resolution (ADR) is not much used in the context of (re)insurance disputes.

Mediation is not compulsory. However, prior to entering the evidence stage, Chilean courts are obliged to call for a conciliation hearing whose main aim is to help the parties achieve settlement. Courts and arbitrators may be more active in their approach to searching for amicable settlement, depending on the circumstances.

Generally speaking, punitive damages are not contemplated under Chilean law.

However, as regards settlement of losses, Supreme Decree 1055-2013 (which establishes regulations for local insurance brokers and loss adjusters) states that upon receipt of the final adjustment report on both liability and quantum for the loss, the insured and insurer have ten days to object, failing which the parties are taken to have accepted the adjustment.

If objections are made to the final loss-adjustment report, the adjuster thereafter has six days to respond, and the response is sent to both the insured and insurer simultaneously.

In the case of insurance referred to under the second paragraph of Article 542 of the Chilean Code of Commerce (concerning damage insurance), the time limits for responding are increased to 20 days (objection to the final report) and 12 days (response from the adjuster), respectively.

The insurer is required to notify the insured within five days of the completion of the adjustment process on its final decision on the claim. The loss or undisputed sum must be paid within six days for registered contracts (ie, those contracts registered with the CMF and that are normally standard form). However, this period can be extended where the insurance is a non-registered contract.

Article 534 of the Chilean Code of Commerce states that upon payment (whether partial or total) of the indemnity under the insurance contract, the insurer automatically subrogates all the insured’s rights and actions against third parties responsible for the loss. Strictly speaking, no assignment of rights is required, provided evidence of the payment is submitted.

Chile recently enacted a law providing the first regulatory framework for fintechs. Among others, the so-called Fintech Law modified the Chilean Insurance Act (DFL 251) to expressly allow parametric insurance, which implies that on the occurrence of a risk or adverse event stipulated in the insurance contract, indemnity can be paid without the insured having to justify the existence or amount of the damages, even if they are not finally materialised. Under this modality, the factors and risks must be demonstrable and clearly measurable through objective procedures, and the risk must be insured according to the general insurance rules.

The CMF has yet to issue further guidelines on parametric insurance.

Supreme Decree 1055-2013 includes two provisions specifically aimed at catastrophe losses, as follows:

• the CMF can extend the adjustment period up to 180 days; and
• where there is more than one loss notified at a condominium, each insurer shall appoint only one adjuster.

In addition, the CMF has adopted a strategy to address climate change in financial markets, advanced to the global forefront of disclosure, and is working to develop comprehensive supervision of issuers, with a view towards financial materiality. In this respect, the CMF issued NCG No 461-2021, which implies disclosure of sustainability and corporate governance aspects (ESG) for issuers of publicly offered securities and other audited companies – ie, banks, insurance companies, AGFs and stock exchanges, among others.

See 11.1 Emerging Risks Affecting the Insurance Market.

Developments Impacting on Insurers or Insurance Products

Given the magnitude of the economic and human shock resulting from the spread of COVID-19 in the country, the CMF was constantly monitoring its effects on the financial market and the entities under its supervision, working in close co-ordination with the Ministry of Finance, the Central Bank and other international regulators.

During the pandemic, the CMF analysed the best alternatives to mitigate the impact of the economic shock to the financial system.

The CMF reinforced its commitment to safeguarding the stability of the Chilean financial system and continuing to protect investors, policyholders and depositors, exercising its regulatory and supervisory roles in order to safeguard the solvency and liquidity of the audited institutions.

Additional Market Developments

Within the framework of the implementation of the risk-based supervision system that the CMF has been promoting in recent years with the purpose of strengthening the insurance market supervision system in Chile, and based on the analysis of the experience in other jurisdictions and international recommendations on the operational risk-management system (in particular the International Association of Insurance Supervisors (IAIS)), in May 2021 the CMF issued instructions on operational risk management and cybersecurity, as well as in connection with the periodic performance of self-assessments in both areas for insurance and reinsurance companies (General Rule 454). Its objective is to establish principles of an adequate operational risk-management and cybersecurity system that will serve as the basis for the evaluation of companies in this area by the CMF.