Sources of insurance and reinsurance law are mainly the acts enacted by the legislative powers (the executive and Congress), and regulations issued by the insurance regulator, the so-called Comisión para el Mercado Financiero (CMF, its Spanish acronym). The CMF is empowered to issue regulations on insurance matters and to supervise the business conduct of insurers, local reinsurers and insurance and reinsurance brokers.
The main legal and regulatory insurance norms are the following:
In addition, Articles 512 to 601 of the Code of Commerce regulate the insurance contract and include a few provisions regarding the contract of reinsurance.
Also, there are general laws that apply to insurance activities as well, such as the law of corporations and the law on consumer protection.
Primary insurance regulation is basically contained in the Law of Insurance Companies, and in the various rules issued by CMF, the insurance regulator. The norms on the contract of insurance are contained in the Code of Commerce. In respect of reinsurance, the regulations and substantive norms are rather scarce and are contained in the same bodies and Code mentioned above. Articles 512 to 601 of the Code of Commerce provide detailed regulations on the contract of insurance; also, a few of these articles refer to the contract of reinsurance.
There are general laws that also apply to insurance activities, such as the law of corporations, the law on consumer protection, and norms in the Code of Commerce that refer to intermediaries.
The business of insurance can only be carried out by Chilean insurance and reinsurance companies established in Chile as companies by shares. There are no restrictions regarding the participation of foreign capitals in the formation of a company of insurance or reinsurance, or to take control thereof.
Insurance companies can be formed to conduct only one of the following kinds of business: general and casualty, credit insurance (including fidelity and guarantee), and life.
Also, Chilean law allows foreign insurers to open a branch in Chile. Operations between the branch offices and their parent companies are deemed to have been reached between different entities. The parent company is not responsible for the obligations assumed by the Chilean branch office, and may reinsure its risks without any limitation.
Foreign insurers cannot offer nor commercialise insurance in Chile, with the sole exception of the so-called MAT insurances, ie, insurance for international marine transportation, international commercial aviation, cargo in international transit, and satellites and their cargo.
On the other hand, and with the exception of some compulsory insurances, any person in Chile is allowed to buy insurance abroad and to approach a foreign insurer for such a purpose (save some compulsory insurances that shall always be contracted in Chile).
In respect of the writing of insurance, the only distinction is between regulated insurance and large risks. In the latter, there is absolute freedom of contract. Large risks are those in which the insured party and beneficiary are a company or legal entity (as opposed to an individual), and the annual premium exceeds 200 “Unidades de Fomento" or UF (an indexation unit), which at the exchange rates prevailing on 29 November 2019, amounts to approximately USD6,830. However, cargo insurance and marine and hull insurance are always deemed to be large risks, no matter who the parties and beneficiaries of the insurance contract are, or the amount of the premium. In all these insurances there are no restrictions regarding freedom of contract, and the policy forms are not subject to previous deposit with the insurance regulator.
In regulated contracts, ie, those which are not large risks, freedom of contract is restricted. Mandatory regulations apply, and are imperative to all insurance contracts. Companies may only commercialise policy forms that have been previously deposited before the insurance regulator.
There is no tax for insurance premium commercialised by local insurers. Only the general norms on income tax law apply to local insurance companies. The general law on Value Added Tax applies, with the exception of some risks such as earthquake and fire originated by earthquakes; international carriage of goods; hull and machinery of vessels; property located out of Chile; insurance taken out by commercial aviation companies, and reinsurance.
In respect of insurances contracted by Chileans abroad, the premium due to a foreign insurer is subject to a 22% withholding tax. This tax is not applicable if the foreign insurance company resides in a state that has a Tax Treaty Convention in force with Chile, such as Argentina, Australia, Belgium, Brazil, Canada, China, Colombia, Croatia, Denmark, Ecuador, France, Ireland, Korea, Malaysia, Mexico, New Zealand, Norway, Paraguay, Peru, Portugal, Spain, Thailand, United Kingdom, Russia, Sweden, South Africa, and Switzerland.
Foreign insurers are allowed to reinsure Chilean risks, provided that they have two risk-rating reports with a minimum BBB rating, and appoint a legal representative domiciled in Chile. A withholding tax of 2% of the reinsured amount is applicable, unless the state where the reinsurer resides has a Tax Treaty Convention in force with Chile.
In Chile, there are neither restrictions to foreign capital, nor requirements that may specifically affect foreign investments in the insurance and reinsurance businesses.
A foreign entity may create or acquire a local insurance or re-insurance company, or an insurance or reinsurance intermediator, as long as it complies with the general requirements for these kinds of companies that are applicable to all persons. The nationality of the capital or of the members of the board or administrators is not relevant. In addition, a foreign insurance company may open a branch in Chile, complying with local regulations; the nationality of the company or its administrators not being relevant.
Foreign insurers, ie, those who have not established an insurance company or a branch in Chile, cannot offer or commercialise any kind of insurance in Chile (exempting MAT insurance, which is referred to in the paragraph below). However, with the exception of some compulsory insurances, any Chilean resident may freely buy insurance outside Chile.
In these cases, though, the insurance premium is subject to a 22% withholding tax, unless a bilateral Tax Treaty is in force that exempts the application of this tax.
The so-called MAT insurance businesses include international marine transportation, international commercial aviation, cargo in international transit, and satellites and their cargo. These kinds of insurances can be commercialised in Chile by any foreign insurer, either directly or through a broker.
In respect of reinsurance, Chilean insurers may cede risks without limitation to foreign insurers or reinsurers. The only requirement is that those foreign reinsurers have a risk rating equal to or higher than BBB or its equivalent by two of any of the following rating companies: Standard & Poor’s, FITCH, MOODY’S, and A.M. Best. If the foreign reinsurer has not appointed a representative in Chile with faculties to be served judicial lawsuits on behalf of the reinsurer, then reinsurance must be intermediated by a local or a foreign reinsurance broker registered before the CMF.
Chile has a Free Trade Agreement in force with the European Union, under which foreign insurers may commercialise MAT insurances in Chile either directly or through a broker. However, under an amendment of the law followed by a Circular Letter from the insurance regulator, this permission has been extended to all foreign insurers and brokers. Furthermore, it should be noted that, on 30 January 2019, Chile and the UK signed a bilateral Association Agreement, which is not yet in force, and which incorporates the provisions of the Free Trade Agreement with the European Union. After Brexit this will maintain the status quo in trade and services between both countries.
Fronting is not prohibited and there is no limitation whatsoever to this kind of insurance structure. It is common for the local cedent to retain part of the risk in order to ensure its interest in the proper placing of the business and in the adjustment of any potential loss. In very large risks, insureds will usually choose large and international insurance companies.
Any change equal or larger than 10% of the company’s shares shall be informed to the insurance regulator. Information shall include evidence that the new shareholder has an equity equivalent to the projected acquisition (investment), and that it has not committed acts that, due to their gravity and frequency, may endanger the insureds.
Despite the country being rather small, over the last years foreign insurers (particularly from Spain, Germany and the USA) have formed or acquired local insurance companies and brokers.
Distribution of insurance products is mainly carried out through insurance brokers for all kinds of risks. However, during the last decade, big retail companies have set up insurance broker subsidiaries. These brokers use the retailer’s distribution channels and its data base to commercialise motor vehicle and home insurance products.
Banks cannot commercialise or take direct part in insurance activity. Several Banks’ controllers have formed an insurance company; others have set up brokerage companies, either directly or in a joint venture with established brokers. These companies related to banks are very active in the commercialisation of international trade insurance as well as property insurances, particularly those related to mortgages.
Regarding reinsurance, it is mainly done through local or foreign reinsurance brokers, which shall be registered before the regulator in order to intermediate reinsurance of risks originated in Chile. Local insurers cannot take out reinsurance through a reinsurance broker who is not registered before the Chilean regulator.
The insured has the obligation to “honestly answer all the queries asked by the insurer to identify and perceive the nature of the risks”. Material errors, misrepresentation or inaccuracies may enable the insurer to rescind the contract of insurance or propose amendments to the insurance premium or the cover terms.
If a query is made, and the insured’s response incurred in material errors, misrepresentation or inaccuracies, the insurer is entitled to rescind the contract of insurance. If the errors, misrepresentations or inaccuracies are not material, the insurer may propose to amend the contract, either to modify the insurance premium or the cover terms. If the insured does not accept or respond within ten days, the insurer may rescind the contract. In such a case, the insurance terminates 30 days after the insurer’s communication.
If a loss has taken place, the insured is relieved from indemnifying the loss if it has been caused by a risk that could have grounded the rescission of the contract, as indicated in the above paragraph. Otherwise, if the error, misrepresentation or inaccuracy has not been material, the insurer is entitled to reduce the indemnity in the same rate as the higher premium they would have charged if the risk had not had an error, misrepresentation or inaccuracy.
The insurance intermediary shall act on behalf of an insured that is looking for insurance coverage. The intermediary shall assist the prospective insured by offering what is most convenient to their needs, informing about insurance terms and conditions, and assisting them during the period in which the insurance contract is in force, particularly in respect of any endorsement and in the event of a loss.
Insurance intermediaries shall be approved by the insurance regulator and be registered as such. For this, they have to pass a proficiency exam, not have any inability established by insurance law and regulation, and present a bank guarantee or a policy of professional indemnity to the regulator. There are also conflicts: insurers’ or reinsurers’ directors or administrators, or employees of a loss adjustor, cannot be intermediaries.
Insurance is a consensual contract; its existence shall be evidenced by any means of proof as long as there exists some documentary proof including transmission by any means or records either electronically, physically, digitally or otherwise. The insurer shall issue and deliver the insurance policy within five days after the conclusion of the contract.
The basic elements of the contract of insurance are the risk insured, the premium and the conditional obligation to indemnify. The absence of any of those elements renders the contract absolutely null. Insurable interest is required in order to claim an insurance indemnity, but it is not a requirement for the validity of the insurance contract.
There are rules regarding collective insurance which apply to insurance companies, brokers and other commercialisation channels, including banks, in respect of insurances associated to loans secured with mortgages. Policies shall establish the duty of informing policyholders about the terms of the insurance such as basic information regarding the insured, and coverage and its amendments.
In respect of insurances associated to mortgages, special norms shall apply when the credit institution contracts a collective insurance and the real estate is used for housing purposes or to render professional services. In those cases, there shall be a public bidding and the basis and minimum conditions shall be informed to the regulator and to the insured debtors. The regulations establish the minimum coverage conditions. However, the debtor has the right to contract, at any moment, an individual insurance. In those cases, the coverage terms and conditions shall be similar to those of the collective insurance.
The intermediary of collective insurance has a duty to provide assistance to policyholders.
Norms pertaining to regulated insurance contracts and collective insurance are applicable. These are mandatory provisions that cannot be derogated by the parties’ consent, and provide a minimum standard that protects policyholders and beneficiaries. Any stipulation that breaches such standards is null and void. However, any stipulation that favours the policyholder above the minimum standards is valid and enforceable. Insurers and brokers may only offer and commercialise policy forms that have been deposited in a Registry of Policies kept by the regulator. The regulator may eliminate from said Registry any policy form that does not comply with the minimum standards established in the law and regulations, or which contains ambiguous or unclear clauses.
Also, there is a Consumer Protection Law enacted in 2004 to protect collective insurance and diffuse interest of consumers, although, its applicability to insurance policies has been disputed, since it is a matter that is highly regulated by special norms.
In respect of reinsurance, there is also ample freedom of contract, but the insurer cannot delay payment of the insurance indemnity on any grounds relating to reinsurance.
With the exception of extended warranty offered by retailers beyond the legal product warranty and returns established in the Consumers’ Law, ART transactions are quite uncommon. They are neither regulated nor recognised as insurance or reinsurance.
As Chile is a country that is prone to natural catastrophes, international intermediaries usually refer to the convenience of the government considering CAT bonds.
ART transactions are not treated as reinsurance contracts in Chile. For solvency purposes and establishing technical reserves of local insurers, only reinsurance with reinsurers that have two risk ratings BBB or higher, is accepted.
In regulated insurance, only policy forms that have been deposited with the regulator can be commercialised. It is the insurer’s obligation to ensure that the policy terms are clear. In the event of any ambiguity or any doubt regarding the sense of a provision in the model for general conditions of the policy or clause, then the most favourable interpretation for the insured shall prevail.
In respect of non-regulated insurance, there is freedom of contract and the general rules of interpretation of the Civil Code shall apply. Under the general rules of interpretation of the Civil Code, the parties’ intention shall always prevail, but this has to be clear from related antecedents. If the insurance contract is ambiguous and cannot be clarified with antecedents prior to the contract, or by the application that has been made by the parties, then the following principles shall apply: the interpretation that can produce an effect is preferred over an interpretation that does not produce any effect and the contract has to be examined as a whole, and harmony shall exist between its provisions; particular clauses take precedence over general clauses. If these rules do not enable the contract to be interpreted, then it shall be interpreted contra proferentem.
The amendment of the Code of Commerce in 2013 incorporated the term “warranty”, allowing the parties to establish a warranty in the contract of insurance as a requisite in order to circumscribe or diminish the risk, a condition that shall be complied with for the payment of the insurance indemnity. Its mere infringement releases the insurer from its obligation to indemnify a loss.
The concept of condition precedent is not regulated under Chilean law. Aside from the warranties, the parties may stipulate other kinds of conditions in accordance with the general norms of the Civil Code. The condition shall then be complied with in order to claim the insurance indemnity. However, the breach of a condition does not release the insurer party from its duties, unless the breach has been material in causing damages or prejudices.
The rule is that all insurance disputes are subject to arbitration, unless the insured decides to litigate before ordinary courts in cases involving less than 10,000 UF (approximately USD 340,000).
In regulated insurance, mandatory provisions subject the contracts to Chilean law and jurisdiction. In respect of large risk insurance, the parties are subject to Chilean jurisdiction, but are free to submit the contract to a foreign law.
Chile is a party to the International Private Law Code which has been signed and ratified by most countries in the American hemisphere.
Proceedings before ordinary courts are regulated by the Code of Civil Procedure, which establishes a stage of discussion (claim, response, replication and rejoinder). Thereafter, if the court considers that discrepancy exists in respect of the facts, it opens a period during which the parties may present evidence regarding the corresponding list of issues fixed by the Court, including witnesses, experts, etc. Once this period is over, the parties may present their closing arguments with observations in respect of the evidence presented. The final decision of the court may be appealed, and against the decision of the court of appeal, the parties may file a cassation remedy to be heard by the Supreme Court.
If the controversy is to be resolved by an arbitrator, once the loss takes place and if the parties do not agree on the name of the arbitrator, they shall be appointed by Ordinary Courts. The arbitrator may be in law or in equity.
Courts intervene if the parties have not renounced their right to appeal before the Appellate Courts, and in such cases, they may revoke the arbitral decision if it does not conform to the law. In equity arbitration, the judgement cannot be appealed unless the parties have expressly reserved their right to appeal.
If the parties have renounced to appeal in arbitrations in law, or have not reserved their right to appeal in arbitrations in equity, higher ordinary courts can only intervene if there has been a grave fault or abuse of powers by the arbitrator. They can also nullify a sentence in the event of lack of competence or ultra petita (ie, the arbitrator grants more than what has been claimed).
The length of litigation proceedings will vary depending on the specific court, the complexity of the matter, and the incidental or preliminary issues that the parties may raise. The range could be between one and three years (but could be even more). Arbitration proceedings usually take less time. An appeal can take one more year.
The enforcement of a foreign judgment requires special judicial authorisation called exequatur, which has to be granted by the Supreme Court. For that, the judgment has to meet certain minimum conditions required by Chilean law.
The procedure for obtaining the exequatur of a foreign judgment is regulated by the Code of Civil Procedure and the Private International Law Code. Additionally, relevant are Law No 19.971 of 2004, on International Commercial Arbitration (based on the UNCITRAL Model of Arbitration Law), and the New York Convention, on the Recognition and Enforcement of Foreign Arbitral Awards of 1958.
Arbitration clauses in commercial insurance and reinsurance contracts can be enforced in Chile with some exceptions, such as those mentioned in 9.1 Disputes Over Coverage.
To enforce a foreign judicial decision, the first step is to determine whether or not there is an international treaty for the enforcement of a judicial decision issued in the country which is a party to the treaty. In the absence of a treaty which regulates this matter, under the Code of Civil Procedure, for the enforcement of the foreign judgment it will be necessary to review whether, in accordance with the actual practice between both states, there has been a “positive reciprocity”, ie, the State where the judicial decision was issued, enforces Chilean decisions. In such a case, the decisions issued by Courts in that State will have the same value in Chile as a local judicial decision.
In the absence of practice which could demonstrate reciprocity, the principle of international regularity of rulings applies: the validity and enforceability of the foreign judgment is subject to compliance of the minimum standards laid down in Article 245 of the Code of Civil Procedure. Under this provision, if there is no treaty regarding the execution of the judgment, nor practice to reflect positive reciprocity, the decision of a foreign court will have the same force as if it would have been handed down by a Chilean court, provided that:
The Supreme Court of Chile has consistently decided that, not only judgment of foreign ordinary tribunals can be recognised through the exequatur procedure, but also arbitral decisions. The Supreme Court has also made explicit the applicability of the New York Convention on the Recognition and Enforcement of Arbitral Awards of 1958. Furthermore, Law No 19.971 of 2004, on International Commercial Arbitration, establishes that “an arbitral decision, regardless of the country in which it was awarded, will be recognised as binding and upon submission of a written petition to the competent court”.
Thus, the Supreme Court is clearly empowered to examine the fulfilment of the requirements laid down in Chilean law for the recognition and enforcement of foreign arbitral awards in Chile, pursuant to the above-mentioned Law No 19.971 on International Commercial Arbitration, to the rules of the Convention on Recognition and Enforcement of Foreign Arbitral Awards of 1958 and Articles 242 to 251 of the Code of Civil Procedure.
Mediation is not mandatory and courts cannot order the parties to mediate a dispute. However, the parties can agree to submit the matter to mediation as a condition prior to arbitration.
In Chile, there are no penalties or punitive damages.
Insurtech is underdeveloped in Chile. In Chile today, few products may correspond to insurtech. One is “Connected Insurance” for motor vehicle insurance, which is offered by a retailer’s broker. It offers the insured the possibility of reducing the premium pursuant to the behaviour of the driver on a daily basis. The company uses a personalised app which provides information regarding speed limits, intensity of acceleration or brake usage, anticipation on the driving and the driver’s reactions, and consistency in the usage of the vehicle (routes, time frames and daily distance).
On-line sales by insurance companies or brokers is common; these are effected through specially designed websites, giving potential insureds easy access to different insurance products, as well as comparative options between the insurers.
Electronic Signature is recognised under Chilean legislation and has the same value as a physical signature.
More companies have been set up which offer the insurance market technological solutions for the development of digital products and distribution of insurance, claims management, and loss adjustments.
There is no regulation that may constitute an obstacle to the development of Insurtech and the regulator is prone to accept the use of new technology as long as it does not breach existing regulations. It has issued some rules to accommodate new technological developments, for instance, regarding electronic insurance intermediation.
There are emerging risks that affect Chile, risks that are being considered by the insurers, the regulator and the market in general.
An important issue which continues to be publicly debated and may affect the life insurance market, is the increasing longevity of persons. The update of mortality tables has diminished the pensions in anticipation of the extension of life expectations. The Association of Insurers has indicated that insurers may take an active role in covering some risks associated to longevity, and have expressly proposed the development of an insurance product for pension gaps. A draft law which is being discussed, considers a “Longevity Insurance Cover” to be financed by additional contributions by Employers to benefit retired persons after they reach a certain age.
Another emerging risk is the vulnerability of markets, and personal information controlled by companies has presented itself as a new risk, especially considering attacks on a local and global scale.
Insurers are developing, adapting and offering new policies that provide coverage of cyber risks, including cyberattacks, data loss, extortion and threats to information.
Reinsurance is acquiring more relevance for the regulator, who has issued some norms applicable to cedents concerning policies and programs on reinsurance management, and which includes information to the regulator on an annual basis regarding their reinsurance programs.
Over the last years, the regulator has gradually been imposing principles of supervisions based on the guidelines of the International Association of Insurance Regulators. Aside from these regulations, there is a draft law currently in the Senate establishing Risk Based Supervision.