In Portugal, the main sources of insurance and reinsurance law are the following.
The above-mentioned diplomas are supplemented by other laws or decree-laws with a specific scope (eg, aiming to regulate a specific type of insurance or distribution channel) or with a general scope – such as the Standard Contractual Clauses Law (the “Standard Clauses Law”), approved by Decree-Law No 446/85, dated 25 October 1985, and the Consumer Protection Law, approved by Law No 24/96, dated 31 July 1996 – and are also supplemented by several regulations and circular letters issued by the Regulatory Authority.
Portuguese jurisdiction is based on a civil law system, meaning that legal rules are codified under a set of legal statutes created by the legislature, rather than being based on judicial decisions, as happens in a common law system. Court decisions are only relevant for the purposes of interpretation; they are not legally binding.
The competent authority for the prudential and regulatory supervision of insurance and reinsurance business, insurance distribution and pension funds is Autoridade de Supervisão de Seguros e Fundos de Pensões (ASF). The ASF’s mission is to ensure the proper functioning of the insurance and pension funds market by promoting the stability and financial soundness of the entities under its supervision. It is also the ASF’s role to ensure high standards of conduct on the part of all the supervised entities aiming to protect policyholders, insureds, subscribers, beneficiaries and any interested parties.
Besides supervision of regulated entities, the ASF’s duties include taking part in the macro-prudential oversight of the financial system and in the European System of Financial Supervisors, providing technical support to Parliament and the government in matters related to the activities under its supervision and promoting financial literacy in the sector.
The ASF’s powers are set out in the following main rules:
In accordance with the Insurance Law, insurance and reinsurance business in Portugal can only be carried out by the following entities:
General Requirements Applicable to Portuguese-Based Insurers and Reinsurers
Insurers must have, as their exclusive corporate purpose, insurance activity and operations arising directly therefrom, excluding any other commercial business. The taking-up of direct insurance business is subject to prior authorisation from the ASF, which is granted for a particular class of insurance, covering the entire class, unless the applicant wishes to cover only some of the risks pertaining to that class.
Portuguese law does not allow companies to pursue activity simultaneously in life insurance and non-life insurance, with one exception: the authorisation for life insurance may comprise accidents and sickness (classes of non-life insurance). Other than that, authorisation cannot simultaneously encompass life and non-life insurance.
The minimum share capital is as follows:
Reinsurers must have, as their exclusive corporate purpose, reinsurance activity and related operations, including the management of shares held in other companies within the financial sector. The taking-up of reinsurance business is subject to prior authorisation from the ASF, which is granted for non-life reinsurance activity, life reinsurance activity or both.
The minimum share capital is as follows:
Requirements applicable to both insurers and reinsurers
Insurers and reinsurers must be incorporated in the legal form of a public limited company (sociedade anónima) with nominative shares and subject to registration at the Commercial Registry Office, tax authorities and social security. The share capital must be totally subscribed and paid up at the incorporation. The shareholders, members of the board and key-functions staff are subject to fit and proper criteria.
The authorisation granted by the ASF permits insurers and reinsurers to pursue business in Portugal, also covering the right of establishment and the freedom to provide services in other EU member states – provided the notification procedure between supervisors is duly complied with.
The ASF must grant authorisation within six months of receiving the application or, where applicable, after receiving any additional information from the applicant – but never after 12 months from the date the application was initially filed. The authorisation will expire in the event the undertaking is not incorporated within six months or does not start its activity within 12 months from the date the authorisation was granted.
Consumer Insurance, SME Insurance and Corporate Insurance
Large risk versus mass risk
The Portuguese insurance legal framework is based on two main concepts: mass risk insurance and large risk insurance. The distinction between these two types of insurance arises from the Insurance Law.
Large-risk insurance comprises the following risks:
Mass risk insurance encompasses all insurances that do not fall under the scope of large-risk insurance.
Consumers versus professionals
The Ins Contract Law does not provide for an autonomous category or definition of “consumer insurance”. It bases the protection of consumers on the imposition of stricter rules with regard to mass risk insurance.
As a rule, insurance contracts are governed under contractual freedom. However, mass risk insurance is subject to several limitations that aim to protect the consumer, who – depending on the circumstances – may act in the capacity of policyholder, insured or beneficiary.
In this regard, the Ins Contract Law establishes that certain rules are mandatory as regards mass risk insurance. Said rules are divided into:
The Ins Contract Law settles that the following risks cannot be guaranteed under Portuguese law:
Portuguese law subjects the premiums of insurance contracts covering risks situated in Portuguese territory (or regarding which Portugal is the member state of the commitment) to the indirect taxes and parafiscal charges foreseen in Portuguese law, regardless of the law applicable to the contract.
Personal income tax (PIT)
Income corresponding to the positive difference between the amounts paid as redemption of a life insurance contract and the premiums paid is subject to PIT as investment income, according to the following rules.
Taxable income is subject to a 28% final rate. The policyholder may benefit from reduced taxation provided the deadlines in the last of the two above-mentioned scenarios are met (22.4% and 11.2%, respectively).
Premiums received by Portuguese-based insurers are deemed as taxable income and are subject to corporate income tax (CIT) general rules at rates of up to 31.5%. Additionally, tax on insurance premiums must be paid at the following rate to the ASF (the “ASF Tax”) by Portuguese-based insurers and overseas-based undertakings acting in Portugal:
An authorisation granted to an insurer or reinsurer to conduct insurance business by a supervisory authority from another EU member state shall be valid in Portugal (an “EU passport”), covering Freedom of Establishment (FoE) (through a branch) or Freedom of Services (FoS), where applicable.
Any insurer that wishes to act in Portugal under FoS or FoE must first notify the supervisory authorities of its home member state about such intention; they will thereafter communicate this information to the ASF. Within two months of receiving the information, the ASF will communicate to the supervisory authorities of the home member state the “general good” provisions that must be complied with when acting in Portugal.
The insurer may start business:
General good provisions
The pursuit of insurance business in Portugal under an EU passport is subject to compliance with several rules considered to be of “general good”, as determined by the ASF, which include (but are not limited to) the following:
Insurances that are compulsory within the Portuguese legal system are additionally subject to the following:
Per type of insurance:
Third Countries’ (Non-EEA) Undertakings
As a rule, the taking-up and pursuit of insurance and reinsurance business in Portugal by an undertaking with a head office established outside the EEA (“non-EEA undertakings”) requires the establishment of a branch and prior authorisation from the ASF. The authorisation will depend on the following conditions being met by the undertaking:
The branch will be authorised to pursue the risk classes and modalities for which the undertaking is authorised in the state where it is established. Life insurance and non-life insurance cannot be pursued simultaneously, unless the undertaking is authorised to such effect and each activity is managed separately.
The application to the ASF must comply with the criteria laid down in the Insurance Law. The undertaking must file a reasoned report as to why it intends to establish a branch in Portugal, including information about its international business, financial statements and accounts regarding the past three tax years, and a certificate from the home country supervisor attesting that the undertaking is duly incorporated and operates in accordance with the applicable law. The ASF may require additional information or ask the applicant to correct any insufficiencies.
The ASF will grant (or decline) authorisation within six months after receiving the application or, where applicable, after receiving any additional information from the applicant – although never more than 12 months after the date the application was initially filed. The lack of notification from the ASF within the relevant deadlines will be deemed as a tacit denial. The authorisation will expire in the event the branch is not incorporated within six months or does not start its activity within 12 months following the date the authorisation was granted.
Exemption regarding reinsurance
Undertakings from third countries that carry on reinsurance business in Portugal without a branch may benefit from an authorisation exemption, as long as the European Commission decides that the solvency regime in said third country is equivalent to that laid down in the Solvency II Directive.
Insurers with a head office in Switzerland
The establishment of branches of insurers with a head office in Switzerland that intend to pursue non-life insurance business is subject to authorisation from the ASF and compliance with a special regime under the Insurance Law.
Insurers based in the UK stopped benefiting from the EU passport from 31 December 2020 and became third-country undertakings. In order to be able to take up and pursue business in Portugal, they are required to establish a branch therein, in accordance with the requirements laid down in the Insurance Law.
Nonetheless, policies (covering risks situated in Portugal or regarding which Portugal is the member state of the commitment) that were concluded with a UK-based undertaking under a licence to conduct insurance business in Portugal before the end of the transitional period provided for in the Brexit Agreement remain valid until the policy’s termination date, without prejudice to early termination under general terms. Undertakings must report annually to the ASF by email ‒ up to 31 March ‒ updated information on said policies until run-off, in accordance with the template provided under Decree-Law No 106/2020, dated 23 December 2020.
Fronting is permitted. Portuguese law does not stipulate many rules regarding reinsurance, leaving the contents of the reinsurance agreement and the portion/identification of the risks that are transferred to the reinsurer at the parties’ will, depending on the specific arrangements between them. For all matters not specifically stated under the reinsurance agreement, the Ins Contract Law will subsidiarily apply in so far as it does not conflict with any agreed arrangements.
The reinsurance agreement should be formalised by means of a written document between and signed by the parties. Unless otherwise stated, the reinsurer does not have any relationship with customers.
The merger of insurers or reinsurers may be authorised by the ASF, provided that the conditions applicable to the taking-up and pursuit of the business under the Insurance Law continue to be fulfilled. Several of the provisions regarding incorporation of insurers or reinsurers apply.
Any person who intends either to acquire, directly or indirectly, a qualifying holding in an insurer or reinsurer or to further increase such qualifying holding ‒ as a result of which the proportion of the voting rights or of the capital held will reach or exceed the thresholds of 20%, one-third or 50%, or the company concerned becomes its subsidiary ‒ must notify the ASF of said acquisition project in advance. Notification also applies when the qualifying holding is below the mentioned thresholds but the acquisition is likely to enable the acquirer to exercise a significant influence over the management of the company. The ASF may decide to oppose the acquisition project if the acquirer fails to guarantee sound and prudent management of the company.
The reduction/disposal of a qualifying holding of a stake to below the above-mentioned thresholds is likewise subject to prior notification to the ASF.
The Insurance Law does not impose limitations regarding foreign ownership/investment, provided there is compliance with the provisions laid down therein.
The Insurance Distribution Directive (IDD) was transposed into the Portuguese legal order by the Ins Distribution Law without substantial divergences.
Pursuing insurance distribution business is subject to prior authorisation from the ASF, except for activities that are carried out under an exemption.
The Ins Distribution Law provides for the following types of insurance intermediaries:
The requirements applicable to insurance intermediaries can be summarised as follows.
Ancillary insurance intermediaries
The requirements applicable to AII are:
The requirements applicable to agents are:
The requirements applicable to brokers are:
Banks are not subject to a special framework, apart from the fact they cannot be registered as AII, further to the IDD. Banks are usually registered as agents. The bancassurance channel has significant weight in the Portuguese market.
Any EU-based insurance intermediary that wishes to act in Portugal under FoS or FoE must firstly notify the supervisory authorities of its home member state of its intention. These authorities will then communicate this information to the ASF.
The ASF will communicate to the supervisory authorities of the home member state the general good provisions to be complied with when acting in Portugal. Alternatively, the ASF will direct said authorities to the hyperlink where said information is available.
The intermediary may start business:
General good provisions
The pursuit of insurance distribution activities in Portugal under an EU passport is subject to compliance with several rules considered of general good, as determined by the ASF and disclosed on its website.
The Ins Contract Law has adopted a system based on the policyholder/insured’s risk disclosure statements. The policyholder and/or insured must disclose accurately, before the conclusion of any policy, all the facts that they are aware of and that are likely to have an impact on the risk assessment by the insurer (risk disclosure obligation). Said obligation will apply regardless of whether or not the insurer asks them to fill in a questionnaire in which such circumstances are specifically addressed. This obligation remains applicable throughout the life of the policy.
This system implies an effort from the policyholder/insured to recall all circumstances that may affect the risk (facts that a normal person would reasonably consider relevant to the risk assessment).
In turn, the Ins Contract Law sets out some limits to this risk disclosure obligation. Firstly, it states that insurers must explain to policyholders/insureds the scope and consequences of such obligation before the conclusion of the policy, as the insurer may be liable for the damage arising from the breach of this duty otherwise. Notwithstanding the risk disclosure obligation from the policyholder/insured, the insurer must proactively seek relevant information that will allow it to carry out a proper risk assessment.
In addition, if the insurer asks the client to fill in a questionnaire, the insurer should:
Unless there is wilful deception by the policyholder/insured, if the insurer accepts to underwrite the risk based on the statements provided by the policyholder/insured, the insurer cannot rely on incomplete or inaccurate answers, inconsistencies or other circumstances known to the insurer to refuse the risk.
Consumers Versus Professionals
As a rule, the risk disclosure obligation applies to any policyholder/insured, regardless of its acting capacity.
The Ins Contract Law provides for different solutions depending on the nature of the breach to comply with the risk disclosure statement.
In the case of an intentional breach, the insurer may terminate the policy in a communication to the policyholder. If no claim has occurred, the communication must be sent within three months of the date on which the insurer became aware of the breach. The insurer is entitled to premiums:
In the case of a negligent breach, the insurer may ‒ in communication with the policyholder ‒ within three months of when the insurer became aware:
The policy will terminate within 30 days of the insurer’s notice or, if the insured fails to respond to the amendment proposed by the insurer, within 20 days. Premiums will be returned on a pro rata temporis basis.
In the event the insurer fails to provide the policyholder/insured with:
Ancillary insurance intermediaries and agents act on behalf of and for the account of insurers (or other insurance intermediaries), whereas brokers act independently of the insurers and in representation of their clients.
Nevertheless, although the provision of advice (personalised recommendations) is not mandatory under the Ins Distribution Law, all intermediaries must act in accordance with the customers’ best interests, providing information about the insurance contract that best suits each customer’s needs and also about their rights and obligations arising from the conclusion of insurance policies. Intermediaries must also explain to customers the reasons why they are providing information or advising a given product (except when it comes to large risks).
Besides the foregoing, brokers are additionally subject to portfolio diversification rules and impartiality when suggesting a given product to the customer, basing their activity on the analysis of a sufficiently large number of diversified contracts available on the market.
The Ins Contract Law does not provide for a definition of insurance contract but establishes its main features.
By means of an insurance contract:
Except in those cases legally provided for, the coverage of risks depends on prior payment of the insurance premium (no premium, no risk).
The insured must have an insurable interest worthy of legal protection related to the risk that is being covered throughout the life of the contract, under penalty of the contract being null and void or terminated ex lege. The contents of the insurable interest will depend on the type of insurance. The following general rules apply:
In terms of format, the Ins Contract Law states that the validity of a contract is not subject to any special format. However, regarding mass risk insurance, the insurer must write down the policy, date it and sign it. As a rule, the policyholder’s signature is not legally required.
Portuguese law allows some flexibility when it comes to life insurance, as follows:
The insurance policy must contain enough information to allow the identification of the beneficiary (name, address and civil and tax identification numbers) when referring to a “named beneficiary”. The law also allows unnamed beneficiaries such as the “heirs of” or “the children of”. In the event the policyholder and the insured are not the same person, the insurer must provide information on the consequences arising from the lack of beneficiary designation or inaccurate/insufficient information regarding the beneficiary’s identification.
Moreover, the following rules apply to insurers.
Mass risk insurances are subject to stricter rules aiming to protect consumers. The Ins Contract Law lists several rules considered mandatory with regard to mass risk insurances, classified into:
Reinsurance contracts are, in general, governed by contractual freedom. Portuguese law establishes few rules regarding reinsurance (see 3.2 Fronting).
Insurers may take into consideration ART transactions for the purposes of risk mitigation within their risk-management and internal control systems.
Should the insurer decide to use ART transactions, it must have a written policy in place, comprising processes necessary to identify, monitor and manage on a continuous basis the use of alternative-risk mitigation techniques in accordance with the ASF’s guidelines on this matter.
Entities that have as a specific purpose the securitisation of insurance risks may pursue business in Portugal subject to the ASF’s authorisation, under the conditions laid down in the European Commission’s applicable delegated act.
The main principle of the Ins Contract Law is the “freedom of contract”, in the sense that the parties are free to agree and determine the terms and clauses of the insurance contract. This is also the main principle of the Portuguese Civil Code (CC) and it applies to other contracts.
The interpretation of insurance contracts is also done in accordance with the rules of the CC. These determine that contracts must be read and interpreted from the perspective of the “average person” – ie, a person with no specific or specialised knowledge of the matters of the contract – when/if placed in the position of each of the parties to the insurance contract.
However, different rules apply to Standard Form Contracts (SFCs), which are insurance contracts with consumers in which the policyholder has no negotiation power over the terms of the contract. In this case, the Standard Clauses Law specifically determines that the clauses of an SFC will be interpreted in accordance with general civil rules, while always taking into consideration the context in which the contract was construed, accepted by the parties, and signed.
Mandatory pre-contractual information provided by the insurer, explaining the main rules of the insurance contract, is also relevant. When fully disclosed, pre-contractual information is extremely relevant in the interpretation of insurance contracts.
It is not common in Portugal to include representations and warranties clauses in insurance contracts in the same terms as such clauses are included in other types of contracts. There are, however, some standard clauses included in the general terms of insurance contracts that are very similar to warranties ‒ mostly referring to the risk disclosure statement provided by the policyholder to the insurer before the insurance policy is signed. In addition, and following the general rule concerning the “freedom of contract”, the parties are free to include representations and warranties in an insurance contract if they wish ‒ given that there is no legal limitation.
Breach of warranties is considered a breach of contract but has a specific regime regarding non-disclosure by the policyholder. For further detail, please refer to 6.2 Failure to Comply With Obligations of an Insurance Contract.
All terms and conditions that may result in an exemption or reduction of the insurer’s liability must be included in the pre-contractual information and in the general terms of the insurance contract.
As a rule, there are at least two types of conditions precedent in most insurance contracts. These are, in fact, a result of the law ‒ specifically, the Ins Contract Law ‒ and may result in the exemption or reduction of the insurer’s liability. The two types of conditions precedent are:
If a policyholder, an insured person, or a beneficiary disagrees with the decision of an insurer regarding the terms and amplitude of the coverage of the insurance contract, the first step is to present a complaint to the insurer and request an evaluation of the situation.
If the insurer maintains its terms, the policyholder, insured person, or beneficiary can choose between:
The limitation period in which to start a court procedure with regard to an insurance claim depends on the subject of the dispute, as follows:
The same rule applies to unnamed beneficiaries in life insurance contracts once it becomes possible to identify them and they become aware of their rights.
In Portuguese law, the general rule is that, where the policyholder in a life insurance contract does not name a beneficiary, the insured capital will revert to the insured person’s legal heirs (as determined by the CC). Once the heirs are identified and confirmed, they each become the legal and contractual beneficiaries of the insurance policy and entitled to all the rights and obligations of “named beneficiaries”.
The Ins Contract Law determines that the parties to an insurance contract are free to choose the law that will govern the contract if:
The parties are also free to choose the jurisdiction in which to solve disputes concerning an insurance contract. The exception is insurance contracts with consumers ‒ in which case, the general rule of Civil Procedure Code will apply.
If at least one of the parties does not reside in Portugal, or the risk to be covered is not located in Portugal, the choice of law and jurisdiction will be made in accordance with Private International Rules and EU Regulations. If the insurer and the policyholder reside or have their head office in a member state of the EU, the governing law of an insurance contract will be determined in accordance with the provisions set out in Regulation (EC) No 593/2008 of 17 June 2008 (Rome I). This regulation determines that the parties may freely choose the law applicable to their insurance contracts, provided that the choice is made based on the serious interest of the parties and is connected to any element of the insurance contracts that is acceptable under private law (eg, residence, nationality of the parties).
International disputes over jurisdiction are solved in accordance with the rules set out in:
The litigation process for the resolution of any disputes arising from an insurance contract follows standard proceedings, as follows.
The enforcement of judgments issued by a court of law in disputes concerning the execution and/or interpretation of an insurance contract is made in accordance with the same rules as the enforcement of other judgments in civil disputes.
Foreign judgments can also be subject to enforcement as long as the court where the procedure took place respects the basic rules and principles of the Portuguese Constitution ‒ not only in terms of the procedure but also the judgment itself and the laws applied.
Judgments issued by courts of law in the EU are ruled by Regulation 1215/2012 of 12/12/2012, which determines that a judgment issued by the court of an EU member state is enforceable in another EU member state without any enforceability process being required.
Judgments issued by the courts of law of non-EU countries are enforceable once confirmed by a Portuguese High Court. The process is simple.
The person must file a request in the Portuguese High Court of law to request the review and confirmation of the foreign judgment by presenting a certified copy of it. The opposing party in the procedure will receive notice from the court informing of the request and granting a deadline for opposing the recognition or presenting a response.
If the judgment is clear, all formal requirements have been met, there is no violation of the Portuguese Constitution and elementary personal civil rights, and none of the parties oppose its recognition and execution, the court will issue the judgment with the requested confirmation and acceptance by Portuguese Courts of Law. After that, the judgement is ready to be enforced through the enforcement procedure in accordance with CPC.
Arbitration clauses are admissible in insurance contracts and they are enforceable. There is an arbitration centre specialised in the resolution of disputes concerning insurance contracts (Centro de Informação, Mediação, Provedoria e Arbitragem de Seguros, or CIMPAS). Nevertheless, in Standard Form Contracts signed with consumers, arbitration cannot be imposed on consumers as the only resource for dispute resolution ‒ especially if it refers to ad hoc arbitration, which may represent a higher cost for the consumer and therefore may be more difficult to reach.
Arbitration awards can be enforced, but only via the courts of law. The CPC determines that an arbitration award has the same value as a court-of-law judgment and there are no special proceedings to be followed prior to the enforcement procedure.
Arbitration awards made in other jurisdictions can also be enforced by Portuguese courts if certain requirements are fulfilled, but these must be subject to the process of revision and recognition (see 9.4 The Enforcement of Judgments). Portugal is a party to several bilateral treaties and conventions ‒ namely, with Portuguese-speaking countries and the Macau Special Administrative Region of the People’s Republic of China (due to the historic special connection). Portugal is also a party to:
Alternative Dispute Resolution (ADR) can be very effective in the resolution of insurance disputes ‒ especially when it comes to consumer contracts, as they allow the consumer to have a solution sooner than in a court of law, with lower costs. In Portugal, insurance disputes can be solved through:
If an insurer delays in responding to a claim, or makes late payment of a claim, the insurer must cover any damages caused to the insured and/or the beneficiary because of such delay. Interests are also due in the case of late payment of a claim, at the rate in force at the time of payment.
When an insurer pays a claim in the name and on behalf of the insured, they become subrogated in the rights of the person to whom the payment was made ‒ namely, the right to file a claim against the insured or a third person (except in respect of life insurance, personal accident insurance, health insurance and other personal insurance).
Insurtech plays an important role in the insurance sector. Several insurers have been establishing partnerships with technology companies aiming to improve their processes and business models and become more competitive.
Telematics insurance is increasingly gaining importance. Telematics is used to collect information about the insured’s habits. It allows insurers to better identify behaviours that might be relevant in case of a claim. In return, the policyholder/insured is offered rewards or cost savings on their policy for “good behaviour”. Whether by means of telematics devices or mobile apps, where the policyholder/insured provides personal information to the insurer about preferences or habits, telematics insurances are getting stronger ‒ specifically, in car and health insurances. Telematics insurances enable insurers to offer lower prices and tailor-made products.
Insurers are also resorting to AI to automate several operations and administrative tasks ‒ namely, in underwriting, pricing and claims functions. This speeds up operations, reduces costs and offers new value products.
Since 2018, the innovation hut “Portugal Finlab – where regulation meets innovation” has been an important booster in what comes to tech-based start-ups. This is a communication channel between innovators – whether new players in the market or incumbent institutions with innovative tech-based financial projects or products – and the Portuguese regulatory authorities (the ASF, the Bank of Portugal, and the Securities Commission). Its purpose is to support the development of innovative solutions in fintech and insurtech and to provide guidance to innovators on how to operate in the regulatory system.
The ASF is very active when it comes to insurtech issues, being aware of the market trends and participating in several insurtech initiatives and events. In terms of regulatory response, in 2020, the ASF issued a rule establishing requirements on security and governance of information and communication technologies and on outsourcing to cloud service providers.
In Portugal, the emerging risks that presently affect the insurance market are as follows.
Although cyber-risks were already on the insurance sector’s agenda, the COVID-19 pandemic accelerated insurance offers in terms of cyber-risks. The high connectivity of companies and populations across generations ‒ combined with working remotely (people connecting to their company from outside) ‒ increased the risk of cyber-attacks, which could potentially lead to more data theft or blocking. Insurers have adapted their offers and have been presenting a wider choice to companies. However, the sector still faces some difficulties in terms of what falls within the scope of insurance cover, as new forms of attack keep emerging over time. The market for cyber-insurance is expanding but is still relatively small in Portugal.
In terms of regulatory response, in July 2023 the ASF created a new systematic reporting obligation regarding cyber-risks and cyber-incidents aimed at collecting data for the purposes of creating a historical aggregated record and for assessing the impact of cyber-risks within the scope of insurance activity.
Catastrophes and Climate Change
Statistics show that the number and severity of natural catastrophes have been increasing throughout the years. One of the concerns of the insurance sector relates to reducing the “protection gap”, which results from the difference between the economic losses arising from natural catastrophes and the compensation paid by the insurer under the insurance policies in force. To reduce this gap, the industry has been collaborating with several public entities in order to increase the offer of insurance products with a sustainability-related profile and to make this type of insurance more competitive and available to a wider part of the market.
Demographic Ageing and Social and Health Care
These themes raise some concerns in terms of risk mutualisation. They are not a new topic and the sector is already aware that the offer of products will have to be adapted so as to gradually become an effective alternative to the public social protection system – while still maintaining affordable pricing – for several population sectors, age groups and layers that typically do not buy insurance.
See 11.1 Emerging Risks Affecting the Insurance Market.
The ASF has been devoting special attention to health insurance – a sector that has strong growth potential, given the difficulties of the national health service ‒ and aims to strengthen consumer protection. There is currently no specific regime for health insurance.
In this context, the ASF defined a programme of work aimed at improving the supervision and regulation of health insurance through a series of initiatives. The first of these initiatives was the launch of surveys addressed to insurance professionals, health professionals and consumers in general ‒ the purpose of which was to gather information regarding this type of insurance and provide a regulatory framework for future challenges. After that, the ASF launched a public consultation on the market, with the aim of putting into perspective possible initiatives to be developed in the area of regulation and supervision of health insurance.
More recently, in November 2023, the ASF announced its intention to establish a standard health insurance product. A legislative initiative is underway to create a standard health insurance product with a minimum content that includes (among other covers) check-ups, hospitalisation and outpatient care.
In terms of other regulatory developments in 2023, the following is worth highlighting:
The insurance market in Portugal has been confronted with various challenges and changes over the past few years – the causes of which can be divided, very briefly, into:
The response of the Portuguese insurance sector to the above-mentioned events has strengthened its reputation and people are becoming more consciously aware of the importance of private insurance when dealing with the insufficiencies and general lack of response of the public system – notably, when they are exposed to high healthcare costs and long waiting lists.
The pandemic crisis, health service difficulties, the increase in cyber-attacks and data breaches and climate change events have awakened Portuguese consumers to the importance of a series of risks that used to be almost unnoticed, such as the risk of business interruption, cyber-risk and climate risk. On the other hand, a number of other themes have gained increased importance – namely, the level of health protection guarantees and the levels of savings for retirement.
On the regulatory side, 2023 was marked by the introduction of new rules and principles applicable to market conduct, governance, reporting and disclosure duties towards the supervisory authority and clients.
This article will attempt to analyse the current situation in the insurance sector in Portugal, predict the main trends and opportunities in 2024 and provide some guidance for foreign investors, insurers and insurance distributors in terms of the Portuguese legal and regulatory environment.
Overview of the Portuguese Insurance Market
According to the report prepared by the Insurance and Pension Funds Supervisory Authority (Autoridade de Supervisão de Seguros e Fundos de Pensões, or ASF) for the third quarter of 2023, there was a decrease of 5% in the production of direct insurance in Portugal when compared with the same period in 2022. There was a decrease of 20.7% in the life sector and an increase of 10% in the non-life sector. During this same period, the costs with claims increased 12.2% as result of an increase of 12.7% in the life sector and 11.2% in the non-life sector.
The coverage ratios for the Solvency Capital Requirement (SCR) and the Minimum Capital Requirement (MCR) in September 2023 were 204% and 552%, which reflects an increase of 7% and 35% respectively when compared with December 2022.
According to the FY 22 Annual Report prepared by the ASF, 63 insurers were established in Portugal. There were 26 branches from foreign countries (all EU countries) and 540 insurers operating under the “freedom to provide services” regime. As of 31 December 2022, the top three insurers in Portugal take around 55.9% of the market share in premiums and the top ten insurers take around 85.7%.
Although the vast majority of insurance consumers in Portugal still prefer direct interaction with a human in the insurance placement process, generational renewal and ongoing technological evolution indicate a rapid transition to selling insurance through digital solutions. The reduction of around 10% in the number of active insurance intermediaries in Portugal in December 2022 when compared to the same period in the preceding year can be explained by various factors, with the digitalisation of the relationship between insurers and clients being one of the main causes.
The health insurance market in Portugal has been developing since the 1980s. Gross direct written premiums in 2012 were around 524 million euros, rising to 1.1 billion in 2022 – ie, more than doubling in a decade. In the same period, the number of insured people increased by 66.2%, with all authorised insurance companies registering around 3.7 million insured people in 2022.
The accumulated figures for the third quarter of 2023 point to a production of 22.8% of non-life business as a whole in health, which – together with motor insurance – is the most representative business segment in the Portuguese insurance market. This growth in the health sector is associated with the saturation level of the national health system (which is leading people to seek a wider choice of health services), the ageing of society and the growth in health costs, as well as a greater willingness on the part of employers to include this type of product in their employees’ social benefits package.
The ASF has already noted the existence of a protection gap in which people’s health insurance cover does not meet their interests or needs and recently announced that a legislative initiative is underway to introduce a standard health insurance policy covering check-ups, hospitalisations and outpatient care in order to improve the level of consumer comparison of products.
The increase of cyber-risks in Portugal arising from the high connectivity of companies and populations, combined with remote work, have led to a “perfect storm” for cyber-insurance. According to reports made available in the market, the threat of cyber-attacks is considered the main risk for Portuguese companies and the acceleration of companies’ digital transformation is leading to an increase in cyber-attacks and data breaches.
It is now clear that cyber-insurance shifted to a hard market and companies are finding it more difficult to get coverage owing to the significant increase in the frequency and severity of ransomware attacks and cybercrime involving reputed Portuguese companies and State institutions.
The legal obligation to publicise security breaches, the reinforcement of the sanctioning framework, and the new approach of self-accountability for organisations that resulted from the General Data Protection Regulation (GDPR) have placed greater emphasis on the reputational risks that can arise from a cyber-attack and on the importance of properly measuring and hedging this risk.
The major insurance groups are natural targets for cyber-attacks because they possess substantial amounts of confidential policyholder data and the ASF has recently issued specific rules on cybersecurity and outsourcing arrangements with cloud computing service providers. Pursuant to this regulation, the board of directors is responsible for establishing an effective system for managing information and communications technology and security risks as part of the company’s overall risk management system.
Natural catastrophes and the protection gap
Portugal continues to experience heatwaves that cause massive forest fires in the summer period. These are followed by severe flooding due to heavy rain in the autumn and winter.
According to the dashboard on insurance protection gap for natural catastrophes that was recently published by the European Insurance and Occupational Pensions Authority (EIOPA), Portugal has the sixth worst protection gap in Europe. Also, according to the dashboard, the historical protection gap score in Portugal is high as a result of very low levels of insurance penetration across all risks.
Insurance companies are facing increasing pressure to take action to combat climate change. It is inevitable that there will be a considerable increase in the level of investment dedicated to this area, as the ability or inability of the insurance market to respond to this new reality could have a considerable reputational impact.
As detailed in the EIOPA dashboard, earthquake risk could present the main concern in the future. There are possible systemic repercussions for Portugal, due to the potential for devasting events in areas that experience a very high level of vulnerability and exposure with very low insurance penetration levels (notably Lisbon).
Back in October 2023, the Portuguese government finally instructed the ASF to carry out – in co-ordination with the relevant bodies – the necessary work to create a system to cover the risk of seismic phenomena. The work to be carried out by the ASF will comprise (but is not limited to) the preparation of a preliminary draft of a law creating and regulating the system for covering the risk of seismic phenomena and a proposal to extend the system in order to cover risks arising from other natural disasters. The ASF will have to present a preliminary report proposing a model for a seismic risk coverage system by the end of the first quarter of 2024.
The increase in average life expectancy and the fragility of the Portuguese social security system have awakened consumers to possible shortages of resources at the end of their working lives and the need to find complementary solutions for their retirement.
The Portuguese government recently approved the draft law for the Pan-European Personal Pension Product (PEPP), which will be subject to the same rules applied to pension funds. One aspect that was essential for the success of the existing retirement savings plans (PPR) and which remains unanswered in the case of the PEPP is the tax benefits applicable to subscribers.
The potential of complementary retirement and investment products is growing and the insurance industry can play an active role in strengthening complementary savings schemes (in particular, individual savings). The restoration of tax benefits for savings products is a key part of this solution.
Another important issue that is still on the agenda is the possibility of activating an insurance portfolio to cover the so-called operating losses arising from the COVID-19 restrictions and also from the war in Ukraine. These are largely the result of the forced closure of establishments and the lack of raw materials, fossil fuels and other key items. The coverage of operating losses arising from forced business interruption will remain a key issue but there is still no clear response from the insurance market on the solutions that will be available to deal with this risk.
The lack of manpower, the dependence on imports of strategically important raw materials, as well as the shortage of suppliers and customers, has in many cases led to a long interruption or reduction of activity with resulting economic losses. Experience shows that most of the coverage for operating losses that exist in the Portuguese market is not designed for this type of circumstance and that, as a rule, it figures as complementary coverage of indemnity insurance (the so-called all risks). This complementarity means that, as a general rule, cover for business interruption losses can only be activated in the event of interruption or reduction of activity as a result of an insured event linked to the destruction of or physical damage to insured property – ie, damage to a property and/or its contents. This is definitely not the case for business interruption losses resulting from a pandemic.
Relevant Updates for Foreign Investors, Insurers and Distributors
Acquisition of qualified shareholding in a Portuguese insurance undertaking
Although the regime for the acquisition of qualified shareholdings has not been subject to recent changes (the last amendment dates back to 2021), the ongoing process of consolidation of the insurance market justifies a brief reference to the regime in force in Portugal.
Pursuant to law, any natural or legal person who – directly or indirectly – proposes to acquire a qualified shareholding in an insurance undertaking or who proposes to increase its qualified shareholding so that the proportion of its voting rights or share capital would reach or exceed 10% or 20%, one-third or 50%, or so that the undertaking would become their subsidiary should give prior notice to the ASF of the envisaged transaction. The terms and conditions of such notice as well as the list of information and supporting documentation that must be enclosed therewith are duly regulated in the Regulatory Standard No 3/2021–R of 13 April 2021 published by the ASF. This Regulatory Standard further regulates the communication of encumbrances or charges on qualifying holdings in insurance or reinsurance companies.
It is worth mentioning that this Regulatory Standard also aims to harmonise the regulatory framework with the Joint Guidelines of the European Supervisory Authorities – in particular, with regard to:
Market conduct rules applicable to insurers carrying out their business under the freedom to provide services regime
As detailed earlier, the FY 22 Annual Report prepared by the ASF makes reference to 540 insurers operating in the Portuguese market under the freedom to provide services regime. Bearing this in mind, it is important to make a brief reference to the ASF Regulatory Standard No 7/2022-R on market conduct and complaints management. Some provisions of this Regulatory Standard are applicable to insurers carrying out their business in Portugal under the freedom to provide services regime.
It is worth highlighting the obligation to maintain a web page, written in Portuguese, with a specific section – entitled Informações Relevantes para o Cliente (relevant information for the customer) – dedicated to market conduct. The referred information must be presented in a structured manner and include:
The Portuguese legislator gold-plated the Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (the “Insurance Distribution Directive”, or IDD) in certain areas – for example, the qualification requirements and the information duties to be observed by the insurance distributor towards the client, the insurer and the ASF. Nevertheless, Law 7/2019 of 16 January (the “Insurance Distribution Law”) is pretty much in line with the IDD and therefore insurance distributors registered in other EU countries must be generally compliant with Portuguese law when acting in accordance with the IDD and the Commission Delegated Regulation (EU) 2017/2359 of 21 September 2017 supplementing the IDD.
Pursuant to the Insurance Distribution Law, the pre-contractual documents must be drafted in Portuguese. However, a different language may be used if such alteration is requested by the policyholder and is agreed between the parties.
As detailed in Article 23.1(c) of the IDD and duly transposed into the Insurance Distribution Law, all information provided to the customer must be communicated in the official language of the EU member state in which the risk is situated or of the EU member state of the commitment (or in any other language agreed upon by the parties).
Insurance Sector Challenges
It is inevitable that the insurance market will be forced to adapt its product offering in order to offer some coverage guarantees associated with epidemics, pandemics, climate change effects and war. This need for adaptation has already been felt but there is still a long way to go.
There are different variables that may be considered by the industry in order to build solutions and delimit its level of exposure before emerging risks – whether in terms of reinsurance, premiums, deductibles, or the time limit of coverage (namely, in the case of operating losses) –when it comes to exclusions or in the way the solution is presented (complementary/voluntary coverage).
It is important to take advantage of the current experience to reassess the catastrophic and pandemic risks. The insurance industry has an opportunity to analyse, together with the government and the reinsurance sector, the solutions that can be put forward to respond to these risks.
The demand for customised insurance products is definitely one of the most important challenges that the Portuguese insurance market will have to deal with in the coming years. In fact, there is still a somewhat ingrained practice of replicating the general conditions of products in the same line of business (namely, third-party liability) in the different variants of that product, referring the specificities of the product to its particular conditions. This practice has been detrimental to insurance consumers, as they are confronted with a series of definitions and contractual provisions that, strictly speaking, have no applicability to their product. The gradual implementation of concepts such as “pay as you drive” and “pay as you live” will necessarily entail effective customisation of insurance products involving the entire contractual package (general conditions included).
It is clear that technology will be a consistent and fundamental enabler for the insurance market and there is a growing awareness that clients are increasingly willing to go through an experience when buying their insurance product – anytime, anywhere and with any available device.
This phenomenon has been even more striking in the Portuguese insurance sector, given that this sector has not demonstrated the same level of development as the banking sector and that insurtech’s level of penetration was clearly below that of fintech.
The lack of specific provisions in the Portuguese legal and regulatory framework governing the implementation of insurtech solutions cannot be an obstacle to the revision of the business model of local insurers in order to meet the demands of a more sophisticated insurance client. The use of tools that allow massive extraction and processing of data and information from an almost infinite number of sources will enable faster and more efficient preparation, submission and analysis of often lengthy and complex dossiers concerning cross-border activities and the transfer of qualifying holdings in supervised entities.
The speed and level of penetration of technological solutions in the Portuguese market are not compatible with bureaucratic and lengthy processes of public consultation followed by the transposition of EU Directives that still lack regulation in each member state. In line with what has already resulted from the recent amendment to the legal framework for insurance activity, it is essential to strengthen the framework for co-operation between the national supervisor and the European Insurance and Occupational Pensions Authority (EIOPA) so that there can be alignment at the level of supervision and local regulation – regardless of the timing of the revision of fundamental laws and regulations.
It is also worth highlighting the growing number of insurance solutions that have been presented as a result of partnerships between insurers, insurtechs and distributors. There is still a great margin for the entry of new insurtechs, with solutions in the areas of smart contracts, digital signatures, artificial intelligence, etc.
The ASF is working in order to meet the new market trends and support new technologies. Therefore, other insurtechs are expected to enter the Portuguese market and team up with local insurers in the launch of innovative new products.
There are provisions in Portuguese law governing distance selling of insurance (whether online or by phone) and outsourcing rules (as transposed from the Solvency II Directive) that should be sufficient to deal with the implementation of certain innovative solutions and enable the co-operation between incumbent undertakings and insurtech start-ups.
Transition to the green economy
The national insurance sector is not indifferent to the path taken by banking and investment funds and is also betting on the transition to a green economy. Without prejudice to the need to find a balance between sustainability and the applicable prudential framework, the insurance industry and pension funds are already considering ESG criteria when selecting their investments and defining the composition of their asset portfolios.
Insurers are being called upon to respond to the challenges of sustainable development, making investments within a policy of social and climate responsibility. It is important to understand how these investments fit in with the regulatory framework applicable in the medium and long term.
The harmonised rules set forth in Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on disclosure of sustainability-related information in the financial services sector are being transposed to the internal regulation governing the insurances sector. By way of example, the ASF’s Regulatory Standard No 4/2022–R of 31 May 2022 determines that the insurer’s remuneration policy must include information on how it corresponds to the integration of sustainability risks, in accordance with Regulation (EU) 2019/2088.
Reference also to the ASF’s Regulatory Standard No 4/2023–R of 11 July 2023 on reporting duties – pursuant to which, insurers that are subject to the Regulation (EU) 2019/2088 must communicate to the ASF on an annual basis the hyperlinks to information on:
Other notes on the Portuguese insurance sector
The current framework of technological revolution and the increased demand for reporting requirements, statutory disclosures and monitoring activities will make it more difficult for traditional small and medium-sized insurers to compete with the top ten insurers. The door to new concentration processes at the level of insurers and distribution channels will remain open but the scale of such operations will certainly be very limited when compared with previous years.
No major changes in law are expected in 2024 but reference should be made to the transposition of the new EU Directive 2021/2118 amending the Directive 2009/103/EC relating to insurance against civil liability in respect of the use of motor vehicles. Although the dissolution of the Portuguese Parliament has already been announced, there was still some expectation of the possible transposition of the Directive into national law before 23 December 2023.