Insurance & Reinsurance 2024

Last Updated January 23, 2024

Portugal

Law and Practice

Authors



Espanha e Associados is an independent legal and tax services firm advising companies from all over the world through the international TAGLaw network. Insurance law is one of the many areas in which the firm has a high level of expertise, thanks to more than 15 years of experience. The firm stands ready to advise on all legal and regulatory aspects of the insurance industry. Espanha e Associados aims to provide its clients with a tailor-made service as well as a global approach, allowing clients to have different perspectives on their business/matters and to take decisions in their best interests. The insurance department frequently works with the tax team to ensure that all transactions are also analysed from a tax perspective, providing clients with the most efficient solution.

In Portugal, the main sources of insurance and reinsurance law are the following.

  • The Insurance and Reinsurance Law (the “Insurance Law”), approved by Law No 147/2015, dated 9 September 2015, which transposed into the Portuguese legal order Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on taking up and pursuing the business of insurance and reinsurance (the “Solvency II Directive”). The Insurance Law establishes the conditions for taking up and pursuing insurance and reinsurance business.
  • The Insurance Contract Law (the “Ins Contract Law”), approved by Decree-Law No 72/2008, dated 16 April 2008, which establishes the main rules applicable to insurance contracts.
  • The Insurance Distribution Law (the “Ins Distribution Law”), approved by Law No 7/2019, dated 16 January 2019, which transposed into the Portuguese legal order Directive 2016/97/EU of the European Parliament and of the Council of 20 January 2016 on insurance distribution. The Ins Distribution Law establishes the conditions for taking up and pursuing insurance and reinsurance distribution.

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:

  • Law No 67/2013, dated 28 August 2013, which establishes the framework law of the public supervisory authorities;
  • the ASF’s statutes, approved by Decree-Law No 1/2015, dated 6 January 2015;
  • the Insurance Law; 
  • the Ins Distribution Law; and
  • the legal framework applicable to crimes in the insurance and pension funds sector and to administrative offences that are the responsibility of the ASF, approved by Law No 147/2015, dated 9 September 2015.

In accordance with the Insurance Law, insurance and reinsurance business in Portugal can only be carried out by the following entities:

  • Portuguese-based insurers and reinsurers authorised by the ASF;
  • Portuguese-based mutual insurance and reinsurance undertakings authorised by the ASF; 
  • branches of insurers and reinsurers established in other EU member states acting in Portugal under freedom of establishment (FoE), provided certain provisions are met;
  • branches of insurers and reinsurers established in a third country authorised by the ASF;
  • public insurers and reinsurers set up in accordance with Portuguese laws, provided that such undertakings have insurance or reinsurance operations as their object, under conditions equivalent to those under which undertakings governed by private law operate;
  • insurers and reinsurers in the legal form of a European company in accordance with the applicable legislation; and
  • insurers and reinsurers established in other EU member states acting in Portugal under freedom of services (FoS), provided certain provisions are met.

General Requirements Applicable to Portuguese-Based Insurers and Reinsurers

Insurers

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:

  • EUR2.5 million for non-life insurers to conduct business in sickness, legal expenses or assistance;
  • EUR7.5 million in the event the undertaking conducts business in more than one of the classes referred to in the preceding bullet or in any other class or classes of non-life insurance;
  • EUR7.5 million in the event the undertaking conducts life insurance business; and
  • EUR15 million in the event the undertaking conducts business simultaneously in life insurance and one or more classes of non-life insurance, where authorised.

Reinsurers

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:

  • EUR7.5 million in the event the undertaking conducts non-life reinsurance or life reinsurance business; and
  • EUR15 million in the event the undertaking conducts both kinds of reinsurance activity.

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:

  • risks classified under the following classes:
    1. Railway Rolling Stock;
    2. Aircraft;
    3. Ships;
    4. Goods in Transit;
    5. Aircraft Liability; and
    6. Liability for Ships;
  • risks classified under Credit and Suretyship classes where the policyholder is engaged professionally in an industrial or commercial activity, or in one liberal profession, and risks relate to such activity;
  • risks classified under Land Vehicles, Fire and Natural Forces, Other Damage to Property, Motor Vehicle Liability, General Liability and Miscellaneous Financial Loss classes, insofar as the policyholder exceeds at least two of the following criteria:
    1. a total balance sheet of EUR6.6 million;
    2. a net turnover of EUR13.6 million;
    3. an average number of 250 employees during the financial year; and 
    4. if the policyholder belongs to a group of undertakings for which consolidated accounts are drawn up, the foregoing criteria must be applied on the basis of the consolidated accounts.

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:

  • absolutely mandatory rules (rules that cannot be waived by the parties); and
  • relatively mandatory rules (rules that allow the parties to provide for different solutions other than those established by law, provided said solutions benefit the policyholder, the insured or the beneficiary, where applicable).

Legal Restrictions

The Ins Contract Law settles that the following risks cannot be guaranteed under Portuguese law:

  • criminal, administrative or disciplinary liability;
  • kidnapping, sequestration and other crimes against personal freedom (save for civil compensation);
  • possession or transportation of narcotics or drugs, the consumption of which is forbidden; and
  • the death of children under 14 years old or of those who are incapable of governing themselves owing to mental incapacity or other cause (save for civil compensation).

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.

Policyholders

Life insurance

  • Tax to the Medical Emergency Institute (Instituto Nacional de Emergência Médica, or INEM) ‒ 2.5% on premiums concerning life insurance in case of death (as well as supplementary covers).
  • Stamp duty ‒ exempted.
  • VAT ‒ exempted.

Non-life insurance

  • Tax to INEM ‒ 2.5% on premiums regarding sickness, accidents, land vehicles and motor vehicle liability.
  • Stamp duty (different rates apply):
    1. suretyship – 3%;
    2. accidents and health – 5%;
    3. credit – 5%;
    4. agriculture and livestock – 5%;
    5. goods in transit – 5%;
    6. ships and aircraft – 5%; and
    7. other non-life risk classes – 9%.
  • VAT ‒ exempted.
  • Other specific taxes (motor insurance guarantee fund, tax on green cards, civil protection, etc).

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 will be:
    1. 100% if payment occurs within the first five years of the contract;
    2. 80% if payment occurs between the first five and eight years of the contract; and
    3. 40% if payment occurs after eight years of the contract.
  • Taxable income reduction will only take place if at least 35% of the premiums are paid in the first half of the contract’s term.

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).

Insurers

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:

  • life insurance ‒ 0.048% on registered earnings; and
  • non-life insurances ‒ 0.242% on registered earnings.

EU Undertakings

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.

Insurers

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:

  • under FoS, from the date on which it is informed by the supervisory authority of the home member state about the communication provided to the ASF; or
  • as a branch, from the date on which the supervisory authority of the home member state received said communication from the ASF, or on expiry of the above-mentioned two-month period (provided the branch is registered with the companies register, tax authorities and social security).

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:

  • payment of the indirect taxes and rates established in Portuguese law with regard to premiums of insurance contracts covering risks situated in Portuguese territory or where Portugal is the member state of the commitment, regardless of the law applicable to the contract;
  • compliance with several rules arising from the Ins Contract Law regarding pre-contractual information;
  • prohibition of underwriting certain risks forbidden under the Portuguese legal framework;
  • compliance with market conduct provisions ‒ namely, in terms of client policies, advertising, complaints management, complaints book, client ombudsman, and a website dedicated to the Portuguese market;
  • reporting of periodic information to the ASF under Regulatory Rule No 4/2023-R; and
  • general compliance with mandatory provisions ‒ namely, concerning insurance distribution, standard contractual clauses (rules regarding abusive clauses and font size), and advertising.

Insurances that are compulsory within the Portuguese legal system are additionally subject to the following:

  • they are ruled by Portuguese law;
  • the general terms and conditions of the policy (and any amendments thereto) must be registered with the ASF before the beginning of business (or one month thereafter); and
  • a claims representative residing in Portugal must be appointed.

Per type of insurance:

  • life insurances, capital redemption operations and personal accident insurances – compliance with the central register established by Decree-Law No 384/2007, dated 19 November 2007;
  • unit-linked life insurances – ex ante notification of the key information document to the ASF, under PRIIPs Framework and Law No 35/2018, dated 20 July 2018;
  • motor vehicle insurance – registration at the Portuguese Green Card Bureau, contribution to the national motor guarantee fund, and periodic reporting on insured vehicles and claims; and
  • work accidents – compliance with mandatory legal and regulatory provisions applicable to this type of insurance and contribution to the national work accidents fund.

Reinsurers

  • Acting under FoS ‒ without prejudice to any applicable local rules of the home member state, the pursuit of reinsurance business in Portugal under freedom of services does not require notification to the ASF.
  • Acting through a branch ‒ the taking-up and pursuit of reinsurance business in Portugal through a branch is subject to notification to the supervisory authorities of the home member state, which will thereafter communicate this information to the ASF.

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:

  • it is entitled to pursue insurance or reinsurance business under its national law for more than five years;
  • it has, as its exclusive corporate purpose, insurance or reinsurance business;
  • it undertakes to set up at the branch accounts that are specific to the business pursued there and to keep all the records regarding the business transacted;
  • it appoints a general representative (natural or legal person), who must fill in the criteria laid down in the Insurance Law and get approval from the ASF;
  • it holds assets in Portugal of an amount equal to at least half of the absolute floor prescribed in respect of the applicable minimum capital requirement and deposits a quarter of that absolute floor as security;
  • it undertakes to cover the solvency capital requirement and the minimum capital requirement in accordance with the applicable requirements;
  • in the event it intends to cover motor vehicle liability other than carrier’s liability, it appoints in each member state a claims representative responsible for handling and settling claims in the victim’s country with regard to claims occurring in a member state other than the one in which the victim resides;
  • it submits an operations’ scheme in accordance with the Insurance Law’s requirements; and
  • it fulfils the governance requirements laid down in the Insurance Law.

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.

Brexit

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.

Merger

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.

Qualifying Holdings

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.

Portuguese-Based Intermediaries

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:

  • ancillary insurance intermediaries (AII);
  • insurance agents; and
  • insurance brokers.

The requirements applicable to insurance intermediaries can be summarised as follows.

Ancillary insurance intermediaries

The requirements applicable to AII are:

  • the intermediary acts for and on behalf of one or more insurers pursuant to a mediation contract executed between the parties;
  • the intermediary conducts insurance distribution on an ancillary basis to its professional activity;
  • the intermediary cannot distribute insurance products covering life insurance or liability risks, unless said cover complements the good or service the intermediary provides as its principal professional activity;
  • the intermediary cannot distribute unit-linked insurances;
  • has a minimum share capital of EUR5,000;
  • the intermediary is subject to professional qualification and professional indemnity insurance, but with lower requirements than agents and brokers;
  • the registration application at the ASF must be filed by an insurer; and
  • the ASF will grant authorisation within 60 days of receiving the application or, where applicable, after receiving any additional information from the applicant.

Agent

The requirements applicable to agents are:

  • the agent acts for and on behalf of one or more insurers, pursuant to a mediation contract executed between the parties;
  • the agent conducts insurance distribution as its main professional activity;
  • the agent has a minimum share capital of EUR5,000;
  • the agent is subject to professional qualification and professional indemnity insurance;
  • the agent must have at least one establishment open to the public;
  • the registration application at the ASF must be filed by an insurance undertaking; and
  • the ASF will grant authorisation within 60 days of receiving the application or, where applicable, after receiving any additional information from the applicant.

Broker

The requirements applicable to brokers are:

  • the broker acts on behalf of its customers;
  • the broker must have financial services as its exclusive corporate purpose;
  • the broker has a minimum share capital of EUR50,000;
  • the broker is subject to professional qualification and professional indemnity insurance;
  • the broker must submit an activity programme to the ASF for three years; 
  • the broker must have organised accounting;
  • the broker must have a risk analyst in the event it pursues non-life branches;
  • the broker must have at least one establishment open to the public;
  • the broker is subject to portfolio diversification according to specific rules;
  • the registration application at the ASF is filed by the broker itself; and
  • the ASF will grant authorisation within 90 days of receiving the application or, where applicable, after receiving any additional information from the applicant.

Bancassurance

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.

EU-Based Intermediaries

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:

  • under FoS, from the date on which it is informed by the supervisory authority of the home member state about the communication provided to the ASF; or
  • as a branch, from the date on which the supervisory authority of the home member state receives said communication from the ASF or within one month if no communication is received (provided the branch is registered in the Companies Register and with the tax authorities and social security).

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.

Policyholder/Insured

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).

Insurer

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:

  • ensure that the questions allow for accurate and complete answers;
  • review the answers provided by the client to avoid any inconsistencies; and 
  • ask for any clarification or additional information in the event the answers are incomplete, inaccurate or contradictory.

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.

Policyholder/Insured

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:

  • due until the end of the three-month period, unless a deliberate action or gross negligence on the part of the insurer is discovered; or
  • due until the end of the policy in the event of intentional breach by the policyholder/insured aiming to obtain an illicit advantage.

In the case of a negligent breach, the insurer may ‒ in communication with the policyholder ‒ within three months of when the insurer became aware: 

  • propose amendments to the policy, establishing a deadline of no less than 14 days for the policyholder to approve or, if allowed, to provide a counter-offer; or
  • terminate the policy, if the insurer can prove that it never enters into policies covering the risks relating to the facts omitted or inaccurately stated.

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.

Insurer

In the event the insurer fails to provide the policyholder/insured with:

  • information about the risk disclosure obligation before the conclusion of the policy, it may be liable to the policyholder/insured for the damages arising therefrom; 
  • mandatory pre-contractual information (eg, coverage, exclusions, premiums), the policyholder will be entitled to terminate the policy (and to receive premium reimbursement) within 30 days of receipt of the policy, unless the lack of information has not affected the policyholder’s decision to conclude the policy or a claim was triggered by a third party (the lack of pre-contractual information may also give rise to the insurer’s liability under general terms); and
  • delivery of the policy, the policyholder will be entitled to terminate the policy and to receive premium reimbursement.

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:

  • the policyholder (natural or legal person, in due capacity) transfers to the insurer a given risk, which must be an existing future (or unknown) risk – the contract will be null and void as regards risks that have ceased before the conclusion of the contract or that do not come to take place; and
  • the insurer undertakes to provide the insured with an agreed benefit in case the aleatory event provided for in the contract occurs (claim).

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: 

  • property and casualty – the insurable interest must concern the preservation and integrity of the object, right or assets; 
  • life insurance – the insured who is not the beneficiary must consent to their life being covered, except where the policy is intended to comply with any legal provision or collective labour regulations; and
  • personal accident – when the policyholder is the beneficiary but not the insured, the latter must consent to their physical integrity being covered, provided they are individually identified in the contract.

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 beneficiary can be the policyholder or anyone named by the policyholder (or by the insured, in group insurances);
  • the beneficiary does not need to be an insured;
  • it is possible to name an irrevocable beneficiary (banks are usually named as irrevocable beneficiaries);
  • the naming of the beneficiary can be made within the insurance policy, by means of a written statement sent to the insurer subsequent to the policy’s execution, or in a last will and testament;
  • multiple beneficiaries are allowed; and
  • the beneficiary clause can be revoked or changed at any time during the life of the policy (up to the moment the beneficiary is entitled to the benefit) ‒ unless the person who is entitled to name the beneficiary has expressly waived such right or, in the case of survival insurance, the beneficiary subscribes to the policy or accepts the benefit provided under the policy.

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.

  • In the event the premium is not paid within the due date and the policy establishes an irrevocable benefit in favour of a third party, the insurer must notify said third party within 30 days of the due date to inform them that they may pay the premium (replacing the policyholder), should the third party wish to do so.
  • In the event of the demonstrated impossibility of contacting the policyholder or insured (if they are not the same person) over the course of a year, the insurer must inform the beneficiary of such fact ‒ provided the policyholder/insured person has expressly authorised this (within 30 days of the last communication made by the insurer to the policyholder/insured, where applicable).
  • There is an obligation to inform the beneficiary of the existence of the insurance policy and their right to receive the benefit, within 30 days of the insurer becoming aware of the insured’s death.
  • In the event the policyholder or the insured person (should they not be the same person) does not contact the insurer to claim the benefit over the course of one year following the end of term of the policy, the insurer has an obligation to inform the beneficiary of such fact ‒ provided the policyholder/insured person has expressly authorised it ‒ within 30 days after one year from the end the term of the policy.

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:

  • absolutely mandatory rules, which cannot be waived by the parties (eg, format of the policy, insurable interest, rules regarding risk, means to pay the premium, consequences in the event the premium is not paid); and 
  • relatively mandatory rules, which allow different solutions other than those established by law ‒ provided said solutions benefit the policyholder, the insured or the beneficiary, where applicable (eg, provision of pre-contractual information, risk disclosure obligation and consequences, policy contents).

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:

  • the obligation for the policyholder to pay the premium to the insurer ‒where this conditions precedent is breached, the insurer may refuse a claim made with reference to the insurance contract, since there is no coverage unless the premium is paid; and
  • duty of disclosure of essential and relevant information for the risk assessment to be made by the insurer prior to the signing of the insurance contract ‒ in the case of breach of this conditions precedent, special rules apply (see 6.2 Failure to Comply with Obligations of an Insurance Contract).

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:

  • requesting the intervention of the insurer’s customer ombudsman;
  • requesting the intervention of the ASF;
  • filing a claim at the Consumer Protection Association;
  • presenting a claim to the Justice of the Peace;
  • arbitration centres; or
  • courts of law.

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:

  • an insurers’ claim for payment of premiums will be made until two years after their due date; and
  • other claims will be presented until five years after the date on which the claimant became aware of their rights against the insurer (with a maximum limitation of 20 years starting from the date the event occurred).

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:

  • it concerns the coverage of a risk located in Portugal; and
  • in the case of personal insurances, the policyholder resides in Portugal.

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:

  • Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12/12/2012; and
  • the Portuguese Civil Procedure Code (CPC) which determines that Portuguese courts of law have jurisdiction in any dispute that concerns events or situations with a special connection to the territory, or where the parties have their residence and/or head office in Portugal.

The litigation process for the resolution of any disputes arising from an insurance contract follows standard proceedings, as follows.

  • The claimant files a statement of claim, which is presented in the court of law with jurisdiction.
  • The defendant receives note of the claim and is granted 30 days to respond.
  • The parties are invited by the court to a preliminary hearing in which they will try to reach an agreement. If it is not possible to reach an agreement, the procedure continues and the court will set a date for the final hearing.
  • The final hearing is the moment when each of the parties presents its witnesses and experts, and other means of proof are analysed and discussed. In the end, the parties present their closing arguments, following which the judge ends the session.
  • There is no deadline for the court to issue a judgment.
  • In some cases, and if certain requirements are met, the parties may appeal to a higher court.

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

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.

EU judgments

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.

Non-EU judgments

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:

  • The Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”);
  • the Geneva Convention on the Execution of Foreign Arbitral Awards signed in 1927;
  • the Washington Convention on the Settlement of Investment Disputes between States and Nationals of other States; and
  • the Inter-American Convention on International Commercial Arbitration.

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:

  • mediation;
  • institutional arbitration (namely, CIMPAS); and
  • the Justice of the Peace.

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

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.

Artificial Intelligence

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.

Portugal Finlab

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.

Cybersecurity

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 introduction of new rules concerning undertakings that carry on reinsurance business in Portugal without a branch and that are based in a third country regarding which the EC has not recognised equivalence to the solvency regime laid down in the Solvency II Directive;
  • the introduction of new reporting obligations applicable to insurance companies; and
  • the introduction of new regulatory requirements in terms of fit and proper persons, applicable to the management bodies and key functions staff of insurance companies, pension fund management companies and third-countries branches.
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Author Business Card

Trends and Developments


Authors



Abreu Advogados is an independent law firm with more than ten locations and more than 28 years of experience in the Portuguese market. As a full-service law firm, Abreu is one of the largest law firms in Portugal and works with some of the most prestigious legal firms in the world on cross-border projects. The insurance team collaborates with many well-known and respected companies in the insurance sector, advising throughout the entire life cycle of insurance products and via litigation or arbitration in dispute resolution cases. Abreu has participated in some of the largest transactions in the insurance sector in Portugal, as well as advising international insurance companies on the legal and regulatory aspects of their cross-border activities. The team also plays an important role in the insurtech segment, having assisted Habit Analytics in its entry into the Portuguese market and advised on the acquisition of Drivit (a pioneering Portuguese telematics company) by Zego, one of the most well-known insurtechs in the world.

Introduction

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:

  • successive legal and regulatory changes;
  • the technological revolution, the COVID-19 pandemic;
  • the implementation of the IFRS 17 reporting standards; and
  • the coverage of natural catastrophes and emerging risks.

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.

Health insurance

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.

Cyber-risk

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.

Savings 

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.

Business interruption

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:

  • the existence of qualified shareholdings through concerted action or indirect holdings; and
  • the acquisition of holdings (regardless of the thresholds reached or exceeded), provided that they enable the proposed acquirer to exercise significant influence over the management of the insurance undertaking, whether or not such influence is exercised.

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 conditions and available sources for lodging a complaint before the insurer and the Client Ombudsman and the applicable eligibility criteria;
  • recommendations issued by the Client Ombudsman;
  • conditions for lodging a complaint before the ASF and the applicable eligibility criteria; and
  • customer treatment policy.

Insurance distribution

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

Emerging risks

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.

Customised insurance

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).

Insurtech

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:

  • policies for integrating sustainability risks into their investment decision-making process; and
  • the negative sustainability impacts at the entity level, all in accordance with Regulation (EU) 2019/2088.

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.

Abreu Advogados

Avenida Infante D Henrique 26
1149-096 Lisboa
Portugal

+351 21 723 18 00

+351 21 723 18 99

lisboa@abreuadvogados.com https://abreuadvogados.com/
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Law and Practice

Authors



Espanha e Associados is an independent legal and tax services firm advising companies from all over the world through the international TAGLaw network. Insurance law is one of the many areas in which the firm has a high level of expertise, thanks to more than 15 years of experience. The firm stands ready to advise on all legal and regulatory aspects of the insurance industry. Espanha e Associados aims to provide its clients with a tailor-made service as well as a global approach, allowing clients to have different perspectives on their business/matters and to take decisions in their best interests. The insurance department frequently works with the tax team to ensure that all transactions are also analysed from a tax perspective, providing clients with the most efficient solution.

Trends and Development

Authors



Abreu Advogados is an independent law firm with more than ten locations and more than 28 years of experience in the Portuguese market. As a full-service law firm, Abreu is one of the largest law firms in Portugal and works with some of the most prestigious legal firms in the world on cross-border projects. The insurance team collaborates with many well-known and respected companies in the insurance sector, advising throughout the entire life cycle of insurance products and via litigation or arbitration in dispute resolution cases. Abreu has participated in some of the largest transactions in the insurance sector in Portugal, as well as advising international insurance companies on the legal and regulatory aspects of their cross-border activities. The team also plays an important role in the insurtech segment, having assisted Habit Analytics in its entry into the Portuguese market and advised on the acquisition of Drivit (a pioneering Portuguese telematics company) by Zego, one of the most well-known insurtechs in the world.

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