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 with increased reporting requirements;
• digitalisation and the use of advanced technologies, such as artificial intelligence (AI), to improve operations and products;
• meeting the expectations of modern and demanding policyholders without neglecting compliance with the applicable legal and regulatory framework;
• inclusion and financial literacy; 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 conscious of the importance of private insurance when dealing with the insufficiencies and general lack of response of the public system – most notably when they are exposed to high healthcare costs and long waiting lists.

The pandemic crisis, health service difficulties, the increase in cyberattacks and data breaches and climate change events have awakened Portuguese consumers to the importance of a series of risks that used to go almost unnoticed, such as the risk of business interruption, cyber-risk and climate risk. A number of other themes have also gained increased importance – namely, the level of health protection guarantees and the levels of savings for retirement.

On the regulatory side, 2024 was marked by the introduction of new rules and principles applicable to anti-money laundering/countering the financing of terrorism (AML/CFT), the outsourcing of cloud computing service providers, information and communication technologies (ICTs), non-discrimination and 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 2025 and provide some guidance for foreign investors, insurers and insurance distributors on the Portuguese legal and regulatory environment.

Overview of the Portuguese Insurance Market

According to a report prepared by the Insurance and Pension Funds Supervisory Authority (Autoridade de Supervisão de Seguros e Fundos de Pensões, or ASF) in the third quarter of 2024, there was an increase of 21.1% in the production of direct insurance in Portugal when compared with the same period in 2023. Furthermore, there was an increase of 36.7% in the life sector and an increase of 10.3% in the non-life sector. During this same period, the costs of claims decreased by 1.2% as a result of a decrease of 7.1% in the life sector and an increase of 9.8% in the non-life sector.

The coverage ratios for the solvency capital requirement (SCR) and the minimum capital requirement (MCR) in September 2024 were 219% and 579%, respectively, which reflects respective increases of 15% and 40% when compared with December 2023.

According to the FY 2023 annual report prepared by the ASF, 63 insurers were established in Portugal. There were 26 branches in foreign countries (all EU countries) and 543 insurers operating under the “freedom to provide services” regime. As of the third quarter of 2024, the top three insurers in Portugal take around 59.2% of the market share in premiums, and the top ten insurers take around 88.6%.

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 ASF is monitoring this trend, and has recently issued regulations to deal with ICT-related risks as a result of the increasing digitalisation of intermediaries’ activities and the use of ICT services provided by third parties.

Health insurance

The health insurance market in Portugal has been developing since the 1980s. Gross direct written premiums in 2012 amounted to around EUR524 million, rising to EUR1.2 billion in September 2024 – ie, more than doubling in a decade. Direct health insurance production in the third quarter of 2024 was up 18.3% when compared with the same period in 2023.

The cumulative figures for the third quarter of 2024 point to a non-life business production of 21.9% overall in health insurance, which – together with motor insurance – is the most representative business segment in the Portuguese insurance market. The growth of health insurance is associated with the COVID-19 pandemic and also 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. There is also greater willingness on the part of employers to include this type of product in their employees’ social benefits package in order to retain and attract talent.

The ASF launched a series of regulatory measures in 2024 to strengthen the regulation of this class of insurance, with the aim of promoting the subscription by policyholders of insurance contracts suitable for the protection of individuals and households and supporting the transparency of the conditions offered by insurance companies, as well as the accessibility of comparisons of coverage, premiums and other relevant service conditions.

One such initiative is a public consultation to establish the minimum conditions for health insurance policies that are comparable in terms of the range of risks covered, insured capital, pre-existing conditions and exclusions, and that are easy to understand, thus allowing for more informed choices, enhancing the suitability of the contractual options taken by the policyholder and reinforcing market transparency. This initiative follows several complaints from consumers who have purchased health plans in which the provider offers access, under favourable conditions, to certain types of healthcare, receiving a prior cash payment in return but without any of the risks that fall within the scope of insurance activity.

This continued growth in the health insurance industry led to the launch of a new mutual insurance company dedicated to health at the end of 2024, and it is anticipated that there will continue to be an appetite for offerings in this specific class of insurance.

Cyber-risk

The increase in 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.

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 risk 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 been issuing specific rules on cybersecurity, outsourcing arrangements with cloud computing service providers and the use of ICT services provided by third parties.

Natural catastrophes and the protection gap

According to the dashboard for the 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.

As detailed in the EIOPA dashboard, earthquake risk could be 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 but have very low insurance penetration levels (most notably Lisbon).

The ASF has recently submitted a long-awaited proposal for the creation of a seismic fund to thePortuguese government. The ASF is willing to include seismic risk on the list of compulsory insurance under Portuguese law, something that has already happened in Spain and France. Currently, only 20% of the housing stock is insured against seismic risk.

Another aspect that is being discussed in relation to the creation of the seismic fund is the need to create a seismic certification system for buildings, similar to the energy certification that is already in place. Such seismic certification could help insurers to measure risk and quote premiums.

Extending the scope of this fund to claims arising from climatic phenomena should be the next step after the creation of the fund.

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.

Despite the apparent failure of the pan-European personal pension product (PEPP) at the European level, Portugal continues to take steps towards introducing this product to the Portuguese market. The aim of creating a means to encourage savings has focused, in particular, on adjusting national legislation to align the conditions of the PEPP with those applied to national retirement savings plans (planos de poupança-reforma (PPR)), particularly with regard to the applicable tax benefits.

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 proposes to increase their qualified shareholding so that the proportion of their voting rights or share capital would reach or exceed 10%, 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 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 2023 annual report prepared by the ASF makes reference to 543 insurers operating in the Portuguese market under the freedom to provide services regime. Bearing this in mind, it is important to make brief reference to 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 information therein must be presented in a structured manner and include:

• the conditions and available resources for lodging a complaint before the insurer and the client ombudsman, and the applicable eligibility criteria;
• recommendations issued by the client ombudsman;
• the conditions for lodging a complaint before the ASF and the applicable eligibility criteria; and
• the customer treatment policy.

Insurance distribution

The Portuguese legislator “gold-plated” 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 2019 (the “Insurance Distribution Law”) is essentially in line with the IDD; therefore, insurance distributors registered in other EU countries must be generally compliant with Portuguese law when acting in accordance with the IDD and 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 that of the EU member state of the commitment (or in any other language agreed upon by the parties).

AML/CFT Regulation

At the end of 2024, ASF Regulatory Standard No 10/2024-R of 5 November 2024 was published; it regulates Law 83/2017 of 18 August 2017, which establishes measures to combat money laundering and terrorist financing.

This Regulatory Standard applies in particular to:

• insurance companies and insurance intermediaries that have their head office in Portugal and carry on business in the life sector;
• branches of insurance companies and insurance intermediaries that have their head office in another EU member state and carry on business in Portugal in the life sector;
• insurance companies and insurance intermediaries that have their head office in another EU member state and carry on business in Portugal in the life sector under the freedom of services regime; and
• branches of insurance companies in a third country that carry on business in Portugal in the life sector.

Although the level of application of the Regulatory Standard has to be analysed on a case-by-case basis, some of the main obligations arising from it are as follows:

• define adequate policies, procedures and controls for the effective management of money laundering and terrorist financing risks and comply with legal standards;
• carry out periodic assessments of the effectiveness of anti-money laundering and terrorist financing risk policies and procedures;
• annually report to the ASF regarding systematised information on the policies, tools and procedures implemented;
• appoint a board member responsible for the implementation of legal and regulatory standards in the field of anti-money laundering and terrorist financing risks policies;
• appoint a compliance officer; and
• inform the ASF of suspicious practices reported to the authorities that, due to their nature or scale, are likely to affect solvency or reputation.

The recent creation of the Anti-Money Laundering Authority (AMLA) is yet another sign that there will be an ongoing effort to standardise practices and improve cross-border co-ordination. The insurance industry will necessarily be forced to increase its operating costs by investing in compliance systems and training speacialised teams.

Insurance Sector Challenges

Emerging risks

It is inevitable that the insurance market will be forced to adapt its product offering in order to provide some coverage guarantees in association with epidemics, pandemics, the effects of climate change and war. This need for adaptation has already been felt but there is still a long way to go.

Different variables may be considered by the industry in order to build solutions and delimit its level of exposure before emerging risks arise – whether in terms of reinsurance, premiums, deductibles or the time limit of coverage (in the case of operating losses) – in relation to exclusions or the way in which a solution is presented (complementary/voluntary coverage).

Customised insurance and financial literacy

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 different variants of products in the same line of business (namely, third-party liability). 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.

A topic associated with the customisation and simplification of products that will also be among the trends and challenges for the insurance sector in 2025 is financial inclusion and literacy. There are still many disputes in and out of court that are linked to the fact that a certain section of the population does not understand the exact scope of the insurance products they buy. Promoting digital financial education will not be enough to solve this problem, so the insurance market will have to continue to invest in creating products that are accessible and understandable to the general population.

Insurtech

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, which is necessary in order to meet the demands of the 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 public consultation processes, which are 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 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 great scope for the entry of new insurtechs providing solutions in the areas of smart contracts, digital signatures, AI, etc.

There are provisions in Portuguese law governing the distance selling of insurance (whether online or by phone), and outsourcing rules (as transposed from the Solvency II Directive), which should be sufficient to deal with the implementation of certain innovative solutions and enable co-operation between incumbent undertakings and insurtech start-ups.

Transition to the green economy

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 the disclosure of sustainability-related information in the financial services sector are being transposed to the internal regulation governing the insurance 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.

The Digital Operational Resilience Act (DORA)

Reference shall now be made to Regulation (EU) 2022/2554 of the European Parliament and of the Council of 14 December 2022, establishing a common digital operational resilience framework for the financial sector (DORA) applicable from 17 January 2025.

This regulation requires all financial entities under its scope (including insurers) to keep and update a register of information in relation to all contractual agreements concerning the use of ICT services provided by third-party ICT service providers.

The entry into force of DORA imposes an increased level of pressure on insurance companies’ compliance teams, who will have to consider new reporting obligations on top of the long list that already derives from the existing legal and regulatory framework. The preparation of information on contractual arrangements with ICT third-party service providers is one of the tasks that will be at the top of the list of priorities for entities under ASF supervision.

Additional 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.

One of the main challenges the industry will face will be regulatory pressure, which has been growing for several years and is expected to continue to do so, forcing the insurance sector to consider a continuous increase in its operating costs. The analysis and reporting obligations associated with International Financial Reporting Standard (IFRS) 17, Solvency II, data protection, money laundering and sustainability will continue to consume a significant part of insurers’ human and financial resources.