Consequences of infringment of transparency rules

1. Consequences of infringment of transparencyrules By Sara Landini University of Florence

2. Norms and Sanctions • Norms are social rules of behavior, • and sanctions are forms of punishment against violation of different norms.

3. Norms and Sanctions A characteristic of juridicalnormsis the nature of the relatedsanctions Formal deviance results in legal sanctions, such as fines or prison, while informal deviance results in social sanctions or stigma.

4. Norms and Sanctions Commonlysanctions are diveded in: • PENAL SANCTIONS A penalsanctionarises from a criminaloffence. Penalsanctions include prison. Penal authority isrequired to respect due process right. Itisquite rare to findcountriesproviding for penalsanctions in case of unfair commercial practices and of infringment of transparencyrules.

5. Norms and Sanctions For example in New Zeland according to the Fair Trading Act, applicablealso to insurance companies, some cases of unfair trading are cosideredascriminaloffences. In Australia in some cases of infringement of transparency rules criminal penalties and sanctions including imprisonment are provided In Israel the Control Over Financial Services (Insurance) Law 1981, includes a chapter of penal sanctions on Insurers including fines and imprisonment which apply also to misrepresentation of the insurance transaction

6. Norms and Sanctions • ADMINISTRATIVE SANCTIONS An administrative sanction is a restriction, a fine or similar type of constraint imposed by an administrative body for violation of a disciplinary code or set of internal regulations. An administrative sanction is similar to a penal sanction because it imposes a penalty. However, unlike a penal authority, an administrative body is not required to respect due-process rights (also known as procedural guarantees) such as the right to a fair trial or the right to be presumed innocent.  Moreover administrative sanctions don’t include prison. They are usually: pecuniary sanctions or disqualification sanctions.

7. Norms and Sanctions • CIVIL SANCTIONS A civil sanction is an obligation to pay damages (compensatory or punitive). The creditor is not the State (like in case of pecuniary administrative sanctions or pecuniary penal sanctions), but is the victim of a tort.

8. TransparencyRules and Sanctions Transparencyrulesconcern : • policyholder protection against misleading terms of insurance policies and • the disclosure requirements to be met by insurers and insurance intermediaries prior to the conclusion of any insurance contract.

9. TransparencyRules and Sanctions Whenwe talk aboutsanctions in case of infringment of rulesestablished for the purpose of consumer protection, wehave to take into account that: • of course a strong pecuniarysanction can have a significantdeterrentfunction, but • itcoulddetermineeconomiccrisis of the insurance company negative impact on consumers interests

10. Transparency and Sanctions The aboveconsiderations are particularlyimportanthavingregard to administrativesanctionsbecause: -they are pecuniary • the creditor isnot the consumer. It’s the State.

11. Sanctions to Company and to Intermediaries • Usuallysanctions are providedbothagainst companies and againstintermediaries. • In some countriessanctions are providedonlyagainst companies also in case of infringment of transparencyrules by an agent, because companies have to supervise the conduct of agents acting on theirbehalf.

12. Sanctions to Companies and to intermediaries For example in Poland: KNF does not have authority to impose any direct penalties on the insurance agents. In relation to the activities of agents, KNF may impose certain sanctions on insurance companies, which are obliged to supervise the activities of agents acting on their behalf. KNF may also forbid an insurance company to use services of an insurance agent if the agent infringes the provisions of law, does not act with due diligence or does not comply with good practice regulations. In such case the insurance company shall immediately terminate the contract concluded with an insurance agent and shall revoke the power of attorney given to such agent.

13. Sanctions to Companies and to intermediaries • Administrativesanctions are usuallyprovidedin caseboth of infringment of precontractualtransparencyrules and of infringmentof contractualtransparencyrules. • Wehave some exceptions:

14. Sanctions to Companies and to intermediaries • In Turckey, for example, … Insurance Activities Law does not provide for any supervisory measure for the breach of norm which contains the transparency requirements regarding insurance contracts. Therefore consequences of infringement are left to the general provisions of contract law and insurance contract law.

15. Sanctions to Companies and to intermediaries • In some countries Public Authority controlsthe content of general conditions and/or of disclosuredocuments.

16. Sanctions to Companies and to intermediaries For instance in France art. L.310-8 Insurance Code : Minister of Economy and Finance : “The ministermayrequire the disclosure of contractual or advertising documents for the purpose of an insurance or capitalisation. If itappearsthat a document breaches the law or regulations, the ministermayrequirethatitbemodified or decide on the withdrawalthereofafterhe has heard the opinion of the consultative committee of the financialsector. In the event of an emergency, the opinion of the consultative committee of the financialsectorshall not berequired. Also in Australia Public Authoritycancontrol and prohibitthe use of misleadingdisclosure documents.

17. Sanctions to Companies and to intermediaries In othercountries, like Argentina, Japan, Hong Kong etc., itisprovided for a preventive control of the content of insurance general conditions.

18. Sanctions to Companies and to intermediaries • Argentinian Report underlinesthatsuch preventive control isnotsufficient in order to guaranteetransparency. • Generallyspeakingwe can saythatprecontractual and contractualtransparencyshould be considered case by case takinginto account the information given to the insured party, the individualinterest of the insured party, ecc. Wedon’tthinkthat a preventive control representsa solution to transparencyproblem and moreover … a preventive control undermines PRIVATE AUTONOMY PRINCIPLE, thatisone of the mostimportantprinciple of modern private law.

19. Preventive measures Manycountries (like France, Belgium, Germany,Danimark, Argentina, Brasil, Cile, Singapore etc.) provides for orders of correction, raccomandations or warnings.

20. Pecuniary and DisqualificationSanctions The most common administrativesanctions are the following: • civilpenalty, • placing a producer on probation, • licensesuspension or revocation, or • refusal to issue or renew a license • cancellation from Intermediary register In the event a sanction, fine or other penalty is imposed, depending upon the terms and conditions of national law, the insurer has usually the right to appeal those determinations to the courts.

21. AdminstrativeSanctions and CivilSanctions Generallyspeaking a remedy taken by the supervisory authority is ONLY a de facto element binding upon the judge of the case in an action brought by the weaker party against the stronger party for the same facts as those prompting the remedy so taken.

22. Principle of proportionality and Sanctions • Wewouldlike to emphasize a conclusioncontained in the Report of GermanChapter. • The German supervisory authority may in principle take any supervisory measure that is suitableand necessaryto hinder or eliminate an irregularity. Such supervisory measures can include the revocation of the authorization. Keeping in mind that German public law puts a very strong emphasis on the principle of proportionality, « it seems very unlikely that the non-observation of information duties would ever lead to the revocation of the authorization. In the normal course the supervisory authority would have to take (many) other supervisory measures against the insurer in question before applying this measure of last resort.»

23. Principle of proportionality and Sanctions Sanctionsneed to be proportional. Thereshould be a proportionalitybetweenirregularities and measuresemployedto hinder or eliminate irregularities. Otherwise sanctions can damage both market and consumers!

24. Thanks for yourattention!