“Cooling down” the insurance policy
From June 1, 2016, a so-called “cooling down period” took effect in the insurance industry. This is the period from the day a voluntary insurance agreement is signed, within which the policyholder can reject the insurance. The policyholder can invoke this right within five work days from the day the agreement is signed, irrespective of when the insurance premium is paid. A condition for this is that no insured events must have occurred within this period.
At the same time, if prior to the rejection the insurance agreement did not take effect, the insurance company must return the premium under the agreement in full. If as of the time of rejection the agreement has already taken effect, the insurance company is entitled to withhold part of the premium in proportion to the time during which the agreement was in effect.
Under Part 2 Article 958 of the Russian Civil Code, if the policyholder/beneficiary withdrew from an insurance agreement early, the insurance premium is not refundable, unless the agreement provides otherwise. Therefore, the possibility of a refund of the insurance premium in case of early termination of an insurance agreement depended only on the policy terms of the specific insurance company in question.
Naturally, many insurance companies took advantage of this and had rules prohibiting insurance refunds. And this was lawful. In particular, such rules affected those people who were forced to acquire insurance for a high price when taking out a loan. At the same time, if the borrower later rejected the insurance agreement, then under the law the credit organization could increase the interest rate for the loan to the basic rate. Moreover, the credit organization could request early termination of the loan agreement and return of the remaining amount of the loan along with interest due.
The discussion of this problem and the need for state intervention in regulating relations between the policyholder and insurance company has been going on for a long time. The problem was that, among other things, in a number of cases the authorities did not have effective legal instruments for reacting to such violations. In this connection, the Russian Central Bank along with the Russian Federal Antitrust Service prepared a draft legislative act that lays out the procedure for terminating voluntary insurance agreements and introducing the “cooling down period.” This regulation took effect on June 1, 2016.
Also, the State Duma adopted a draft law in the third reading which establishes fines for insurance companies for imposing additional services when signing a mandatory insurance agreement, in the amount from 100,000 to 300,000 rubles, as well as for refusal to enter into a mandatory insurance agreement (this concerns, among other cases, the cases where an insurance organization says that it is “impossible” to sign an agreement without additional insurance). The officials of an insurance company can, as before, be fined in the amount from 20,000 to 50,000 rubles. In addition, individual agents and brokers, if a violation is discovered, will be subject to liability as officials.
It should be noted that the “cooling down period” does not apply to relations in a so‑called “collective” insurance scheme, where the policyholder is the bank itself.
Administrative cases based on individual complaints concerning insurance services being imposed, will be examined by the Russian Central Bank (represented by the Service for Protection of Rights of Financial Services Consumers). At the same time, if services are imposed on an unspecified circle of persons, this could be deemed a breach of antitrust legislation, which falls under the competence of the Federal Antitrust Service.
The concept of a “cooling down period” being introduced, along with stricter liability for insurance companies, appears to be a significant measure, first of all, for the protection of consumer rights. Apparently, the lawmakers’ goal, in the end, is to protect the interests of the consumer as the party acquiring goods, works and services, who, in turn, is the main regulator of a market economy. In addition, this change protects the insurance company’s interests as well, with a significant reduction of the risks of its actions being qualified as imposition of services.
However, insurance companies that work with banks and use the “collective” insurance scheme for borrowers, still need to pay close attention to issues tied to their actions being qualified as imposing voluntary insurance services. On one hand, such insurance companies by default cannot be held liable for an administrative offence for imposing voluntary insurance services under the new amendments. On the other hand, if voluntary insurance services are indeed imposed on borrowers under a “collective” insurance scheme, there are still the risks that such actions may be qualified as violation of the antitrust law (by way of an anti-competitive agreement between the bank and the insurance company), as well as consumer protection law. It should be noted that sanctions for violating antitrust law can be much more severe than the sanctions under the new amendments.
Head of Antitrust Practice
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