MARKET TRENDS AND REGULATORY FRAMEWORK

1. What were the main trends in the insurance and reinsurance markets over the last 12 months? 

The last 12 months has been an active period for the Isle of Man insurance and reinsurance markets. There has been continued consolidation of life insurance books of business, and significant legislative developments in response to developing international standards for insurance regulation, including the Insurance Core Principles of the International Association of Insurance Supervisors. There has been a particular focus on solvency and group-wide supervision. The 2018 Roadmap for updating the Isle of Man’s regulatory framework for insurance business was issued in January 2018.

2. What is the regulatory framework for insurance/reinsurance activities? 

Regulatory framework 

Current position. The Insurance Act 2008, as amended (Insurance Act) and the Insurance Regulations 1986, as amended (Insurance Regulations) provide the statutory framework for the regulation of insurance and reinsurance activities.

The Corporate Governance Code of Practice for Regulated Insurance Entities issued under the Insurance Act provides binding guidance as a component part of a regulated entity’s means of maintaining and demonstrating adequate and effective corporate governance appropriate to its circumstances.

Proposed position. The 2018 Roadmap for updating the Isle of Man’s regulatory framework for insurance business issued in January 2018 (Roadmap) will bring a number of changes to primary and secondary legislation.

Included within the Roadmap are plans for the Insurance Act to be amended by the Insurance (Amendment) Act 2017 (Amendment Act). Provisions will be implemented in a phased way by Appointed Day Orders, the first of which came into operation on 1 February 2018. Further provisions of the Amendment Act are due to come into effect on 30 June 2018.

The Insurance Regulations 2018, which will revoke the Insurance Regulations are due to come into effect on 30 June 2018.

With effect from 30 June 2018, a risk-based capital and solvency regime in the Isle of Man will then be implemented. In connection with this, the Isle of Man Insurance (Long-Term Business Valuation and Solvency) Regulations 2018 are due to come into force on 30 June 2018.

The Roadmap also contemplates the implementation of the Insurance (Code of Business) (Long Term Business) Code and the Insurance (Conduct of Business) (Non Long Term Business) Code on 1 January 2019.

Group Supervision

Although the Financial Services Authority (Authority) currently participates in group supervision arrangements and attends supervisory colleges where it is appropriate to do so, additional statutory powers are required to enable it to act as group-wide supervisor of insurers where the group headquarters, or most significant operations of the group, are based in the Isle of Man. It is currently anticipated that all group supervision requirements for life insurers will come into force on 1 January 2019, with all group requirements for non-life insurers coming into force on 1 January 2020.

Regulatory bodies

The regulation of insurers and reinsurers in the Isle of Man is undertaken by the Authority.

 

regulation of insurance and reinsurance contracts

3. What is a contract of insurance for the purposes of the law and regulation? how does it differ from a contract of reinsurance? 

Contract of insurance 

A “contract of insurance” is defined under section 54 of the Insurance Act 2008, as amended as including any contract the effecting of which constitutes the carrying on of insurance business.

“Insurance” is defined as including assurance and reinsurance.

“Insurance business” is defined as the business of effecting or carrying out of contracts of insurance, and includes the effecting or carrying out of:

  • Contracts for fidelity bonds, performance bonds, administration bonds, bail bonds or customs bonds or similar contracts of guarantee, that are part of a business (and not merely incidental to some other business carried out) in return for the payment of one or more premiums.
  • Tontines.
  • Capital redemption contracts by a body that carries on other insurance business.
  • Contracts to pay annuities on human life.
  • Contracts that include provisions of insurance or that include options to enter into contracts of insurance.
  • Any prescribed contract in any prescribed circumstances.

Insurable interest 

There is not requirement to have an “insurable interest” for life assurance contracts. The Isle of Man Life Assurance (Insurable Interest) Act 2004 provides that an assurance contract is not void or illegal nor is it to be treated as ever having been void or illegal only because the policy holder did not have an insurable interest in the subject of the contract when the contract was entered into.

4. Are all contracts of insurance/reinsurance regulated? 

The financial Services Authority regulates the carrying on of insurance business in or from the Isle of Man.

Insurers and reinsurers are only permitted to carry on insurance business within the specific clauses of insurance business for which they are authorised. Regulation 2 of the Insurance Regulations 1986, as amended sets out the following prescribed classes of insurance business:

  • Long-term, including linked long term.
  • General, including;
    • marine, aviation and transport;
    • property;
    • motor;
    • pecuniary losses;
    • liability;
    • credit and suretyship;
    • personal miscellaneous, including accident, health and disability.
  • Reinsurance.
  • Restricted.

 

corporate structure

5. what form of corporate organisation can insurers take?

Insurers can be incorporated as;

  • Companies.
  • Protected cell companies.
  • Incorporated cell companies.
  • Limited partnerships.

The Isle of Man also has a regulatory framework for Insurance Special Purpose Vehicles (ISPVs), a specialist class of (re)insurer to facilitate Insurance Linked Securities and other collateralised (re)insurance transactions between sophisticated parties.

 

regulation of insurers and reinsurers

6. Are all insurers and reinsurers regulated? are they all regulated in the same way? 

Insurers and reinsurers are regulated in the Isle of Man by the Financial Services Authority under the Insurance Act 2008, as amended. For the regulation of difference categories of insurer/reinsurer, see Question 9. 

7. Can insurers and reinsurers carry on non-insurance business? are there any restrictions on their business activities? 

A restriction under section 16 of the Insurance Act 2008, as amended provides that an authorised insurer/reinsurer cannot carry on activities in the Isle of Man or elsewhere other than in connection with or for the purpose of its insurance business.

Insurers and reinsurers are only permitted to carry on insurance business within the specific classes of insurance business (see Question 4) for which they are authorised.

8. Are there any statutory limits or other restrictions on, or requirements relating to, the transfer of risk by insurance or reinsurance companies? 

An insurer can only take credit for reinsurance where there has been an effective transfer of risk from the insurer to the reinsurer.

 

operating restrictions – authorisation or licensing

9. does the entity or person have to be authorised or licensed?

Insurance and reinsurance providers

Section 53(2) of the Insurance Act 2008, as amended (Insurance Act) provides a general prohibition on (among other things) carrying on insurance business in or from the Isle of Man without being  appropriately authorised or permitted to do so, unless the relevant entity or person is exempt. See Question 10 for the main exemptions.

There is a distinction between an authorised insurer, which must be incorporated in the Isle of Man, an an insurance company incorporated outside the Isle of Man, which can apply to the Financial Services Authority (Authority) under section 22 of the Insurance Act for a permit to carry on insurance business from an establishment on the Isle of Man (permit holder). The extent that the Insurance Act, the Insurance Regulations 1986, as amended and the Corporate Governance Code of Practice for Regulated Insurance Entities apply to permit holders is limited, particularly in the case of permit holders that are authorised in the UK or an EU member state.

To apply for authorisation, an application form and supporting documents must be submitted to the Authority.

To become a permit holder, an insurance company incorporated outside the Isle of Man can apply to the Authority under Section 22 of the Insurance Act for a permit to carry on insurance business from an establishment on the Isle of Man.

Insurance and reinsurance intermediaries

General insurance intermediaries. Section 53(2) of the Insurance Act provides a general prohibition on (among other things) acting as an insurance intermediary in the course of a business carried on in or from the Isle of Man without being appropriately authorised or permitted to do so, unless the relevant entity or person is exempt. See Question 10 for the main exemptions.

Applications for registration are made in writing by the applicant to the Authority.

Long-term business intermediaries. Section 4 of the Financial Services Act 2008 provides a general prohibition against a person carrying on, or holding itself out as carrying on, by way of business, in or from the Isle of Man, a financial services activity, without a licence or in breach of licence conditions, unless an exclusion/exemption applies. See Question 10 for the main exemptions.

“Financial services activity” includes, among other things, investment business. Regulated activities under this class include, among others:

  • Dealing in investments by a professional dealer as principal.
  • Dealing in investments by any person as agent for another person.
  • Arranging deals in investments, including;
    • making arrangements for another person (whether as principal or as agent for a third person) to buy, sell, subscribe for or underwrite investments; and
    • making arrangements with a view to a person who participates in the arrangements buying, selling, subscribing for or underwriting investments (whether as principal or as agent for a third person).

“Investment” is defined as including, among other things, long-term insurance. “Long-term insurance” is in turn defined as meaning rights under a contract of insurance of life, annuity, marriage, birth, permanent health, tontines, capital redemption and pension fund management, but does not include pure protection contracts.

To apply for a licence, an application form and supporting documents must be submitted to the Authority.

Other providers of insurance/reinsurance-related activities

Section 53(2) of the Insurance Act provides a general prohibition on (among other things) acting as an insurance manager in the course of a business carried on in or from the Isle of Man without being appropriately authorised or permitted to do so.

Applications for registration are made in writing by the applicant to the Authority.

10. what are the main exemptions or exclusions from authorisation or licencing? 

Insurance and reinsurance providers 

The main exemption from authorisation are contained in regulation 20 of the Insurance Regulations 1986, as amended. In particular, paragraph (d) provides an exemption for an insurer that both:

  • Is authorised to carry on an insurance business in the UK or any other member state of the European Community.
  • Does not have a fixed place of business (other than an agency) in the Isle of Man.

Insurance and reinsurance intermediaries

General insurance intermediaries. Regulation 9 of the Insurance Intermediaries (General Business) Regulations 1999, as amended provides that the following classes of insurance intermediary are exempted from the requirement to register:

  • Persons acting as an intermediary only in respect of long-term insurance (who would be caught by the prohibition in the Financial Sevrices Act 2008, see Question 9).
  • Persons arranging insurance that covers the risk of loss or damage to goods or services provided by the person if the person’s principal business is not that of insurance intermediary.
  • An insurance intermediary who:
    • is registered with and regulated by the UK Financial Conduct Authority; and
    • is not ordinarily resident on the Isle of Man.

Long-term business intermediaries. The main exclusions from licensing for a long-term insurance intermediary are contained in class 2 (investment business) of Schedule 1 of the Regulated Activities Order 2011 (as amended). These includes transactions with overseas persons where the activity is carried on by an overseas person who is authorised to conduct that activity by an overseas regulator, and either:

  • The carrying on of the activity is the direct result of an approach made to the overseas person by or on behalf of an Isle of Man person that has not been solicited by the overseas person, other than by means of an advertisement that is neither:
    • targeted at Isle of Man persons; nor
    • disseminated by a medium which is targeted at Isle of Man persons.
  • The client or potential client in the Isle of Man is either:
    • a licence holder,
    • a person falling within the exclusion for an Isle of Man authorised insurer, permit holder, insurance manager, exempt insurer or retirement benefits scheme administrator; or
    • a person whose ordinary business activities involve them in acquiring, holding, managing or disposing of shares or debentures (as principal or agent), for the purposes of their business.

The exclusions also include where the relevant activity is part of any business carried on under:

  • Authorisation under section 8 of the Insurance Act 2008, as amended (Insurance Act).
  • The holding of a permit issued under section 22 of the Insurance Act.
  • Registration under section 23 of the Insurance Act.
  • An exemption under sections 5(2)(c) and 5(2)(d) of the Insurance Act.
  • Registration as a scheme administrator under section 36(1) of the Retirement Benefits Schemes Act 2005.

 

restrictions on ownership or control

11. are there any restrictions on the ownership or control of insurance-related entities? 

There are no restrictions on the ownership or control of insurance or reinsurance companies, intermediaries or managers. However, before granting authorisation, the Financial Services Authority (Authority) must be satisfied that, among other things, the controllers, directors, chief executive and managers:

  • Are fit and proper persons to hold the positions concerned.
  • For authorised insurers, collectively have the technical competence to carry on the classes of insurance business for which authorisation is sought.

See Question 12. 

Controllers of permit holders are not subject to the same fitness and propriety tests, but the Authority must be satisfied that the permit holder is carrying on the applicable class of insurance business in a country other than the Isle of Man in accordance with the laws of the country.

12. must owners or controllers be approved by or notified to the relevant authorities before taking, increasing or reducing their control or ownership of the entity? 

Insurance/reinsurance providers 

The current position under section 29 of the Insurance Act 2008, as amended (Insurance Act) is that if a person becomes a “controller” of an authorised insurer, a registered insurance manager or a registered insurance intermediary, written notice containing the particulars required by the Financial Services Authority (Authority) must be served on the Authority not less than 28 days before the event, or such other period as the Authority may agree in writing.

“Controller” is defined for a corporate body as a:

  • Managing director or chief executive of a parent entity of the corporate body.
  • Person in accordance with whose directions or instructions one or more of the directors of a corporate body’s parent entity are accustomed to act, unless the director or directors do so only because the advice is given by that person in a professional capacity.
  • Person who either alone or with any associate or associates controls 15% or more of the voting power at any general meeting of the corporate body or its parent entity.

There is also a requirement under section 30 of the Insurance Act to notify the Authority within 14 days of a person ceasing to be a controller.

Proposed position. The Insurance (Amendment) Act 2017 will amend the definition of “controller” so that the threshold will be 10% instead of 15%. The definition of “controller” will also include a person who either alone or with any associate or associates is able to exercise a significant influence over the management of the corporate body or its parent entity by virtue of a shareholding or an entitlement to exercise, or control the exercise of, voting power. It will also extend to a person who has the power to appoint and to remove directors to the board or other executive committees of the person.

Insurance/reinsurance intermediaries

General insurance intermediaries are subject to the same change of control requirements as authorised insurers (see above, Insurance/reinsurance providers).

In relation to long-term business intermediaries, which are subject to the financial services regime, consent from the Authority is required where there is, among other things, an acquisition of a controlling interest or any change to an existing controlling interest in the licence holder that would take that controlling interest from either:

  • 50% or less to over 50%.
  • 75% or less to over 75%.

The Authority must also be notified of, among other things, any change in an existing controlling interest in a licence holder not covered by the above, before the transaction takes place.

“Controlling interest” is defined by reference to “controller” under the Financial Services Act 2008, as meaning:

  • A managing director or chief executive of the licence holder’s parent entity.
  • A person in accordance with whose directions or instructions one or more of the directors of the licence holder’s parent entity are accustomed to act, unless they do so only because the advice is given by that person in a professional capacity.
  • A person who either alone or with any associate or associates controls 15% or more of the voting power at any general meeting of the licence holder or of another corporate body of which it is a subsidiary.

Other providers of insurance/reinsurance-related activities

Insurance managers are subject to the same change of control requirements as authorised insurers (see above, Insurance/reinsurance providers).

 

ongoing requirements for the authorised or licenced entity

13. what are the key ongoing requirements with which the authorised or licenced entity must comply? 

Insurance/reinsurance providers 

Authorised insurers are subject to ongoing regulatory requirements. The regulated entity must comply with the requirements in relations to governance, regulatory capital, systems and controls and other conduct matters set out in, among others, the:

  • Insurance Act 2008, as amended (Insurance Act).
  • Insurance Regulations 1986, as amended (Insurance Regulations).
  • Corporate Governance Code of Practice for Regulated Insurance Entities.

The extent that the Insurance Act, the Insurance Regulations and the CGC apply to permit holders is limited, particularly in the case of permit holders that are authorised in the UK or an EU member state (see Question 9).

Insurance/reinsurance intermediaries 

General insurance intermediaries are subject to ongoing regulatory requirements and must comply with the requirements set out in, among others, the Insurance Act and the Insurance Intermediaries (General Business) Regulations 1999, as amended.

Regulated long-term business intermediaries subject to the financial services regime must comply in relation to governance, systems and controls and other conduct matters with the requirements set out in. among others, the:

  • Financial Services Act 2008 and the secondary legislation made under it.
  • Financial Services Rule Book 2016 (Rule Book).

Other providers of insurance/reinsurance related activities

Insurance managers are subject to ongoing regulatory requirements and must comply with the requirements set out in, among others, the Insurance Act.

 

penalties for non-compliance with legal and regulatory requirements

14. what are the possible consequences of an entity failing to comply with the applicable legal and regulatory requirements? what recourse do policyholders have if they have done business with a non-approved entity? 

Insurance/reinsurance providers

The Financial Services Authority (Authority) has wide powers of supervision and enforcement. Failure to comply with applicable legal and regulatory requirements can lead to:

  • Inspection and investigation by the Authority.
  • Financial penalties.
  • Imprisonment of the entity’s officers.
  • Injunctions.
  • Restitution orders.
  • A petition for the winding up of the entity.

Policyholders can also refer a complaint to the Financial Services Ombudsman.

Any person who is aggrieved by a decision of the Authority under the Insurance Act 2008, as amended (Insurance Act) can appeal to the Insurance Tribunal.

The Insurance Act is silent as to the policyholder’s recourse if it has done business with a non-authorised entity, and so general common law remedies apply under the laws of contract/tort.

Insurance/reinsuarance intermediaries

General insurance intermediaries and long-term business intermediaries are subject to the same possible consequences as authorised insurers. Policyholders doing business with non-regulated intermediaries have the same recourse (see above, Insurance/reinsurance providers).

In addition, for any long-term business intermediaries under the financial services regime, section 27(1) of the Financial Services Act 2008 provides that an agreement made by a person in the course of carrying on a regulated activity in contravention of the general prohibition in section 4(1)(a) of the Financial Services Act 2008 is unenforceable against the other party.

Section 27(2) of the Financial Services Act 2008 provides that the other party is entitled to recover:

  • Any money or other property paid or transferred by that party under the agreement.
  • Compensation for any loss sustained by that party as a result of having parted with it.

Other providers of insurance/reinsurance-related activities

Insurance managers are subject to the same possible consequences as authorised insurers. Policyholders doing business with non-regulated insurance managers would have the same recourse (see above, Insurance/reinsurance providers).

 

restrictions on persons to whom services can be marketed or sold

are there any restrictions on the persons to whom insurance/reinsurance services and contracts can be marketed or sold? 

Insurance and reinsurance services and contracts can be marketed or sold in the Isle of Man to any person by insurers/reinsurers/intermediaries holding an appropriate authorisation/licence. If the insurer, reinsurer or intermediary is relying on an exclusion or exemption from authorisation or licencing (see Question 10), it must ensure that it fulfills those requirements.

there are restrictions on cold calling. The Unsolicited Communications Regulations 2005, which aim to protect the privacy of individuals, impose certain restrictions and prohibit making unsolicited calls for direct marketing purposes where the recipient of the call has notified the caller or Telephone Preference Service (in the case of an individual) that such calls should not be made. These regulations impose certain other restrictions in relation to other direct marketing technologies such as email or texting. The Consumer Protection Act 1991 makes it an offence to enter into a contract for services with a consumer as a result of an unsolicited visit or a telephone call that was not initiated or requested by the consumer. A “consumer” is defined as an individual who in making a relevant contract is acting for purposes which can be regarded as outside their business. However, these provisions are primarily aimed at preventing doorstep pressure selling techniques.

 

reinsurance monitoring and disclosure requirements

16. to what extent can/must a reinsurance company monitor the claims, settlements and underwriting of the cedant company? 

The extent to which a reinsurer can monitor the claims, settlements and underwriting of the cedant depends on the contractual provisions agreed between the reinsurer and cedant. These typically include clauses:

  • Requiring the cedant to provide regular underwriting information to the reinsurer (including premium income, notified claims and paid claims).
  • Granting rights of audit and inspection for the reinsurer.

17. what disclosure/notification obligations does the cedant company have to the reinsurance company? 

The common law duty to act with the utmost good faith and the duty to disclosure applies to the cedant company. The cedant must disclose to the reinsurer all facts known or deemed to be known to the reinsurer, that are material to the risk in the sense that a prudent insurer would take them into account when deciding whether or not to take the risk and, if so, on what terms it should do so.

 

insurance and reinsurance policies – content requirements and commonly found clauses

18. what are the main general form and content requirements for insurance policies? what are the most commonly found clauses? 

Form and content requirements

There are a few form and content requirements that apply to insurance contracts under Isle of Man law other than those set out in applicable consumer protection legislation and the Financial Services Authority’s regulatory conduct of business requirements and guidance.

Commonly found clauses 

Insurance policies typically contain the following clauses, among others:

  • Identity of the (re)insured.
  • Extent of cover,
  • Premium.
  • Exclusions from cover.
  • Warranties and conditions.
  • Data protection.
  • Governing law and jurisdiction.
  • Dispute resolution.

19. is facultative or treaty reinsurance more common? What are the most commonly found clauses in reinsurance policies? 

Facultative/treaty reinsurance

Treaty reinsurance is generally more common for life insurance companies, whereas facultative reinsurance is generally more common for captive companies.

Commonly found clauses

Commonly found clauses in reinsurance contracts include, among others:

  • “Follow the fortunes” or “follow the settlements”.
  • Claims of co-operation or claims control.
  • Access to and audit of reinsured’s records.
  • Reporting and provision of information.
  • Data protection.
  • Entire agreement.
  • Choice of law and jurisdiction.

 

implied terms

20. are there any terms that are implied by law or regulation (even if not included in the insurance or reinsurance contract)? 

Insurance and reinsurance contracts are subject to the principle of utmost good faith, which means that the insured must disclose material facts and not make untrue statements at the time of making, renewing or varying the contract.

See Question 21 in relation to certain consumer protection implied terms.

 

customer protections

how do customer protections in the general law affect insurance contracts? what customer protections are generally included in insurance policies to supplement this?

General law 

The general law provides certain protections for consumers, the main ones of which are as follows:

  • The Misrepresentation and Unfair Contract Terms Act 1980 (MUCTA) includes provisions relating to misrepresentation and applies to contract terms or notices that seek to limit or exclude liability. Under the MUCTA different controls apply according to the nature of the liability that a supplier wishes to exclude or restrict. Certain types of liability are not permitted to be excluded or limited in a consumer contract. Other types of liability can be excluded or limited in a consumer contract but only so far as the contract term satisfies the requirement of reasonableness.
  • The Supple of Goods and Services Act 1996, among other things, governs contracts for goods and services, and implies certain terms into those contracts. The implied terms can be negated or varied by express agreement, or by the course of dealing between the parties, or by usage that binds both parties to the contract.
  • The Consumer Protection Act 1991 contains, among other things, provisions to protect consumers from misleading price indications, misleading advertisements and unfair contract terms in consumer contracts. The unfair contract terms provisions apply to terms that are not individually negotiated and, in relation to certain terms, impose a test of fairness. If a term is unfair, it will not be binding on the consumer, although the rest of the contract will remain in force if it is capable of doing so. Terms relating to the adequacy of the price or remuneration, as against the goods or services supplied in exchange are outside the fairness test but only if they are drafted in plain intelligible language.

See Question 15 in relation to unsolicited communications restrictions.

Insurance policies

The Corporate Governance Code of Practice for Regulated Insurance Entities provides that insurers, reinsurers and insurance managers must, among other things:

  • Act honestly and in a straightforward manner.
  • Conduct their business with due care, skill and diligence, and with due regard for the potential consequences of their intended actions.

Insurance policies should be drafted to reflect this. The Rule Book provides similar requirements in relation to long-term business intermediaries who are subject to the financial services regime, and contains further requirements in relation to consumers who are considered “vulnerable”.

 

standard policies or terms

22. what are the main standard policies or terms produced by trade associations or relevant authorities? 

There are no standard policies or terms produced by trade associations or relevant authorities for insurers and reinsurers in the Isle of Man.

 

insurance and reinsurance policy claims – establishing an insurance claim

23. what must be established to trigger coverage under an insurance policy? 

The insurance policy generally governs the making of an insurance claim.

It is general principle of insurance law that the insurer is only liable for losses proximately caused by the risk covered by the policy. Accordingly, there needs to be an event or loss that is covered by the policy.

The insured must notify a claim to the insurer in accordance with the terms of the policy. There are usually provisions dealing with the notification procedure and any time limit within which a claim must be notified.

English case law is likely to be persuasive in the Isle of Man and where the policy term which has been breached is not a condition precedent, the insurer will likely need to establish that they have been prejudiced by the breach (see Alfred McAlpine plc v BAI (Run-Off) Ltd [2000] CLC 812; K/S Merc-Scandia XXXXII V Lloyd’s Underwriters & Ors [2000 C.L.C. 1425]). An insurer does not necessarily need to establish prejudice to avoid coverage on the basis of late notice if the condition is clear and is a condition precedent to the insurer’s liability to pay under the policy (see Pioneer Concrete (UK) Ltd v National Employers Mutual General Insurance Association Ltd [1985] 1 Lloyd’s Rep. 274).

An insurer has the right to pursue third parties who have caused the insured loss under the doctrine of “subrogation”. An insurer can exercise rights of subrogation if:

  • The insurance is an indemnity insurance.
  • It has made payment under the insurance.
  • Its rights of subrogation are not excluded by a term of the parties’ contract.

 

third party insurance claims

24. what are the circumstances in which third parties can claim under an insurance policy? 

Provided that assignment is not prohibited by the policy, an insured can assign their rights to a third party.

Under the Third Parties (Rights Against Insurers) Act 1932, a third party with a claim against an insured can claim against the insurer in the event of the insured’s insolvency.

Section 127 of the Matrimonial Proceedings Act 2003 allows a spouse or child named as a beneficiary to a policy of life insurance to enforce the policy.

It may also be possible to bring a third-party claim under the Contracts (Rights of Third Parties) Act 2001 but typically this Act would be expressly disapplied in the policy.

 

time limits

25. is there a time limit outside of which the insured/reinsured is barred from making a claim? 

In general terms. for a cause of action founded on simple contract, the Limitation Act 1984 imposes a time limit of six years from the date on which the cause of action accrued.

 

enforcement

26. can the original policyholder or other third party enforce the reinsurance contract against a reinsurer? 

A reinsurance contract is between the reinsured and the reinsurer. There is no contract between the original policyholder or other third party and the reinsurer, and so the original policyholder or other third party generally cannot enforce the reinsurance contract against a reinsurer. In certain specialised cases, such as aviation insurance, a cut-through clause may be incorporated, which allows the insured to have rights against the reinsurer under the reinsurance agreement.

The Contracts (Rights of Third Parties) Act 2001 provides certain rights to third parties but typically this Act would be expressly disapplied in the reinsurance contract.

 

remedies

27. what remedies are available for breach of an insurance policy? 

Breach by the insurer

Unless the contract provides otherwise, the general actions for breach of contract are available to the insured. Accordingly, an insured would have an action for damages in respect of its loss.

Normally damages are an adequate remedy for breach of an insurance policy. However, if damages are deemed neither adequate nor appropriate, the court can grant the remedy of specific performance.

Breach by the insured

A breach of a term that is a condition precedent means that there is no liability for an insurer to pay, whereas breach of any other term provides a remedy of damages for the insurer.

The common law principle of utmost good faith applies to insurance contracts (see Question 20). If an insurer has been misled by material misrepresentation or non-disclosure by the insured, it can treat this as a breach of the insured’s duty of good faith and regard the insurance contract as void.

 

punitive damage claims

28. are punitive damages insurable? can punitive damages be reinsured if they are covered by an underlying policy? 

Subject to the terms of the insurance contract, as a matter of general principle and public policy, damages awarded by a court, whether ordinary or punitive, are insurable. This insurance can be reinsured in the ordinary way.

 

insolvency of insurance and reinsurance providers

29. what is the regulatory framework for dealing with distressed or insolvent insurance or reinsurance companies, or other persons or entities providing insurance or reinsurance related services? what regulatory and/or other protections exist for policyholders if the insurance company is insolvent? 

The regulatory framework for dealing with distressed or insolvent insurance or reinsurance companies, or other persons or entities providing insurance or reinsurance related services is primarily dealt with in the following legislation:

  • Insurance Act 2008, as amended (Insurance Act).
  • Companies Acts 1931-2004.
  • Companies (Winding-Up) Rules 1934.
  • Bankruptcy Code 1892.

Winding up 

No authorised insurer that carries on long-ter mbusiness can be wound up voluntarily. Paragraph 12 of Schedule 3 to the Insurance Act provides that, unless a court directs otherwise, the liquidator must carry on the long-term business of the company with a view to it being transferred as a going concern to another corporate body. Under the Insurance Act, on a winding-up of an insurer, the assets in the insurer’s long-term business funds are available only for meeting the liabilities of the insurer attributable to its long-term business.

Under the Insurance (Amendment) Act 2017:

  • Subject to certain exemptions, non-life insurers are also prohibited from being wound up voluntarily.
  • In the event of a winding up, assets compromising a fund known as “technical provisions” (instead of the “long-term business fund”) are available only for meeting the obligations of the insurer in relation to its policyholders.

Policyholder protection scheme 

The Isle of Man has established a scheme for the statutory protection of policyholders through the Life Assurance (Compensation of Policyholders) Regulations 1991 (1991 Regulations).

Under the 1991 Regulations, if an authorised insurer becomes unable to meet its liabilities to policyholders (that is, becomes insolvent), up to 90% of the liabilities to policyholders under protected contracts (long-term business contracts effected by participating insurers) would be met by a fund consisting of, among other things, money obtained by levying contributions from authorised insurers. The 1991 Regulations provide protection to any person having an interest in any sum falling due under a protected contract, wherever they reside.

30. can excess insurance policies “drop down” to provide coverage if the primary insurer goes into insolvency? 

The possibility of a drop down depends on how the policy has been drafted.

31. is a right to set-off mutual debts and credits recognised in an insolvency proceeding involving an insurer or reinsurer? 

The general right to set-off mutual debts and credits in an insolvency proceedings is contained in section 22 of the Bankruptcy Code 1892 (which applies to Isle of Man companies by virtue of section 248 of the Companies Act 1931). Section 22 covers similar grounds to rule 14.25 of the Insolvency (England and Wales) Rules 2016 (of Parliament).

The right to set-off operates in much the same way for insurance companies, save that under the current legislation, the assets of the long-term business fund. The Insurance (Amendment) Act 1027 will not significantly alter how set-off would apply but instead of the “long-term business fund”, the reference will be to the “technical provisions”.

 

taxation of insurance and reinsurance providers

32. what is the tax treatment for insurers, reinsurers, and other persons or entities providing insurance and reinsurance-related services? 

Subject to certain exceptions, the standard rate of corporate income tax in the Isle of Man is 0%.

 

insurance and reinsurance dispute resolution

33. are there special procedures or venues for dealing with insurance or reinsurance complaints or disputes? 

For litigation, insurance disputes are heard in the High Court of Justice of the Isle of Man. Hearings are governed by the Rules of the High Court of Justice 2009.

Any person who is aggrieved by a decision of the Financial Services Authority under the Insurance Act 2008, as amended can appeal to the Insurance Tribunal, in accordance with rules made under section 8 of the Tribunals Act 2006.

The Financial Services Ombudsman Scheme also exists as an independent dispute resolution service for policyholders with a complaint against Isle of Man authorised insurers or permit holders, among others.

34. are arbitration clauses in insurance and reinsurance agreements enforceable? 

Arbitration clauses in insurance and reinsurance agreements are generally enforceable provided that the clause is valid under the applicable law.

35. are choice of forum, venue and applicable law clauses in an insurance or reinsurance contract recognised and enforced? 

Choice of form, venue and applicable law clauses in an insurance or reinsurance contract are generally recognised and enforced, provided that the choice is:

  • Reasonable.
  • Not contrary to Isle of Man public policy.
  • Decided in good faith

 

Reform

36. what proposals are there for reform of the law, regulation or rules relating to the provision of insurance or reinsurance services? 

Isle of Man legislation is currently being updated. Amendments are due to be brought into force as a result of the 2018 Roadmap for updating the Isle of Man’s regulatory framework for insurance business, Insurance (Amendment) Act 2017, Insurance Regulations 2018 and changes to the Corporate Governance Code of Practice for Regulated Insurance Entities (see Question 2).

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