Adjustment Procedures, Claims Control
and Cooperation Clauses, Reinsurance
Contracts and Dispute Resolution under
the new Contracts Act and Regulations
JAVIER CARVALLO I President
I. INTRODUCTION:
Key Facts about the Chilean Insurance Market.
Key facts about the Chilean Insurance Market:
1. Insurance is a crucial part of the Chilean Economy;
2. The market is open to international insurance and
reinsurance; and,
3. The legal framework is clear, but strict.
1.THE INSURANCE INDUSTRY AS A CRUCIAL PART OF
THE CHILEAN ECONOMY.
♦ In December 2012, investments held by Chilean
Insurers totalled MM US$ 49.412, equivalent
to 18.34 % of Chile’s Gross Domestic Product.
1.
THE INSURANCE INDUSTRY AS CRUCIAL PART OF THE
CHILEAN ECONOMY.
8,000
7,000
♦ The industry has grown
6,053
6,000
5,000
7,497
6,983
5,058
4,000
3,902
3,713
3,000
3,103
2,694
2,000
1,000
0
2009
2010
! "# $
%&'
LIFE&( $) &* NON-LIFE
2011
2012
continuously - 47%
over the last 4 years.
Direct
premium
reached MM US$
11,399 in December
2012
1.
THE INSURANCE INDUSTRY AS A CRUCIAL PART IN THE
CHILEAN ECONOMY
♦ Insurance Companies are crucial to the Chilean Pension
System. Insurers provide Disability and Survival Insurance and
can also become Pension Plan Administrators.
♦ As a country with catastrophic risk exposure, insurance is
essential in Chile.
2.
A MARKET OPEN TO INTERNATIONAL INSURANCE AND
REINSURANCE.
♦ As a general principle, insurance activity is limited to Companies
established in Chile.
♦ However, there are no restrictions on foreign Insurers and
Brokers establishing themselves in Chile. In fact, of the 10
largest insurance groups, 5 are currently international
corporations.
2.
A MARKET OPEN TO INTERNATIONAL INSURANCE AND
REINSURANCE.
♦ There is no restriction on buying reinsurance abroad with
authorized reinsurers. Lloyd’s and its Syndicates have been
authorised to operate in Chile, as a “foreign reinsurance entity”,
since March 27th, 2002.
♦ Reinsurance may also be placed through Brokers - who must be
registered and have E&O cover.
3.
CLEAR, BUT STRICT, LEGAL FRAMEWORK
♦ Regulations apply to Public and Private sectors. The
entity that supervises the market is the “Securities and
Insurance Supervisory Authority”.
♦ The involvement of the Supervisory Authority is based on
the constitutional concept of “Economic Public Order”,
because public confidence is involved.
3.
CLEAR, BUT STRICT, LEGAL FRAMEWORK
♦ Supervision is based on two key concepts: “solvency” and
“market conduct”, aiming to ensure that all market players
are able to meet their liabilities and that the consumer
receives fair and transparent treatment.
♦ Supervision applies to all market entities, including Insurers,
Reinsurers, Brokers and Adjusters. It also extends to other
participants, such as Banks, Department Stores and other
service providers.
MAIN SUBJECT OF THIS PRESENTATION:
♦ Regulations intended to ensure good “market conduct” include
those related to loss adjusting, reinsurance contracts and dispute
resolution. These were recently modified via the following legal
instruments:
♦ Supreme Decree Nº 1.055, which modified loss adjusting
procedures, and came into effect on 1 June 2013; and,
♦ The new Insurance Contracts Act (Law 20667), which
modified the Commercial Code and applies to the
Insurance and Reinsurance Contracts. Becomes
effective on 1 December 2013.
II. LOSS ADJUSTING UNDER DS 1055
1.
GENERAL
♦ Any loss affecting a policy issued in Chile must be adjusted in
accordance with DS 1055.
♦ The only exception is the immediate payment of a claim.
♦ The loss may be adjusted by the insurer or through an
external adjuster. In both cases DS 1055 will apply.
1.
GENERAL CONSIDERATIONS
♦ The process concludes with a report that offers an opinion on
coverage, the value of the damaged property and the
amount payable, if appropriate.
♦ All losses are processed under this uniform procedure, which
the Act deems to be known by all parties.
2.
THE EXTERNAL LOSS ADJUSTER
♦ Considered an “Insurance Industry Auxiliary”, who is appointed
and supervised by the Supervisory Authority.
♦ The regulations protect his independence and therefore: (a) Loss
adjusting is an “exclusive line of business”; (b) The claim file is
available to the parties; and, (c) any breach of his duties may be
sanctioned with a fine, suspension or even cancellation of license.
♦ The Adjuster is empowered by law to gather information from
judicial, police or administrative authorities, which facilitates the
investigation of cause and quantum.
3.
ADJUSTMENT PROCEDURES AND “CLAIMS COOPERATION
AND CONTROL CLAUSES”
♦ Time limits range from 45 to 180 days, depending on the type of policy
and circumstances of the loss.
♦ These can be extended, provided that plausible reasons are given.
♦ The Insured may oppose a request for extension. In such cases, the
Supervisory Authority will access the file and may order the report to
be issued.
♦ When the adjustment is completed, the Final Report is sent
simultaneously to all interested parties, who have 10 days to
challenge its findings and conclusions.
3.
ADJUSTMENT PROCEDURES AND “CLAIMS COOPERATION
AND CONTROL CLAUSES”
♦ If the report is not challenged, the Insurer must make the
proposed payment within 6 days. If objections are partial, the
“undisputed amount” must also be paid.
♦ The parties may agree on a longer payment period, provided
they use a “non-standard” policy wording (i.e. negotiated
between the parties).
3.
ADJUSTMENT PROCEDURES AND “CLAIMS COOPERATION
AND CONTROL CLAUSES”
♦ Claims Cooperation or Control Clauses, can be enforced
through the Insurer, within the applicable time limits.
♦ The Adjustment Report is considered a private instrument, but
may constitute full evidence if the claim ends up in a litigation.
III. THE REINSURANCE CONTRACT UNDER
THE NEW ACT.
THE REINSURANCE CONTRACT UNDER THE NEW ACT
♦ The legal system now regulates the reinsurance contract for the
first time.
♦ Reinsurance is defined as an autonomous contract intended to
protect the insurer’s assets.
♦ The Act acknowledges that the terms and conditions of the
reinsurance contract may be differ from those of the reinsured
policy, and allows it to be construed in accordance with
“international custom and practice”.
THE REINSURANCE CONTRACT UNDER THE NEW ACT
♦ Insurers are not permitted to defer payments because of
reinsurance. This should prevent the inclusion of “Available
Funds Clauses”, which have been widely used in the Chilean
market.
♦ The Act allows Insurers to assign their rights in the
reinsurance contract to the insured. In practical terms, this
amounts to a blessing of the “One Way Cut Through Clause”.
IV. RESOLUTION OF CONFLICTS IN
INSURANCE AND REINSURANCE
1.
DIRECT INSURANCE
♦ The general rule is that disputes between insured and insurer
must be submitted to arbitration.
♦ The arbitrator is appointed by mutual agreement - or by the
Ordinary Courts if an agreement is not reached. Any kind of
prior appointment is prohibited.
♦ This does not apply to losses under 10,000 Unidades de
Fomento (approx. US$ 450,000), in which the Insured may opt to
resort to the Ordinary Courts.
2.
REINSURANCE
a) Litigation on reinsurance matters is subject to Chilean
Jurisdiction, and any agreement to the contrary is null and void.
Arbitration may also be agreed, provided that the venue is
Chile.
b) Once a dispute has arisen, however, the Act allows the parties
to agree to submit to international commercial arbitration,
which may take place in another country. Chile adopted the
UNCITRAL Model Law for International Commercial Arbitration
in 2004.
2.
REINSURANCE
♦
This leads to a Question: Could two entities, such as Lloyd’s
and the Chilean Association of Insurers A.G., agree in
advance upon an international arbitration mechanism, before
a dispute has arisen?
♦
This is perfectly possible, but it would not be legally
enforceable.
V.
A FINAL THOUGHT:
Is this legal framework beneficial?
FINAL THOUGHT: Is it convenient to have a Legal Framework
such as this one?
♦ This is a political question which goes beyond the scope
of this presentation.
♦ Nevertheless, Chile’s 2010 Earthquake and Tsunami
provide a solid example that could help us answer this
question.
The following are some brief indicators  
It was the
1
6th worst earthquake in recorded history:
8.8 degrees on the Richter scale.
2
75%
of the Chilean population was affected. The
165,796
earthquake was felt over an area of
square
kilometers, which includes Chile’s 6 main cities.
3
The Insurance Market received
222,416 claims. Of these,
190,299 were under home insurance policies and 32,117
were business and industrial risks.
4
Claim payments totalled
9.31 times
Companies.
MM US$6,600 an
amount
the total assets of Chilean Non-Life Insurance
The performance of the insurance and reinsurance markets may be
considered exceptional, because:
♦ At
December 31, 2011 (only 22 months after the loss) 
♦Of the
190,299 home insurance claims, only
63
(0.034%) remained open.
♦ Of the
32,117 commercial & industrial claims,
1,037 (3.22%) were still being adjusted
Today:
♦ There are no claims pending adjustment.
♦ Less than
20 (0.009%) of the claims ended up in litigation, even
though 72,302 claims (32.51%) received no payment.
♦ No Chilean insurer or international reinsurer defaulted or delayed
payments, which is in itself evidence of a successful adjusting process.
HOME
AND
COMMERCIAL
222,416
EQ/ 27F
2010
CLOSED
WITH
PAYMENT
150,114
CLOSED
WITHOUT
PAYMENT
72,302
IN LITIGATION
20
To sum up, a reinsurer who does business in Chile will have the
benefit of a transparent, predictable and serious legal framework
and market, but …will have to play by the book.
Thank you!!
JAVIER CARVALLO
September 11, 2013