Consequences of
infringment of transparency
rules
By Sara Landini
University of Florence
Norms and Sanctions
 Norms are social rules of behavior,
 and sanctions are forms of punishment against
violation of different norms.
Norms and Sanctions
A characteristic of juridical norms is the nature of the
related sanctions
Formal deviance results in legal sanctions, such as fines or
prison, while informal deviance results in social sanctions or
stigma.
Norms and Sanctions
Commonly sanctions are diveded in:
 PENAL SANCTIONS
A penal sanction arises from a criminal offence. Penal sanctions include
prison. Penal authority is required to respect due process right.
It is quite rare to find countries providing for penal sanctions in case of unfair
commercial practices and of infringment of transparency rules.
Norms and Sanctions
For example in New Zeland according to the Fair Trading Act,
applicable also to insurance companies, some cases of unfair trading
are cosidered as criminal offences.
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
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.
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.
Transparency Rules and Sanctions
Transparency rules concern :
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.
Transparency Rules and Sanctions
When we talk about sanctions in case of infringment of
rules established for the purpose of consumer protection,
we have to take into account that:
 of course a strong pecuniary sanction can have a
significant deterrent function, but
 it could determine economic crisis of the insurance
company
negative impact on consumers
interests
Transparency and Sanctions
The above considerations are particularly important
having regard to administrative sanctions because:
- they are pecuniary
- the creditor is not the consumer. It’s the State.
Sanctions to Company and to
Intermediaries
 Usually sanctions are provided both against companies
and against intermediaries.
 In some countries sanctions are provided only against
companies also in case of infringment of transparency
rules by an agent, because companies have to
supervise the conduct of agents acting on their behalf.
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.
Sanctions to Companies and to
intermediaries
 Administrative sanctions are usually provided in case
both of infringment of precontractual transparency rules
and of infringment of contractual transparency rules.
 We have some exceptions:
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.
Sanctions to Companies and to
intermediaries
 In some countries Public Authority controls the content
of general conditions and/or of disclosure documents.
Sanctions to Companies and to
intermediaries
For instance in France
art. L.310-8 Insurance Code : Minister of Economy and Finance : “The minister
may require the disclosure of contractual or advertising documents for the
purpose of an insurance or capitalisation.
If it appears that a document breaches the law or regulations, the minister
may require that it be modified or decide on the withdrawal thereof after he
has heard the opinion of the consultative committee of the financial sector. In
the event of an emergency, the opinion of the consultative committee of the
financial sector shall not be required.
Also in Australia Public Authority can control and prohibit the use of misleading
disclosure documents.
Sanctions to Companies and to
intermediaries
In other countries, like Argentina, Japan, Hong
Kong etc., it is provided for a preventive control of
the content of insurance general conditions.
Sanctions to Companies and to
intermediaries
 Argentinian Report underlines that such preventive control is not
sufficient in order to guarantee transparency.
 Generally speaking we can say that precontractual and
contractual transparency should be considered case by case
taking into account the information given to the insured party, the
individual interest of the insured party, ecc.
We don’t think that a preventive control represents a
solution to transparency problem and moreover …
a preventive control undermines PRIVATE AUTONOMY
PRINCIPLE, that is one of the most important principle of
modern private law.
Preventive measures
Many countries (like France, Belgium, Germany,Danimark,
Argentina, Brasil, Cile, Singapore etc.) provides for orders of
correction, raccomandations or warnings.
Pecuniary and Disqualification Sanctions
The most common administrative sanctions are the following:
 civil penalty,
 placing a producer on probation,
 license suspension 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.
Adminstrative Sanctions and Civil
Sanctions
Generally speaking 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.
Principle of proportionality and
Sanctions
 We would like to emphasize a conclusion contained in the Report of
German Chapter.
 The German supervisory authority may in principle take any
supervisory measure that is suitable and necessary to 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.»
Principle of proportionality and
Sanctions
Sanctions need to be proportional. There should
be a proportionality between irregularities and
measures employed to hinder or eliminate
irregularities.
Otherwise sanctions can damage both market
and consumers!
Thanks for your attention!