Overall, these legal updates demonstrate Ukraine’s commitment to establishing a modern, transparent, insurance market. The benefits to the country go far beyond regulatory alignment with EU standards.
The Ukraine has recently taken several legal decisions which benefit the insurance industry and help boost the country’s internationalisation. We take a closer look at both laws and ask what changes they will bring to the Ukrainian insurance industry.
‘On Insurance’: A Promising Sign for the Future
Ukraine initially adopted its new “On Insurance” law (Law No. 1909-IX) at the end of 2021 to replace the previous law from 1996. This law took effect at the beginning of 2024, with a transitional period extended until 30 June 2024. The new legislation is a positive development for the country as it demonstrates Ukraine’s intention to align with European standards, thereby strengthening its position on the international stage. For the insurance industry, it signals Ukraine’s readiness to reform its insurance sector.
The law also enhances customer protection by strengthening solvency and regulation standards for insurance companies and improving information and due diligence obligations for insurance intermediaries. However, the implementation of the new law also presents challenges, as not all regulatory frameworks have been developed, which is leading to market uncertainties. Despite this, the National Bank of Ukraine (NBU) has finalised key regulations, with the remaining documents expected to be approved soon.
Summary of the Key Changes and What they Mean for the Industry
Simplification (Introduction) of Insurance Classes: The reform reduces the number of insurance classes to 23 (down from over 50), including five for life insurance. This simplification eases the licensing process for insurers, allowing them to obtain a single license for multiple classes of insurance (up to 12 types) instead of having to apply for a separate license for each type.
Activities of Foreign Insurers: The law modifies the conditions for foreign insurers operating in Ukraine. Most notably, insurers from states involved in armed aggression against Ukraine are no longer allowed to operate. This primarily affects companies from the Russian Federation and the Republic of Belarus.
Reduction of Mandatory Insurances: As previously mentioned, the transition from mandatory types of insurance to insurance classes as per the Solvency II European Directive is underway. Initially, there were over 40 mandatory insurance types, but not all proved effective in practice. Some of these less effective mandatory insurances for company employees have now been made optional. However, many mandatory insurances have been retained with a ‘required by law’ status.
Businesses will still need to cover previously mandatory risks, but under voluntary insurance classes, as licenses for compulsory insurance will be cancelled. These insurances will now feature free pricing, with the state only setting the insurance amounts and payment principles.
Additionally, capital requirements for insurers have been updated. New legal acts for each insurance type need to be developed and approved by the Cabinet of Ministers or relevant departments, but this process is currently behind schedule.
Modernising the regulatory framework is crucial, and the transition period may need to be extended to January 1, 2025, to accommodate these necessary changes and avoid leaving professionals uninsured.
Stricter Solvency Requirements for Insurers: Insurance companies must now meet stricter solvency capital and minimum capital requirements. These are evaluated and calculated annually, with the National Bank of Ukraine (NBU) establishing the procedure for their calculation.
The new capital requirements ensure insurers have enough capital to cover potential losses, protecting policyholders and maintaining financial stability in the insurance sector. The NBU’s supervisory role includes the authority to adjust requirements to address specific risks and ensure compliance. Minimum share capital amounts will be reviewed by the NBU every five years to ensure they remain adequate. The phased introduction allows insurers time to adapt.
Organisational Requirements of Insurers: The law strengthens the requirements for the management and ownership structure of insurance companies. The NBU is pivotal in approving significant acquisitions and evaluating the business reputation and financial circumstances of the involved entities. Overall, these changes are likely to increase the regulatory burden on insurers but also enhance the industry’s stability and reliability.
Regulation of Insurance Intermediaries: The updated regulations for insurance intermediaries establish clear requirements for their qualifications and experience. Intermediaries must now provide detailed information to customers before concluding contracts.
If insurance intermediaries handle insurance/reinsurance premiums and payments from clients, insurers, or reinsurers, they must have compulsory professional liability indemnity insurance. Additionally, intermediaries are required to maintain separate current bank accounts.
It is clear here that the aim is to move closer to the European Insurance Distribution Directive (IDD). With all the changes introduced, the focus is on customer protection.
Control and Supervision for the Insurance Market: The new law introduces a comprehensive set of supervisory measures to address various violations and stages of solvency risk in the insurance sector. If solvency risks are identified, insurers must notify the NBU, and develop and get approval for recovery or financing plans. These plans include corrective for general guidance, early intervention to address emerging issues, and enforcement measures for serious infractions, each with specific conditions and procedures.
Additionally, insurers must report solvency risks to the NBU and follow approved plans to ensure proactive solvency management and oversight of solvency issues.
Market Exit Procedures: The new law outlines the procedures for insurers to exit the market, with additional details provided by NBU regulations. Insurers can voluntarily withdraw through reorganization, liquidation, or portfolio transfer, requiring management approval and NBU permission. Involuntary withdrawal occurs through NBU-initiated licence cancellation or insolvency classification, leading to court-ordered liquidation and the appointment of an administrator or liquidator to manage the process and protect consumer interests.
Regulation of bankruptcy proceedings: The law amended the regulations for insurance companies’ bankruptcy proceedings. Bankruptcy applications can now only be filed by the NBU or a court-appointed liquidator. These amendments streamline handling insolvent insurers, giving the NBU a central role in overseeing orderly exits and protecting consumer rights while maintaining sector stability. The focus is on preventing financially unsustainable operations to safeguard policyholders and the insurance system’s integrity. The NBU’s enhanced authority reflects a commitment to strict regulatory oversight and financial prudence.
Further steps towards EU alignment
In addition to the new “On Insurance” law, on 17 June 2024, President Volodymyr Zelenskyi signed a law on Compulsory Civil Liability Insurance of Land Vehicle Owners (draft law No. 8300). This law modernizes the nearly 20-year-old mandatory civil liability insurance, known as “autocivilka,” to meet EU standards and contemporary needs. Its significance lies in the fact that compulsory motor liability accounts for the largest share of the insurance business in the Ukraine.
The legislation addresses issues such as outdated insurance payment procedures, low liability limits, state pricing regulation, and inefficiencies within the Motor Insurance Bureau of Ukraine. Key proposals include gradually increasing insurance sums, expediting payments for victims of bankrupt insurers, expanding the use of the “European protocol” for filing claims without police involvement, and calculating insurance payments without considering vehicle wear and tear.
A Positive Step Towards Internationalisation
Overall, these legal updates demonstrate Ukraine’s commitment to establishing a modern, transparent, insurance market. The benefits to the country go far beyond regulatory alignment with EU standards. They also make great strides towards attracting foreign investment, enhancing competitiveness, and stabilising the market. All in all, this results in a robust insurance sector which supports other areas of the economy by providing risk management solutions, fostering entrepreneurship, and encouraging investments, ultimately spurring economic growth and development.
Sources: https://eba.com.ua/en/novyj-zakon-pro-strahuvannya-klyuchovi-zminy/
Paul Johannes Spittau
Head of Group Carrier Relations & Insurance Mediation
T +43 664 537 17 42
