1. Consequences of infringment of transparency rules By Sara Landini University of Florence

2. Norms and Sanctions  Norms are social rules of behavior,  and sanctions are forms of punishment against violation of different norms.

3. 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.

4. 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.

5. 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

6. 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.

7. 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.

8. 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.

9. 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

10. 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.

11. 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.

12. 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.

13. 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:

14. 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.

15. Sanctions to Companies and to intermediaries  In some countries Public Authority controls the content of general conditions and/or of disclosure documents.

16. 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.

17. 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.

18. 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.

19. Preventive measures Many countries (like France, Belgium, Germany,Danimark, Argentina, Brasil, Cile, Singapore etc.) provides for orders of correction, raccomandations or warnings.

20. 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.

21. 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.

22. 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.»

23. 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!

24. Thanks for your attention!