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This Tuesday a decree law was published in Diário da República that establishes an exceptional and temporary regime for insurance contracts, in response to the epidemiological situation caused by the Covid-19 disease pandemic. These rules went into effect this Wednesday and are in effect until September 30.
The two main measures are the temporary maintenance of the insurance contract even if the payment of the premium fails and the obligation to temporarily reduce the amount of the premium due to the temporary reduction in risk, resulting from the reduction or allocation of the activity.
Insurers that do not comply will be subject to administrative infractions and the Authority for the Supervision of Insurance and Pension Funds (ASF) is responsible for ensuring that this temporary regime is applied.
There are three measures that will be adopted under this Decree-Law No. 20-F / 2020, of May 12.
The first temporarily changes the system of payment of the common insurance premium that establishes, as a structuring principle, “the absolute imperative” of the beginning or renewal of the coverage of a risk preceded by the payment of the respective premium. And it establishes the temporary and exceptional flexibility of the premium payment regime, making it a relative imperative regime, that is, assuming that the parties agree to a more favorable regime for the policyholder.
That is, there is the possibility of agreeing between the insurer and the insured (client) the payment of the premium at a later date than the beginning of the coverage of the risks.
The elimination of the automatic resolution or the non-extension in case of non-payment is also stipulated; the fractionation of the premium; the extension of the validity of the insurance contract; the temporary suspension of the payment of the premium and the temporary reduction of the amount of the premium due to the temporary reduction of the risk.
Some insurances are exempt from this measure “since it is possible to stipulate different contractual conditions, such as life insurance and insurances that cover greater risks or because they correspond to very specific insurances to which the application of common rules is not possible (crop insurance and earned and mutual insurance paid with the proceeds of the proceeds). “
The second measure establishes that, in the absence of an agreement between the insurer and the policyholder, and in case of non-payment of the premium or fraction on the respective due date, the coverage of the compulsory insurance is maintained in its entirety for a period limited to 60 days from the due date of the premium or fraction owed.
But since the client (policy holder) may not want to keep this coverage, the insurer will have to notify him at least 10 business days before the premium expires, so that the policy holder can inform the insurer that he intends to maintain coverage.
If the policyholder does not pay the premium at the end of the 60-day period, the insurance contract ceases, but is not exempt from paying the premium for the period in which the contract was in effect. That is, after the insurance contract ends, the insured will have to pay the missing premiums.
“The amount of the outstanding premium can be deducted from any cash payment owed by the insurer to the policyholder, that is, due to the occurrence of a claim in the period in which the contract was in force,” the law details.
Finally, there is a third measure that provides for the reduction of the premium due to the reduction of the risk that is covered, due to the reduction or closure of the activity due to the emergency shutdown decreed to stop the pandemic of the new coronavirus.
Insured persons who carry out activities that are suspended or whose establishments or facilities are still closed due to exceptional and temporary measures adopted in response to the Covid-19 disease pandemic, or those whose activities have been substantially reduced due to the direct or indirect impact of these measures “may request the reflection of these circumstances in the insurance premium that covers the risks of the activity, applying, with the necessary adaptations, the provisions of article 92 of the legal regime of the insurance contract, approved by Decree-law No. 72/2008, of April 16, in its current wording, in addition to requesting the payment of premiums related to the current annuity, without additional costs.
Article 92 (risk reduction) already foresees a reduction in the insurance premium compared to an “unequivocal and lasting risk reduction, reflected in the conditions of the contract”, with the insured with the right to request the insurer, who “in the the moment you become aware of the new circumstances, you must reflect this in the contract premium. ”General law also says that in the absence of an agreement on the new premium, the policyholder has the right to terminate the contract.
This measure now provided for in the temporary regime (to request the reevaluation of the premium in the event of the collapse or cessation of activity in the current context) covers the insurance that is subscribed in correlation with the activity affected, which may be involved, among others , civil liability insurance, professional liability insurance, occupational accident insurance, personal accident insurance or assistance insurance, while the insurance covers the risks related to these activities.
“It is considered that there is a substantial reduction in activity when the insured is in a business crisis situation, even when there is an abrupt and abrupt drop in at least 40% of turnover,” says the diploma on May 12. .
The regime also stipulates that when the premium has already been paid in full before the reduction, “the amount of the premium reduction is deducted from the amount due in the next annuity or, in the case of an insurance contract that does not it is extended, it is returned within ten business days before the respective termination, unless there is another agreement between the insurer and the policyholder ”.
This measure is not applicable to insurance that covers large risks.
“ASF is the authority responsible for the supervision and inspection of the application of the measures resulting from this Decree Law, as well as the exercise of sanctioning powers, being able to densify, by regulatory rule, the duties of insurers. The Decree Law goes into effect on May 13 and will last until September 30, 2020, ”the insurance supervisor’s statement reads.
The Government considered that the current situation of public calamity caused by the Covid -19 disease pandemic “has a relevant impact on the exercise of the insurance activity that must be addressed through the approval of an exceptional and temporary regime regarding payment of the insurance premium and the effects of temporary reduction, total or partial, of the risk of the activity in the insurance contract ”.
ASF says that it has closely followed the evolution of the epidemiological situation of the new coronavirus, in particular the impacts on the exercise of insurance activity. In view of the main objective (protection of the insured, insured, subscribers, participants, beneficiaries and injured parties), it is up to the ASF to promote the stability and financial strength of the entities under its supervision, as well as maintaining high standards of conduct . for them, monitoring and reflecting on the reflections of the current situation and the need to preserve the good reputation of the insurance sector.
To this end, says the ASF, “it is essential to ensure the capacity of the insurance sector to respond to the adversities derived from the crisis associated with Covid-19 disease and the challenges that arise, contributing to financial stability and adjusting contractual solutions. looking for a fair contractual balance. “
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