Overhaul of law on insurance contracts: unwarranted hype?

With the introduction of a new law on insurance contracts, Latvia is attempting to bring its insurance norms up to speed with EU law

On 1 June 2018, the new Law on Insurance Contracts entered into force. While the legislator intended to readjust and straighten the legal order of insurance-related laws, incorporate new EU-level norms and establish a more beneficial system, lawmakers have produced a rather chaotic set of rules.

One of the goals of the Law on Insurance Contracts was to integrate certain provisions previously found in other laws governing insurance in Latvia. Nonetheless, norms directly relating to insurance contracts still to this day remain scattered around other legal sources. Furthermore, promises to fulfil the country’s obligation towards the EU by transposing the latest directive on insurance distribution have not materialised. Contrary to the initial draft law, which appeared to be rather promising, the law as adopted contains no references to crucial provisions found in the EU directive. Although the directive’s transposition deadline has expired, the Ministry of Finance in charge of the draft issued only a vague announcement that another future law would transpose the EU directive – counteracting at the same time both the aims of the legislator to create a single law for insurance contracts and to transpose EU law. This again would add to the fragmented legal order in the field of insurance undertakings.

Notwithstanding, the recent changes are not all bad. For one, lawmakers have now provided an option to conclude insurance contracts digitally. Additionally, substantial improvements have been achieved in relation to consumer rights, as insurance companies are from now on obliged to provide the insured with documents substantiating the company’s decision on the insurance compensation. This has the potential to significantly improve the dispute resolution process.

In turn, in the fight against insurance fraud, the legislator has provided insurers with specific rights. For example, payment of insurance compensation can be withheld if criminal or administrative proceedings are initiated in relation to an insurance case and if the insurer’s decision on payment is dependent on the outcome of the proceedings. Until the final decision in the proceedings, the insurer has the right to withhold payments.

Source: Law on Insurance Contracts

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