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Insure and Risk: What are the Steps for Clients of Insurance Company in Case of its Bankruptcy


Oleksandr Vygovskyy, attorney at Ilyashev & Partners Law Firm


And what are the legislative novelties to be adopted in this sector

The bankruptcies of financial institutions unfortunately become fairly common in Ukraine. Therewith, not only the banks’ exit from market becomes widely notable, but also the exit of insurance companies, especially those dealing with life insurance.

The legal protection of insurance companies’ clients is much worse than of the banks’ depositors: when bank depositors are liable to the guaranteed reimbursement of their deposits in the amount up to 200 000 UAH from the Individual Deposits Guarantee Fund, the insurants (policy holders), paying for the decades their insurance premiums, have no guarantees and reimbursements. In practice, hardly anybody think about this when signing life insurance agreements and entrusting their savings to insurers, who in their turn have no immunity from bankruptcy.

For example, the disappearance from market of «Ukrainian Insurance Company «Garant-Life» JSC became the most notorious and unexpected event last year. On November 1, 2016, the National Commission for Financial Services with its Resolution №2799 canceled this insurer’s license for insurance activities. This decision was issued based on the results of an unannounced on site inspection of the insurer’s activities. In the course of this inspection the inspection group identified that the company did not reside at the registered address.

At the same time, as stated in press-release published on the regulator’s web-site, the Commission does not possess any information (!) on the availability or absence of assets of «Garant-Life» JSC. The question how the assets of this insurer, which amounted to nearly UAH 196 million according to the reporting data for the 1st half-year period submitted for the review of the National Commission for Financial Services, could just «disappear» for a couple of month, remains without the answer.

In other words, Ukrainian community faced one more scandalous fact of fraud on the market of financial services resulting in the deception of thousands of clients of this insurance company, who overnight lost their savings.

The same happened to another insurer – Private Joint Stock Company «Insurance Company «Ukrainian Insurance Group «Life». Based on the results of extraordinary inspection due to the failure to submit the reporting data for the 1st half-year period, the National Commission for Financial Services issued on August 16, 2016, the revocation of license of this insurance company. In both cases a criminal cases were opened and a pretrial investigation is being conducted regarding the facts of significant pecuniary damages inflicted upon the clients of these companies.

Insurance companies’ clients, caught in such a situation, certainly have the following question: what to do next, in order to return at least the part of their savings. In fact, there are quite a few options.

First of all, the insurants (policy holders), who concluded insurance agreements with the bankrupt insurer, may count on the recovery of their insurance payments within the framework of bankruptcy procedures. To do this, they need to file a bankruptcy petition to a competent commercial court to declare such insurer bankrupt. Although, prior to this it is required to obtain the court decision confirming the corresponding claims of the creditor, and this court decision should not be enforced.

Moreover, when the insurer files the bankruptcy petition, the amount of claims of the insurer’s client(s) should amount to not less than three hundred of minimum monthly salaries (staring from 01.01.2017 – UAH 960 000). Pursuant to the law, the insurants under insurance agreements, upon which the insured losses incurred prior to the commercial court’s judgment on the acknowledgment of the insurer’s bankruptcy and opening of the liquidation procedure, are liable to claim insurance benefits. In case the insurance loss has not occurred, the insurants are liable to claim the recovery of the part of paid premiums proportionally to the difference between the term of insurance agreement and the term of the agreement’s actual effect.

Secondly, in case criminal proceedings have been commenced due to leading insurance company to bankruptcy, the clients of such company should apply to law enforcement authorities and provide the information on the amounts of their claims against the insurer. Moreover, it is desirable to file a civil claim for loss recovery within the criminal proceedings.

Certainly, the higher level of the insurants’ protection could have been achieved upon the existence of insurance benefits guarantee system for the clients of the insolvent insurers, resembling individual deposit guarantee system in banking sector. The draft laws «On Guarantee Fund for Insurance Benefits under Life Insurance Agreements» (in particular, № 2327 as of 18.02.2013 г.) were registered in due time. It was perceived to create such Fund with obligatory participation of all insurers and creation of its resources at the expense of insurance companies. Guarantee payments to the policy holders under life insurance agreements were assumed to be paid in cases of the insurers’ insolvency. Unfortunately, this initiative remained unimplemented.

The clients of bankrupt insurance companies may catch the interest of factoring companies in theory. Due to the difficulties with the obtainment of insurance benefits such companies may offer the insurants to transfer to them the debt claims against the insurer with a significant discount (for example, for 30-50% of the actual amount of owed insurance benefits, which the factoring company pays to impatient insurants at once, without waiting for their turn in bankruptcy procedure). Further such company takes the creditor’s place when recovering insurance benefits. If the insurance agreements does not forbid the transfer of debt claims therein to the insurer, such transfer should be admitted liable.


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