Question: I started a life assurance policy around five years ago which will mature within fifteen years. If my insurance company had to default, will my policy be protected? Is there a scheme in Malta, similar to the Depositor Compensation Scheme, which protects me for such eventuality?
The Insurance Business Act provides the legal framework for the regulation and supervision of insurance companies. In order for a company to be authorised and continue to be authorised it must satisfy certain requirements. One of the requirements is that the insurer must maintain adequate assets to cover the liabilities (including policyholder’s claims) arising out of the business of insurance. Assets must be unencumbered and admissible in accordance with Regulations issued under the Act. In so far as life assurance companies are concerned they are required to provide an actuarial report drawn up by an independent actuary confirming that the reserves maintained by the company are adequate to meet its liabilities.
Should an insurance company run into financial difficulties individual policyholders have the right to make a claim under the Protection & Compensation Fund Regulations for the amount remaining unpaid (subject to limits mentioned below) after all the assets of the company have been exhausted. The said Regulations exclude policyholders of unit linked policies from the right of to be compensated under the said Fund.
Legal Notice 435 of 2003, which establishes the Protection and Compensation Fund (“the Fund”) in terms of the Insurance Business Act, intervenes in situations of:
- A hit and run accident – The Fund compensates road traffic victims who suffer dead or a bodily injury from an accident where the person and vehicle causing the injury are unknown.
- Uninsured drivers – The Fund compensates victims who suffer any liability which may be incurred in respect of the death of, or bodily injury to, any person or in respect of any loss of, or damage to, any property of any person which is required to be covered by a policy of insurance under the Motor Vehicle Insurance (Third-Party Risks) Ordinance (Chapter 104 of the Laws of Malta).
- Insolvency of a licensed insurer – In the event that a licensed insurer is declared insolvent and is unable to meet its obligations, the Fund covers obligations arising from a claim under a policy of insurance covering a risk situated in Malta. Payment shall also be made out of the fund if the insolvent insurer is at the time when it is unable to meet its obligations, servicing or running-off the business of insurance it was licensed to carry on under the Insurance Act. These payments are subject to certain exclusions and conditions.
If a claim is legally required to be covered by compulsory insurance, such as third party injuries from motor accidents, then that claim shall be paid in full. Other claims are limited to 75% of any one loss or €23,293.73, whichever is the less. This amount may not be absolute because there is also a limit as to how much the Fund can pay in respect of a default of one life assurance firm. So the amount may have to be equally distributed between policyholders. The mechanism as to when compensation is triggered can take some years after an insurance company is declared in default because payment of claims can only be made after a court determines that the life assurance company is definitely wound up and/or has been struck of the register of companies authorised to provide life assurance business in Malta.
