New opportunities for distributing insurance products via digital channels

Pepeliaev Group advises that amendments to insurance legislation have come into force granting new opportunities for selling insurance products via the Internet and that new rules and limitations have been introduced with regard to the online distribution of insurance services

On 24 April 2020 the Federal Law on amending individual items of Russian legislation[1] (“the Law”) came into force. In particular, the Law amends the Russian Law “On organising the insurance business in Russia”[2] and the Federal Law “On the compulsory insurance of the civil liability of the owners of transportation vehicles”[3]. The specified amendments are aimed at regulating the activity of insurance intermediaries on the Internet. The amendments have been prepared as part of the implementation of the objectives and tasks set out in the Development Strategy for the Insurance Activity in Russia[4] and in the “Russian Digital Economy”^[5] national programme.

1. The insurance intermediaries will lift the ban on the online distribution of insurance products

The law provides for lifting the ban on insurance brokers and insurance agents (“insurance intermediaries”) providing services relating to the conclusion and performance of insurance agreements in the form of an electronic document, provided that insurance intermediaries comply with a number of new statutory requirements.

Please be reminded that the previous version of the Law “On organising the insurance business in Russia” [6] imposed a ban on insurance intermediaries’ activity to supply services relating to the conclusion of insurance agreements in the form of electronic documents. In other words, insured parties (the consumers of insurance products) could either conclude an electronic insurance agreement only directly with the insurer, or by using the services of an insurance intermediary at the intermediary's office. However, in the latter case the insurance agreement could be concluded only on paper.

In accordance with the amendments adopted, insured parties will be able to conclude insurance agreements by using the services of insurance intermediaries via the Internet (i.e. going to the intermediary’s office is no longer required). The new rules have been introduced with a view to increasing the share of insurance products sold on the Internet while ensuring a high level of legal protection of the consumers of insurance services.

2. The services which the insurance intermediaries may supply remotely

The law provides that insurance intermediaries will be entitled to supply on behalf and at the expense of the insurer services with regard to concluding insurance agreements in electronic form in the event that the agreement between the insurer and the insurance intermediary directly provides for such an option and only with regard to the services relating to voluntary insurance.

Please note that for insurance agents the specified agreement may be in the form of any civil-law agreement documenting the relevant relationships between the insurer and the insurance agent (for example, an agency agreement). According to the general rule, insurance brokers conclude agreements for brokerage services with insurers.

Insurance intermediaries may perform activity relating to the supply of services connected with compulsory insurance in electronic form only in the cases for which federal laws on specific types of the compulsory insurance provide.

3. Electronic document management with the involvement of insurance intermediaries

To enable insurance intermediaries to supply services relating to the entry into insurance agreements in electronic form, the Law entitles insurance intermediaries to participate in information exchange between the insured parties (the beneficiaries) and the insurer in electronic form, provided that a number of requirements are met.

Insurance intermediaries may participate in the exchange of electronic information with insurers and insured parties (beneficiaries) only if the agreement between the insurer and the insurance intermediary provides for the insurance intermediary to have the relevant powers.

The types of the electronic information subject to exchange

Within the framework of the trilateral exchange of electronic information among insured parties, insurance intermediaries and insurers the following documents may be submitted:

• an application for concluding an insurance agreement;
• an application for amending the insurance agreement;
• an application for the early termination of the insurance agreement;
• a notice of an insurance event;
• an application for an insurance payout;
• other information and documents required by the insurance rules for concluding and amending the insurance agreement as well as terminating it early, and for obtaining an insurance payout.

Therefore, in the event that a compulsory insurance agreement is concluded, the insurer will decide independently whether the insurance intermediary should be allowed to take part in electronic document management and whether the relevant powers should be granted to it based on an agreement. However, the insurer remains liable to the insured party for and exercises control over the activity of insurance intermediaries.

The new rules will allow insured parties to select a convenient form of concluding voluntary insurance agreements - on paper or in electronic form. According to the new amendments, if the insured party wishes to conclude (amend or terminate) an insurance agreement, now it may submit the necessary information in electronic form directly to the insurance intermediary.

The legislation has not previously provided for such an option, and if the insured party was willing to conclude, amend or terminate an insurance agreement via the Internet, such party could submit an appropriate application only to the insurer via the insurer’s official website.

For the purposes of concluding, amending or terminating an insurance agreement, obtaining an insurance payout or in other cases for which the insurance rules provide, the insured party may submit the necessary information by using the following two methods:

• via the insurer’s or the insurance intermediary’s website;
• via the insurer’s or the insurance intermediary’s mobile application.

The procedure for the insurance intermediary to participate in the exchange of electronic information between the insurer and the insured party is to be established by the insurer in a civil-law agreement concluded with the insurance intermediary.

Exchanging information via a website

Insurers and insurance brokers must have an official website to enable the insured party to submit the relevant information with respect to concluding, amending or terminating the insurance agreement, and in other cases for which the insurance rules provide.

Insurance agents (who are also insurance intermediaries) are not obliged to, but may have an official website at their discretion for the above purposes.

The law establishes a number of requirements for websites which apply to insurance intermediaries:

• a website must support the automated generation and forwarding of the information the insurance intermediary has obtained from the insurer (if the insured party uses the insurer’s website or mobile application) to the the insurer’s information system;
• the insured party should have an opportunity to read the insurance rules before concluding an insurance agreement (the insurance intermediary may ensure such opportunity, including by providing links to documents located on the insurer’s official website);
• the insurance intermediary must ensure that the insured individual has provided his/her confirmation that he/she has read the insurance rules, signed with a simple electronic signature of the insured individual;
• in addition to other information set out in the insurance legislation, the insurance agent (if it has a website) and the insurance broker will be obliged to place on the website information about the list of services supplied in electronic form.

Exchanging information via a mobile application

It is the first time that the Law has made it possible to carry out information exchange by using documents in electronic form via the insurer’s and the insurance intermediary’s mobile applications.

The law defines a “mobile application” as software of the insurer, the insurance agent or the insurance broker, which the insured party (the beneficiary) applies for exchanging information in electronic form with the insurer by means of a technical device (a mobile phone, a smartphone or a PC, including a tablet) connected to the Internet.

The procedure for using the insurer’s and the insurance intermediary’s mobile application should be placed on the insurer’s and the insurance intermediary’s websites (respectively).

The mobile applications and websites of insurance intermediaries should technically support the automated transfer of information obtained from the insured party to the insurer’s information system.

Please note that at present a mobile application may be used not only for the trilateral exchange of information (among the insurer, the insured party and the insurance intermediary), but also for the insured party and the insurer to exchange information directly, i.e. without the involvement of an intermediary.

The insurer’s information system

The trilateral information exchange system should enable the automated forwarding of the information that the insurance intermediary has obtained from the insured party (if the insured party uses the insurance intermediary’s website or mobile application) to the insurer’s information system.

The insurers’ websites and mobile applications may be treated as the insurer's information system that ensures the exchange of information in electronic form between the insured party (the beneficiary) and the insurer; the insurer will be the operator of such system. Therefore, the insurer will obtain all the necessary information from the insured party even if the insured party directly contacts the insurance intermediary, rather than the insurer.

For this ability to be technically implemented, the insurance intermediary’s software and website should comply with the requirements for the software and for the procedure established by the insurer for accessing the insurer’s information system.

The procedure for the insurance intermediary to access the insurer’s information system should be established by the insurer in a civil-law agreement concluded with the insurance agent or in the agreement for brokerage services concluded with the insurance broker.

With a view to carrying out the actions set out in this article the insurer’s official website and mobile application may be accessed by the insured party (the beneficiary) using the unified system of identification and authentication (USIA).

The bans and restrictions on insurance intermediaries and insurers

In order to prevent bad-faith conduct of insurance intermediaries within the framework of trilateral electronic document exchange, the Law establishes, in particular, the following bans and restrictions:

• insurance agents and insurance brokers may not sign, on the insured party’s behalf, an insurance agreement in the form of an electronic document by using the electronic signature of the insurance agent or of the insurance broker, neither are insurance agents and insurance brokers entitled to the insurance premium (insurance contributions) from the insured party under a relevant insurance agreement;
• insurance brokers may not conclude an insurance agreement in the form of an electronic document on behalf and at the expense of the insured individual or on their own behalf, but at the insured individual’s expense;
• in the event that the insurance broker concludes an insurance agreement in the form of an electronic document on its own behalf, but at the insured legal entity’s expense, the specified agreement should be signed with an enhanced qualified electronic signature of the insurer, insurance broker or insured entity;
• the insurer may not refer to the insurance agent or the insurance broker breaching the provisions of the new version of article 6.1(5) of the Law “On organising the insurance business in Russia” (part of which is described above) as grounds for refusing an insurance payout or an insurance amount for the insured party.

Registers of insurance intermediaries

Since the Law has been adopted the insurers are obliged to add new data to their registers of insurance agents and insurance brokers with whom they have agreements[7], in particular:

• the data on the types of insurance with respect to which the insurer has authorised the insurance agent or the insurance broker to supply insurance-related services, including in electronic form;
• a list of the insurance services that the insurance intermediary provides;
• the domain names and/or Internet address of the website of the insurance agent (if applicable) or of the insurance broker.

The insurers should place on their websites the specified data and other data from the registers of insurance intermediaries set out in the insurance legislation [8].

Concluding an agreement for compulsory third party motor liability insurance (“OSAGO”) with an insurance intermediary

Please be reminded that in accordance with the new Law, insurance intermediaries may participate in information exchange and may supply insurance services relating to compulsory insurance in electronic form only in the cases for which the federal laws on specific types of compulsory insurance provide.

The Law also amends the procedure for carrying out compulsory insurance of the civil liability of owners of transportation vehicles for which the Federal Law “On organising the insurance business in Russia” provides.

According to the new rules, insurance intermediaries, based on an agreement with an insurer and taking into account the new requirements of the Law “On organising the insurance business in Russia”[9], will be able to participate in information exchange in electronic form between the insurer and the insured party in the event that the insurance intermediary supplies services relating to the entry into, amendment or termination of agreements for the compulsory insurance of the civil liability of owners of transportation vehicles.

In the event that a compulsory insurance agreement is concluded in the form of an electronic document, the procedure for the information exchange among the insured party (the beneficiary), the insurance intermediary and the insurer is determined by the rules regulating the professional activity of the professional association of insurers, taking into account the requirements of the Law “On organising the insurance business in Russia” [10].

In view of the organisational and technical measures that should be taken, including with a view to enhancing the information systems of insured parties and insurance intermediaries, the Law provides that the amendments to the Federal Law “On the compulsory insurance of the civil liability of the owners of transportation vehicles” will come into force 90 days after the date when the Law was published[11].

What to think about and what to do

Entities whose activity is related to the supply of insurance services should read the new amendments to insurance legislation and take them into account in their activity when supplying insurance services in electronic form.

Help from your adviser

Pepeliaev Group’s specialists have extensive experience in advising in the area of civil law, including with regard to various issues relating to the application of insurance legislation. We are ready to provide complex legal support on any issues arising from the establishment of the new rules and requirements for the supply of insurance services in electronic form and on any other issues.