Group insurance and self-funded group insurance

The Financial Supervisory Authority (FIN-FSA) has noted that insurance companies have entered into group insurance contracts with features of self-funded group insurance policies. The FIN-FSA considers that such contracts and the provision thereof involve problems from the perspective of customer protection, regulatory compliance and competition.

In the FIN-FSA’s view, the Insurance Contracts Act provides, in addition to normal individual insurance, only on group insurance and self-funded group insurance, but not on combinations thereof.

Regulation

Group insurance is provided on in section 2 of the Insurance Contracts Act. In accordance with section 2(1)(6) of the Act, group insurance refers to insurance policies which cover or may cover members of the group mentioned in the underlying contract (group insurance contract).

Self-funded group insurance is provided on in section 2(3) of the Act. For the purposes of said Act, insurance policies offered to groups under arrangements where the premium or any part of it is payable by the insured (self-funded group insurance) are considered individual policies.

In accordance with Government bill (HE 114/1993), the provisions of the bill applicable to group insurance do not apply to such policies offered to a group, where the premiums are wholly or partly paid by the insured. In accordance with the definition of the Insurance Contracts Act, this type of insurance falls within self-funded group insurance. The policyholder of a group insurance policy pays the whole insurance premium. The insured are unable to decide themselves whether to be covered by the insurance and have no possibility to affect the content of the insurance.

Furthermore, in accordance with the Government bill, “As regards the application of the provision, it is irrelevant whether the insured pays the insurance insurer directly or through an entity.”[...] “The policy is considered a self-funded group insurance policy only where payment of the insurance premium, or part thereof, [by the insured] is clear.” In addition, the Government bill states as follows: “In the Government bill, self-funded group insurance is deemed comparable to individual insurance, and the insured in self-funded group insurance is deemed comparable to the policyholder in individual insurance. An entity that has agreed with the insurer on the provision of insurance to members of a group shall not be deemed a policyholder.”

In accordance with Government bill (HE 63/2009), “According to subsection 3 of the valid section, group insurance does not include insurance provided to a group, where the insured must pay the insurance premium or part thereof. Such an insurance is usually called self-funded group insurance. The current Act only includes one special provision on self-funded group insurance policies. Since a new provision concerning the cessation of self-funded group insurance is being proposed for inclusion in the Act, it is deemed necessary that this name, previously only referred to in the rationale, is now added to the relevant subsection. In addition, the provision is proposed to be clarified so that this type of insurance policies are deemed individual insurance in the context of application of the provisions of the Insurance Contracts Act.”

The peremptory nature of the Insurance Contracts Act is provided on in section 3, subsections 1 and 2 of the Act. “Any terms or conditions of an insurance contract that deviate from the provisions of this Act to the detriment of an insured person or a person entitled to compensation or benefits other than the policyholder shall be null and void.” Furthermore, “any terms or conditions of an insurance contract that deviate from the provisions of this Act to the detriment of the policyholder shall be null and void if the policyholder is a consumer or another natural person or legal person that in terms of the nature and scope of its business or other activities or other circumstances can be compared to a consumer as a party to the contract signed with the insurer. What is provided in this Subsection is not applied to group insurance contracts”.

The FIN-FSA’s view of the essence of the Act

In accordance with the Insurance Contracts Act, group insurance only consists of insurance where the policyholder pays the insurance premium on behalf of the insured belonging to a group and where the insurer or policyholder does not charge the premium directly or indirectly from the insured. Charging of the insurance premium includes, for example, stating the insurance premium as a component of a fee charged for another service (in terms of euros or percentage of a service fee or lease). Furthermore, a member of a group cannot choose whether to be insured.

In accordance with the same Act, self-funded group insurance is (group) insurance, like a normal insurance offered to a group, where the relevant insurance premium is paid by the insured to the insurance company either directly or indirectly through the policyholder.

Justifications of the FIN-FSA’s view

The Insurance Contracts Act defines group insurance and self-funded group insurance. This regulation is binding on market participants.

The FIN-FSA considers that, with a view to the peremptory nature of the Act on the insured, the insurer and the policyholder may not, by means of bilateral agreement, weaken the protection provided to the insured. If other types of insurance than those provided on in the law were allowed, this would lead to ambiguity in the interpretation of the provisions and provide a way to circumvent regulation applicable to the distribution of insurance, among other things.

Measures required from supervised entities

The FIN-FSA urges insurance companies to review their group insurance arrangements and ensure that they comply with the provisions of the Insurance Contracts Act. The FIN-FSA will review the regulatory compliance of the arrangements as part of its supervisory duty.

If the insurance premium of a policy called a group insurance policy is directly or indirectly paid by the insured, the policy constitutes self-funded group insurance and will be treated in accordance with the Act as an individual policy. In order for an insurance policy to not be deemed self-funded group insurance, insurance companies must ensure that the policyholders of group insurance do neither charge the insurance premiums from the insured nor even state their amount as part of the price for another service.

The FIN-FSA monitors the regulatory compliance of group insurance and self-funded group insurance as part of its ongoing supervision of conduct.

For further information, please contact  

Päivi Turunen, Market Supervisor, tel. +358 9 183 5557 or paivi.turunen(at)fiva.fi