Juridical Aspects of Insurance Activity
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Forms of insurance activity.
Nowadays there are the insurance companies of the following legal forms:
Joint-stock insurance companies are companies that are formed to carry out insurance operations, which nominal capital is formed by issuing or selling shares. They usually function on the same legal basis as other joint-stock companies and can carry out any kinds of insurance on license basis.
State insurance organisations are juridically independent organisations, the capital of which is partially or totally formed from the state funds.
Mutual insurance communities form a system of contractual relations between the insurers, usually between construction, transportation, industrial and financial corporations where they join their capital with one reason – to cover their possible losses. Every participant of such a community becomes both an underwriter and an insurer.
Private insurance companies belong to one owner or his family. English corporation “Lloyd’s” is a unique form of such a corporation of private underwriters. All members of “Lloyd’s” join in syndicates to increase their capital when assuming the insurance risks. Insurance premiums and losses are proportionally distributed among the members of the syndicate according to their financial interests.
Non-governmental retiring fund is a special form of personal insurance which guarantees rental payments to insurer on achieving by them a particular age.
Captive insurance company is a joint-stock insurance company protecting generally insurance interests of the founders.
State control over the insurance activity.
The activities of the underwriters radically differ from other enterprise’s activities as they are aimed towards uninterrupted process of compensation of losses caused by different circumstances. A big portion of responsibility of the underwriter for his activities requires a State insurance control. In general this control means the study of financial situation of the underwriter and his financial solvency.
The aim of the state control is to provide and develop the market of insurance services, ensuring necessary conditions for the underwriter’s activities as well as defence of his interests.
State control must help to establish insurance companies that have strong financial ground; avoid forming speculative and forged companies. These functions are performed by State Insurance Supervision at the Ministry of Finance.
Obligations of the State Insurance Supervision:
- introducing the unique State Insurance Registry;
- auditing in insurance companies;
- control over the insurance rates;
- control over the payability of underwriters;
- setting the rules about forming and placing insurance reserve funds;
- ensuring the publicity of insurance activities;
- checking the authenticity of the presented reports;
- providing official information about underwriter’s registration.
The State Inspection has the right to:
- have a call report about insurance activities and financial situation;
- carry out the control over the authenticity of the information provided and over the observing the legislation;
- instruct the underwriters about elimination the infringements and in case of non-fulfilment of state orders to hold up the effect of the license;
- to make a claim against the underwriter in case of multiple infringements of law.
Forms of control over the insurance companies’ activities.
The system of state regulation of insurance activity includes registration of insurance companies and issue of licenses for providing different kinds of insurance.
To register an insurance company the founders make a written application to the Registration Chamber, enclosing the necessary documents (the protocol of the foundation meeting, the foundation contract and the charter).
When the organisation is registered it is introduced into the State Register of Underwriters. The founder is given a State Registration Certificate.
State registration may be denied only if the foundation documents do not meet the legislation requirements of RM.
The following information is included in the State Register of Underwriters:
- the full and abbreviated name of organisation;
- the juridical form of organisation;
- the period of functioning of the organisation;
- the location of the organisation and its branches;
- the date of the organisation’s registration and its registration number;
- the volume of the regulation fund;
- the names of the persons entitled to represent the organisation.
For the underwriters operating in Moldova to have a license is a must. To get this license an insurance company must pay the regulation fund in full.
To get the license the underwriter must present the following documents:
- an application form;
- the charter;
- a copy of the registration certificate;
- the development program of insurance operations for the period of 3 years, including kinds of operations and their volume;
- maximum responsibility on individual risk, conditions of insurance protection;
- terms of insurance;
- certificates from banks and other institutions that confirm the existence of authorised and reserve funds;
- economic grounds of activities including assessment of profits and losses, expenses and costs;
- statistical grounds of tariff systems, rates and reserves.
The essence of an insurance contract and its main elements.
To start an insurance activity it is necessary to develop individual contracts with each underwriter. Economic insurance contracts must assume juridical forms, that is the forms of contracts.
Juridical regulation of insurance relations covers the rights and obligations of the parties. According to the insurance contract one of the parties – the underwriter – undertakes the risks of another party – insurer. Accordingly the underwriter undertakes to cover all expenses for any losses or damages happened under this contract. The insurer in his turn undertakes to pay the underwriter all agreed feel and keep all his obligations.
When making the insurance contract the insurer gets acquainted with the rules of the proper kind of insurance and the terms of the contract are specified at that.
There may be essential and nonessential terms of the contract.
Essential terms express the subject of the contract and the main interests of the parties. The terms may be changed only if both parties agree to do it.
Essential terms are: the insured objects; the volume of the insurance liabilities; insurance compensation; insurance sum; an insurance period; insurance rate.
Non-essential terms are: the size of insurance premiums; the procedure of making a contract; the procedure of paying the insurance fee; the procedure of paying the insurance compensation, etc.
When making the contract the parties must specify the causes of its termination. As a rule the insurance contract is terminated in the cases of:
- expiration of validity;
- carrying out of all taken obligations;
- non-payment of insurance fees in due time;
- liquidation of the underwriter;
- liquidation of the insurer or his death;
- arbitration award to invalidate the insurance contract.