E-commerce Law: insurer’s dream comes true? (the article by T.Daniltseva and S.Karpov for UJBL)
E-COMMERCE LAW: INSURER’S DREAM COMES TRUE?
Tatiana A. Daniltseva, partner with Spenser & Kauffmann, Stanislav B. Karpov, associate with Spenser & Kauffmann, special for “The Ukrainian Journal of Business Law”
The On E-Commerce Act of Ukraine aimed to ensure legal procedure of conclusion of agreements remotely by means of digital telecommunication technologies entered into force on 30 September 2015.
Dynamically developing digital technologies dictate usage of new distribution channels for goods and services, including insurance policies. Therefore, the Law on E-Commerce was highly anticipated by insurance companies in Ukraine.
The remote conclusion of insurance agreements, in particular, via Internet has been conducted by insurance companies worldwide for quite a long time. Thus, according to the analysis of insurance market (Digital distribution in insurance: a quiet revolution) made by Swiss Re, 42% of motor insurance and household insurance policies in Europe in 2012 were purchased through Internet. Moreover, in Great Britain this rate made up to 69%.
Still, the requirements of Ukrainian law governing the sphere of insurance have been almost unchangeable since early 2000s. Digital distribution of insurance products was not available for Ukrainian insurance companies.
Requirements of the Civil Code of Ukraine and Insurance Act of Ukraine
The law sets forth the obligatoriness of written form of insurance agreement as well as requirements as to signatures of both an insurer and a policyholder as integral parts of an insurance policy. Non-compliance with the requirements regarding the written form of insurance agreement results in its automatic nullification.
Before On E-Commerce Act of Ukraine was passed by the Ukrainian Parliament, the legislation provided for several options of signing a contract, in particular:
(i) handwritten signature;
(ii) digital signature (cryptographic signature technique); and
(iii) analogue of handwritten signature (copying technique).
With that, the above-listed methods don’t fit the process of remote contract conclusion based on the following:
(i) obviously, necessity of using handwritten signature negates the nature of remote conclusion of a contract;
(ii) analogue of handwritten signature is allowed provided that it is agreed by the parties to a contract in writing, i.e. a handwritten signatures are also required; and
(iii) in the view of provisions of On Electronic (Digital) Signature Act of Ukraine digital signature can be used for remote contract conclusion, but, due to technical peculiarities is not an option for most customers being natural persons.
In order to simplify a distribution process and to minimize costs, Ukrainian insurance companies applied different methods of insurance agreement conclusion, such as:
(i) inclusion of insurance conditions to the text of other kinds of contracts (for instance, to loan agreements entered into by and between banks and clients);
(ii) using a “contract of adhesion” form, i.e. written application of a client on adherence to standard insurance conditions;
(iii) using photocopies of signature and seal of insurance company; etc.
Still, none of the methods mentioned here-above released an insurance company from an obligation to receive the client’s handwritten signature.
According to amendments to the Civil Code of Ukraine a contract is considered to be executed in written form if its content is fixed in one or several documents (including electronic documents) exchanged by the parties.
Besides, a new type of electronic signature is introduced by On E-Commerce Act of Ukraine. Electronic signature with single-use (unique) identifier is understood as data in electronic form (alphanumeric sequence) added to other electronic data by a person accepted an offer to conclude a contract, and sent to another party to the contract.
Pursuant to On E-Commerce Act of Ukraine an electronic contract is deemed as signed by the parties, in particular, as of the moment of usage of electronic signature with single-use identifier. In other words, to enter into an insurance agreement it is sufficient that a policyholder sends to an insurer an alphanumeric password through Internet, sms or email.
According to new rules, an electronic contract entered into by means of exchange of electronic documents and signed in a way described here-above is considered as equal to an agreement executed in written form in terms of its legal consequences.
It leads to a conclusion that insurance agreement in electronic form will not contradict to the law.
Supposedly, the above conclusion will be finally confirmed at the legislative level since the Draft Act On Insurance being considered by Verkhovna Rada (No. 1797-1 as of 6 February 2015) allows to conclude insurance agreement in a form of electronic document.
It worth mentioning that there are some circumstances that can turn out to be obstacles for digital distribution of insurance policies.
1. Reservation in On E-Commerce Act of Ukraine
The provisions of On E-Commerce Act of Ukraine are applied to electronic insurance agreements conditioned that there are no contradictions to the special legislation, in particular, to the On Insurance Act of Ukraine.
As mentioned here-above, no contradictions to On Insurance Act of Ukraine have been revealed. At the same time, it is entirely possible that the reservation in On E-Commerce Act of Ukraine actually is aimed to exclude insurance agreements from the scope of On E-Commerce Act of Ukraine due to peculiarities and complexity of insurance products.
It is not a secret that approaches of market players and Ukrainian state bodies as to the same issue usually differ. In this view, it is important to find out the legal position chosen by the Financial Regulator.
It worth mentioning that according to the Draft Act No. 2413a as of 20 July 2015 initiated by the President of Ukraine and specified as “urgent”, the authorities of the Financial Regulator (The National Commission for State Regulation in the Sphere of Financial Services Markets) are to be transferred to the National Bank of Ukraine and the National Securities and Stock Market Commission.
In a view of probable amendments, the attention should be paid to the fact that the National Bank of Ukraine pushed through the restrictions as to application of On E-Commerce Act of Ukraine in banking sphere. Hence, it would not be a surprise if new Regulator decides that the procedure of insurance agreement conclusion is to be regulated by the special legislation, but not by On E-Commerce Act of Ukraine.
2. Financial monitoring
Insurance company being an entity of initial financial monitoring is obligated to identify and verify a client when entering into business relations.
Verification procedure includes examination of data specified in documents provided in the presence of a client or representative. Evidently, verification cannot be performed in a process of remote conclusion of insurance agreement.
Consequently, digital distribution channels are available for non-life insurance provided that the amount of insurance premium to be paid by a client (natural person) is less than or is equal to 5,000.00 UAH. In other words, sale of life-insurance policies, car insurance policies, etc. still needs a client’s personal appearance.
However, the problem can be partially solved when the new wording of On Insurance Act of Ukraine is passed. According to the Draft Act No. 1797-1 as of 6 February 2015 an insurance company is not obliged to verify and identify a client if such a client have been subject to identification by other entity of initial financial monitoring by its own rules, e.g. by bank.
3. Insured person’s consent
According to On Insurance Act of Ukraine an agreement on insurance of third persons (insured persons) can be concluded upon their consent. The law doesn’t specify which party to an agreement (insurer or policyholder) is to ensure that such consent is provided. The court practice evidences that a policyholder, but not an insurance company, is obligated to receive an insured person’s consent (Decision of the Higher Administrative Court of Ukraine as of 15 October 2015, case No. 826/6430/14). However, the issue is rather disputable. With that, insurance companies often require a written consent of insured persons. Apparently, insurers will have to find additional technical solution to receive consent of third persons for a purpose of electronic insurance.
In conclusion it is important to note that insurance is a complicated product. A client shall be duly and explicitly informed on how exactly it works, what, apparently, is not possible during online purchase process. Hence, the future of electronic insurance in Ukraine is uncertain.