Insurance law and regulation in Slovakia

The basic way of undertaking insurance activity in Slovakia is by establishing a local joint-stock company. It is also necessary to obtain a permit from the National Bank of Slovakia, which is the supervisory body for financial markets and the insurance market in particular.

Insurance companies established after 1 April 2000 cannot undertake life and non-life insurance activities simultaneously, except for the following: (i) insurers providing life insurance (such insurers may obtain a special certificate that allows them to offer accident and illness insurance as well); (ii) insurers providing accident and sickness insurance (such insurers may obtain a special certificate that allows them to offer life insurance as well); and (iii) insurers providing both life and and non-life insurance simultaneously in accordance with the current legislation.

Although there are certain advantages in establishing a local insurance company (it is perceived by the market as demonstrating a commitment to Slovakia as well as a sign of capital strength) it is an expensive course of action. The legal and actuarial fees are relatively high and there is a minimum capital requirement. It is also necessary to go through a lengthy and cumbersome licensing process, which may take several months. Finally, a domestic insurance company is subject to regulation by the National Bank of Slovakia.

Foreign insurers from the EU as well as from EEA countries may also undertake activity in Slovakia through a branch or on a freedom-of-services basis, under the supervising authority of their home country. Foreign insurers may start operating in Slovakia through a branch or on a freedom-of- services basis following notification to the National Bank of Slovakia from the relevant home country supervising authority.

In terms of market perception and many operational aspects, a branch works in the same way as the establishment of a local company.

However, the cost is much lower – a branch does not require any initial capital and has a simplified organisational structure. The branch is regulated by the parent company’s domestic regulator. With effect from 1 January 2009, the branch of a foreign insurer based in the EU must always include the phrase ‘pobočka poisťovne z iného členského štátu’ (‘branch of the insurer from another EU Member State’) as part of its business name, in the place of its seat and in written communication.

Foreign insurers conducting business in Slovakia on a freedom-of-services basis are also regulated by their home country’s supervisory body, while the local Slovak regulatory body can enforce general ‘best practice’ rules, which are designed to protect the insured. This method of conducting insurance activity in Slovakia is the cheapest; however, such conduct of business should be generally performed as occasional and not as permanent, daily activity in Slovakia

The area of insurance is regulated in several acts, regulations and decrees in Slovakia. The main laws in this respect are the Insurance Act, which regulates insurance companies, and the Civil Code, which regulates insurance contracts. The Insurance Act became effective on 1. January 2016, and replaced the previous Act on Insurance. The main reason for this change was the implementation of Solvency II (including its solvency requirements for insurance companies) into the Slovak legal system.

Before the execution of an insurance contract, the policyholder and the insured (where different) must disclose all matters indicated in the proposal form (or other insurer-issued document), which are relevant to the insurer’s assessment of risk. Misrepresentation and non-disclosure of material circumstances or other relevant conditions before the execution of the insurance contract may entitle the insurer to reduce the insurance benefit for the loss suffered, if on the basis of untrue or incomplete answers a lower premium was determined.

If the insurer learns after the insured event that the occurrence of the insured event had a causal connection to the undisclosed circumstances, which the insurer could not have known at the time of conclusion of the insurance due to intentionally untrue or incomplete answers being provided by the insured, and which were material to the assessment of risk, the insurer is entitled to refuse to pay the insurance benefit. Refusing to pay the insurance benefit will result in termination of the insurance contract.

In the event of an intentional violation of disclosure obligations by the insured, providing untrue information, or concealing important facts prior to the conclusion of the insurance contract, the insurer may rescind the insurance contract, if it would not have entered into the insurance contract had it been aware of the undisclosed information. The insurer may benefit from this right within three months from the date of discovery of the non-disclosure. If the insurer fails to rescind by this point, the right to do so will expire.

Slovak law does not recognise the concept of breach of insurance warranties and conditions precedent.

As a general rule, the insured is obliged to fulfil all the conditions agreed in the insurance contract or stated in the legislation or general terms of insurance. Any intentional breach of the respective obligation may result in the insurer appropriately reducing the insurance benefit, if the breach could have had a material impact on the occurence of the insured event or on the extent of the consequences of the insured event.

Under the insurance contract, the policyholder and the insured (where different) may be obliged to notify the insurer about the insured event in writing with undue delay, give a true explanation of its occurrence and the extent of its consequences and provide the necessary documents that the insurer may request. General terms of insurance shall impose additional obligations related thereto. The insurer is allowed to reduce insurance benefit in cases of intentional failure to notify the insured event as required, as long as the failure either increased the loss or had significant impact on the occurrence of the insured event. The insurer is not entitled to reduce insurance benefit during the term of the insurance contract due to the fact that the premium was not paid properly and on time.

In general, only the insured has a right to bring a claim directly against the insurer (unless otherwise specified in the general terms of insurance). However, there are statutory exceptions where a person other than the insured is entitled to bring a claim against the insurer. Those exceptions apply to property insurance and insurance of persons, in particular where the death of the insured is stipulated as the insured event. With respect to third-party liability insurance, if it is stipulated by a special law (e.g. motor vehicle third-party liability insurance), a prospective third-party claimant who has suffered a loss as a result of the actions and/or omissions of the insured which are covered by the liability policy, has a right to raise a claim directly against the insurer.

The claim is payable within 15 days after the date when the insurer finished the investigation of the insured event. The investigation must be performed without undue delay after notification of the insured event by the insured. In case the investigation cannot be finished within one month after the notification date, the insurer is obliged to provide the insured with an adequate advance payment upon request. If the insurer refuses to perform (even in part) the insurer is obliged to specify the reason for non-performance or reduction of performance; this reason cannot be changed subsequently. Slovak legislation is silent as to the entitlement of the insured to claim damages from an insurer for late payment of claim. The law provides for claiming damages once loss is suffered and in cases of late fulfillment of contractual obligations (including payments) one is entitled to claim statutory interest (unless agreed otherwise in the insurance contract).

There are two separate statutes of limitation. The first one pertains to the general claims against the insurance contract (by the insured or the insurer as applicable). These claims are time-barred (three years from the date on which they could be applied for the first time). In the case of rights to benefit from insurance, the limitation period starts one year after the occurrence of the insured event.

The second pertains to the third-party claimant’s right to claim against the insurer. These claims are subject to the same rules as those specified above, i.e. those governing the statute of limitation of the insured’s claims against the insurer. As a result, the third-party claim against the insurer becomes time-barred when it is also time-barred in relation to the insured. For example, if the third party’s claim is based on the tort liability of the insured, it becomes time-barred three years after the date on which the claim could have been applied for the first time (in the case of the right to benefit from insurance, the limitation period starts one year after the occurrence of the insured event).

The occurrence of an insured event is a default policy trigger in third-party liability insurance. However, it is possible for the parties to base insurance entirely on other triggers, such as when the loss occurred or manifested itself or when a claim is made.

Nevertheless, there are concerns that a claims-made trigger may not comply with other provisions of Slovak law, particularly in relation to compulsory limitation periods.

Under Slovak law, the party that succeeds in the civil dispute is entitled to recover defence costs from the losing party. Such entitlement includes e.g. legal fees, notary fees or travel costs. The court of first instance shall decide on the amount of defence costs after the final court ruling comes into force.

Insurability of administrative penalties and fines is not excluded by law. However, most insurers include the risks of administrative fines and sanctions in their insurance exclusions. Nonetheless, there is, in fact, such an insurance product on the Slovak market, with one insurance company providing insurance against sanctions by the regulatory body for a breach of obligations concerning data protection.