Insurance

The insurance sector is primarily regulated by Book III of the Monetary and Financial Organic Code and the accompanying regulations.

Another important source of law is the resolutions and regulations issued by the Superintendency of Companies and Securities. These provisions set out numerous obligations relating to the operation of insurance companies, such as:

• the preparation of monthly and yearly reports regarding the reserves;
• the number of policies;
• policyholder data; and
• the approval of insurance plans.

Other relevant provisions are set out in the Commercial Code, which regulates the insurance contract and its obligations from a commercial perspective.

There are no specific instruments in Ecuador regarding insurance matters. However, Ecuador has ratified certain conventions of the International Labour Organization that set out guidelines on insurance in the work environment – for example, Convention 24 on Sickness Insurance (Industry).

In general, the Superintendency of Companies and Securities is responsible for enforcing the law and regulations applicable to private insurance companies and brokers. In the case of medical insurance, in addition the Superintendency of Companies and Securities, the Health Ministry – through its Control Agency – is in charge of controlling of the medical aspects of the plan.

The insurance regulators in Ecuador focus on preventing scams by:

• analysing the policies issued by insurance companies and the total amount insured;
• requesting appropriate reserves and reinsurance contracts; and
• preventing money laundering through continuous reporting to a specialised office.

In the medical context, the supervisory agencies centre their attention on ensuring compliance with:

• the minimum coverage determined by the law; and
• the effective and accurate coverage of claims presented by policyholders.

Insurance contracts are classified in the Commercial Code into two types: property insurance and people’s insurance. The former encompasses:

• tort insurance;
• fire insurance;
• liability insurance; and
• transportation insurance.

The second area includes life insurance and medical insurance.

Ecuadorian law recognises different kinds of insurance contracts, as long as they contain the following mandatory clauses:

• the start and finish dates;
• the details of the insurer;
• the details of the insured;
• a (valid) insurable object;
• an insurable risk;
• the insurance cost or premium;
• the obligation of the insurer to pay the claim fully or partially, depending on the extent of the insured event;
• the payment method; and
• the insured amount or the insurer’s liability limit.

For medical insurance contracts, the law requires additional mandatory clauses:

• an obligation to cover catastrophic and chronic diseases if they arise;
• obligatory coverage for medical emergencies, without limitation of which hospital, clinic or medical provider the client chooses to go; and
• free of deductible coverage for certain diseases and medical conditions determined by the heath authority.

In general, under Ecuadorian law, to assume obligations:

• a person must have legal capacity and express consent; and
• there must be a licit object and cause.

The only formality required by law is that the insurance contract be written and signed by the parties. Two copies must be signed, one by each party.

There are no procedural requirements required by law. The only requirement that insurers must observe is to retain a written and signed document in their files.

Before the contract is concluded, the insured must declare his or her risk conditions in a questionnaire given by the insurer. If the insured lies or intentionally hides important data, the contract may be declared invalid. The insurer must start an administrative process before the Superintendency of Companies and Securities to declare the contract void.

The insured must pay the insurance premium within 30 days of signing of the contract; if he or she fails to pay at this time, the insurer can deny coverage until the premium is paid.

Ecuadorian consumer law requires that all terms be written in Spanish and in plain language, without unnecessary technical terminology. The insurer must make clear:

• the final cost of the insurance;
• the base price; and
• a detailed description of all additional costs.

If the insurer fails to comply, the insured can terminate the contract immediately, without further process.

The law requires the insurer to establish a channel through which to receive and process claims. This is usually done by email or through an online reporting tool, either directly to the insurer or to its broker. The insured must present invoices and other evidence of the insured event.

If the insurer denies coverage, the insured can present its claim before the Superintendency of Companies and Securities. This petition must contain:

• the name of the insured and insurer;
• a description or copy of the insurance contract or policy;
• proof that the claim was made to the insurer and was ignored or rejected;
• the factual grounds of the claim;
• documents relating to the claim; and
• the amount claimed.

The law requires the insurer to have a channel to receive and process claims; but it does not define the parameters of such reporting tools. The insurer can specify the information and documents required to process a claim; however, these requirements should not be unnecessarily difficult to comply with or present a hurdle for the insured in submitting a claim.

The insured has 120 days from the loss to start the administrative process before the Superintendency of Companies and Securities.

The claim can be denied if it is presented outside the period established in the law or agreed in the contract. The claim can also be denied if the insurance does not cover the event of loss or if a court declares bad faith or fraud.

The insured can challenge the denial of the claim by starting an administrative process before the Superintendency of Companies and Securities or a judicial claim before a court.

The parties can agree in the contract to solve any disputes before arbitration instead of a judge.

If a third party is recognised in the insurance contract, it should be able to make a claim according to the specified clauses and may challenge a denial of claim in the foreseen procedure. An affected third party that is not recognised in the contract can start a legal action against the insurer to seek repair.

In Ecuador, only corporations can be insurance companies. These companies can be branches of foreign companies or Ecuadorian corporations, with national or foreign headquarters. All companies established after 1998 may only offer either life insurance or property and casualty insurance, but not both.

The law refers to companies that provide property and health insurance as ‘general insurance companies’ and to those that provide life insurance as ‘life insurance companies’.

Ecuadorian law regulates all companies that conduct insurance activities, including:

• insurance companies;
• reinsurance companies;
• reinsurance intermediaries;
• insurance experts; and
• insurance consultants/brokers.

Under Ecuadorian law, only corporations (established or domiciled in Ecuador) can be insurance companies. Insurance companies must have a minimum capital of $8 million, while reinsurance companies must have a minimum capital of $13 million.

Most of the insurance companies active in Ecuador are domestic corporations with national headquarters.

No, but Resolution JB-2001-289 provides that companies that wish to cooperate with those already established in Ecuador must follow a specific procedure. Those companies must:

• send a registration form to the Superintendency of Companies and Securities; and
• not have a qualification of less than:
• • Baa (Moody’s);
  • BBB- (Standard and Poor’s or Duff and Phelps); or
  • B+ (AM Best).

An insurance company must obtain authorisation from the Superintendency of Companies and Securities to operate in Ecuador. The licence allows it to offer its services throughout Ecuador. It applies to Ecuadorian companies and foreign branches that wish to conduct insurance business.

A licence is issued to operate only as one of the following:

• a general insurance company;
• a life insurance company;
• a reinsurance company;
• a reinsurance intermediary;
• an insurance expert; or
• an insurance consultant/broker.

A company cannot perform more than one of these activities; Ecuadorian law prohibits it.

The following are required to obtain a licence:

• the proposed insurance contact;
• bylaws that only allow the company to conduct insurance activities;
• economic feasibility studies;
• the personal records of the founders and partners; and
• a petition to issue the licence.

These documents must be presented to the Superintendency of Companies and Securities.

Medical insurance plans must be authorised by the Ministry of Health, through its Control Agency.

All the documentation outlined in question 5.2. must be filed with the local office of the Superintendency of Companies and Securities at the place of the petitioner.

The licensing process may take between two and five months. The process of obtaining authorisation for medical insurance plans from the Ministry of Health takes more than one year.

Insurance companies must have a minimum capital of $8 million, while reinsurance companies must have a minimum capital of $13 million.

There are no specific liquidity requirements. However, the law requires insurance companies to have mandatory reserves, which are calculated based on the total amount insured in all policies issued by the company. This calculation is complex and must be done by a qualified actuary firm.

The Superintendency of Companies and Securities is the administrative authority in charge of the supervision of Ecuador’s insurance sector. This authority applies the laws and issues regulations and resolutions to regulate the operations of insurance companies and their compliance with those obligations.

Every month, insurance companies must present their financial reports, information on their policies and the relevant insureds to the Superintendency of Companies and Securities. If the superintendency conducts an investigation, it can require the corporate books, the accounting records and all other documents it considers necessary.

Insurance companies must prepare monthly financial reports, together with information on the policies and the relevant insureds. They must also present their financial statements, an activity report from their legal representative and a report from the controller each year.

Insurance companies must inform the Superintendency of Companies and Securities and its policyholders of corporate changes at the management level.

Specific requirements apply to the governance of corporations, such as a requirement to have a management board composed of an odd number of members (and their alternates). The law provides that there should not be fewer than five members and not more than 15 members, chosen by the general board of partners.

As a general obligation, corporations must have a general manager and a president.

Ecuadorian law prescribes that a company’s equity must not be less than one-sixth of its net profits during the past 12 months and one-sixth of all assets minus deferred charges. In addition, the Superintendency of Companies and Securities can detect equity problems in the company’s books and force the chief executive officer to structure a plan to cover the deficiency.

There are specific requirements for the governance of corporations, such as having a management board composed of an odd number of chairpersons (with their alternates). The law prescribes that there should not be fewer than five members or more than 15 members, as chosen by the general board of partners.

The partners and managers of an insurance company cannot manage or be partners of reinsurance companies, reinsurance intermediaries, insurance experts or insurance consultants/brokers.

The company bylaws define the criteria for appointing and removing board members and managers. The Companies Law also includes provisions on the removal of managers.

The Monetary and Financial Organic Code prescribes that a person cannot be appointed as a board member or manager if he or she is:

• unable to conduct acts of commerce;
• a foreign person who does not hold an immigrant visa;
• an employee of the Superintendency of Companies and Securities;
• an employee of a bank; or
• a manager of a broker company.

The shareholders appoint the board members and managers at a shareholders’ meeting. The appointments must be registered in the Mercantile Registry and notified to the Superintendency of Companies and Securities.

The legal duties of directors and senior executives are set out in:

• the Companies Law;
• the Monetary and Financial Organic Code; and
• the company bylaws.

The main duties of managers include the following:

• managing the company;
• signing economic and financial reports and filing them with the Superintendency of Companies and Securities;
• reporting to the board on important events and other issues defined by the company;
• presenting a yearly report to the Superintendency of Companies and Securities;
• making proposals on the distribution of profits; and
• signing and presenting the economic return.

The board has such duties as are entrusted to it by the shareholders.

Executive compensation is not regulated in Ecuador.

Liabilities may be transferred either partially or totally. In case of a total transfer, the company must obtain approval from the Superintendency of Companies and Securities. In case of a partial transfer, the third party must be an insurance company and written notification must be sent to all insured clients.

Assets are transferred by contract and authorisation is not required. They can be transferred to another company or party which does not operate in the insurance sector. This freedom does not apply if the company is under administration; in this case, the approval of the Superintendency of Companies and Securities is required.

If the company has market power or the value of the transaction is over $80 million, the transaction must be approved by the Superintendence of Market Power Control in advance. Such approval typically takes three to six months to obtain.

The applicable regulations for the insurance sector do not regulate changes of control.

The Consumer Law requires that the contracts be written in Spanish and in plain language, without unnecessary technical terminology. The insurer must specify:

• the final cost of the insurance;
• the base price; and
• a detailed description of all additional costs.

As the insurance contract is considered a contract of adherence, it must be printed in font size 10 or more and cannot include the following:

• clauses that reduce the insurer’s liability;
• clauses that renounce the consumer’s rights;
• clauses that shift the burden of proof against the consumer;
• clauses that allow the insurer to vary the price at will;
• clauses that allow the insurer to terminate the contract at will;
• blank spaces; or
• clauses that can cause a violation of other consumer rights.

Consumers can denounce any violations of their rights before the Public Defence Office, which will conduct an investigation and may start mediation to try to solve the problem between the consumer and the provider.

Consumers also have special jurisdiction, which is faster and simpler than an ordinary civil claim.

Data protection is recognised as a constitutional right. The Personal Data Protection Law, issued on 26 May 2021, has changed how personal data is treated in Ecuador. This law prescribes that medical and financial information is considered sensitive data, which means that it enjoys stronger protection than other personal information. Consequently, the obligations of parties that manage this information and the penalties for breach of those obligations are stricter.

Insurance companies manage personal data in large quantities and also manage sensitive information, so they will have to implement stricter processes for the receipt, processing and handling of such information in order to comply with the new obligations under the Personal Data Protection Law.

A cybersecurity regime is still developing in Ecuador. Currently, there are no cybersecurity standards determined by law or other regulations. The Personal Data Protection Law states only that a company’s cybersecurity regime must be adequate for the data that the company is handling.

The Penal Code sets out all provisions on the criminalisation of, and penalties for, money laundering and other financial crimes. As part of the national policy against money laundering and terrorist financing, the Office of Financial and Economic Analysis – which is responsible for identifying potential threats – has identified that the insurance sector is vulnerable to money laundering and has thus implemented special obligations and reporting requirements for insurance companies.

Among these obligations, insurance companies must:

• complete special forms for each transaction;
• report suspicious transactions; and
• have a specialised controller who is in charge of compliance.

If the company fails to submit a report as obliged, a worker, the controller and even a manager may be held criminally responsible. It is thus very important to have a good compliance system and a good compliance manager.

Competition law is not very developed in Ecuador. The Market Power Control Law prescribes general obligations and defines some practices that are considered harmful to the market and to fair competition among market players.

There are no pro-competition measures that are targeted specifically at insurance companies.

Book III of the Monetary and Financial Organic Code and the Companies Law govern the liquidation of insurance companies in Ecuador. This follows the same process as the liquidation of regular corporations; the only difference is that Article 55 of Book III sets out special reasons for forced liquidation.

Another difference is that when an insurance company enters into forced liquidation, it is presumed that the managers committed fraudulent acts if one or more conditions set out in Article 57 of Book III are met.

In 2020, a bill was proposed to the unique National Congress which aims to reform the Insurance Law to establish a Universal Insurance Register. This register will contain information about insurance contracts, and will be accessible by:

• insureds;
• their families;
• the competent authority; and
• health centres.

In general, the insurance sector in Ecuador has evolved significantly over the past two decades. For the most part, quality requirements imposed by the authorities have attracted international firms to the market, while the establishment of national firms has also been promoted. Our top tip is to be completely honest when dealing with the Superintendency of Companies and Securities, since its powers are extensive and it is truly meticulous in its focus.