Bulk of insurance legislation approved in the Czech Republic

Czech Republic

On 17 December 2003 the Czech parliament finally approved the bulk of statutory regulations which will significantly change the Czech legal insurance environment over the coming two years. The legislation was signed by the President in January 2004 and published in the official collection of laws. The adopted legislation will substantially influence the provision of insurance on the Czech market.

1. New Regulation of Insurance Agreements (Act 37/2004 Coll.)

The Czech Civil Code currently governs the terms and conditions of insurance agreements. From 1 January 2005 the Act on Insurance Agreements no. 37/2004 Coll. will govern the terms of insurance agreements concluded under Czech law. The act will regulate the content of insurance policies and terms and conditions relating to them. The new act defines some key insurance terms, specifies obligations and rules on the termination of polices, settlement of claims and under-insurance. The act also sets out rules on limits to insurance compensation, statutory limitation periods, conflicts of laws in respect of insurance policies, language requirements, scope of information duties towards the insured and other matters.

This act is fully effective from 1 January 2005; any insurance policies (and terms and conditions related to them) written after this day and claims settlements must fully comply with the provisions of this act. The provisions relating to insurance policies concluded on a distance basis, and insurance policies provided on a freedom of services basis, provisions conflicts of laws relating to insurance agreements and new provisions on insurance of legal costs are effective from 1 May 2004.

2. New Regulation of Insurance Intermediaries and Liquidators of Insurance Events (38/2004 Coll.)

Act No. 38/2004 Col on insurance intermediaries and liquidators of insurance events (Insurance Intermediaries Act), which is effective from the 1 January 2005, brings in strict regulation of insurance intermediary activities. This act was adopted primarily to fully reflect the new Directive 2002/92/EC on insurance mediation, i.e. to unify Czech law with the minimum legal requirements for insurance mediation and its standards common in the EU. The act, as well as the above directive, defines different types of insurance intermediaries, rules and obligations in respect of collection of premiums, professional indemnity insurance requirements imposed on intermediaries, etc.

All insurance intermediaries as well as liquidators will have to be registered. From 1 January 2005 insurers cannot use the services of unregistered intermediaries. Currently active intermediaries will have to comply with the requirements of this act and register themselves by the end of June 2005. Moreover, the new legislation regulates the liability for damage caused by insurance intermediary activities. It opens up the possibility for insurers to assume liability on behalf of insurance agents acting for them.

3. Amendment and Changes to the Insurance Act No. 363/1999 Coll. (39/2004 Coll.)

The adopted amendment to Act No. 363/1999 Coll. on Insurance, published as Act No. 39/2004 Coll., changes and improves the general regulatory rules relating to insurance companies. The amendment completes harmonisation of Czech insurance regulatory law with EU requirements prior to EU accession.

The Act regulates the conditions upon which foreign insurers can write insurance on a freedom of services basis, adjusts rules for investment, solvency criteria, information duties towards the insurance regulator and the scope of the regulator's supervisory activities, it also makes changes in relation to duties of insurance secrecy and other matters.

Act 39/2004 Coll. is effective from 1 April 2004 except the provisions of the act relating to EU membership (i.e. regulation of single passport, etc.), which are effective from 1 May 2004, and the provisions on penalties for use of unregistered insurance intermediaries, which is effective from 1 January 2005.

For further details on the above legislation as well as on practical impacts on your business, please contact Michal Smrek on +44 207 367 2707 or at: michal.smrek@cms-cmck.com