Question ID: 2353
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Topic: Technical Provisions (TPs)
Article: 18(5)
Status: Final
Date of submission: 06 Nov 2021
Question
Referring to the definition of the abilty to compel in the sentence: "the undertaking can compel the policyholder to pay the premium for those obligations" and the guideline 3 on contract boundaries "Insurance or reinsurance undertakings should recognise their ability to compel a policy holder to pay a premium only if the policyholder’s payment is legally enforceable", it can be said that the insurer has the abiliy to compel the policyholder to pay the premiums in a regular premium contract: a) if the policyholder doesn't pay future premiums the insurer holds all the premium received in the past and the contract expires; b) if the policyholder doesn't pay future premiums the contract continue but the sum assured is reduced by a penalty according to the policy age? If it is not possible consider the economic penalties a) and b) described above as an ability to compel, and the future premiums don't provide compensation for a specified uncertain event that adversely affects the insured person and they don't include a financial guarantee of benefits, is it correct to say that the insurer will not consider future premiums and will apply the penalties on the contract for the calculation of the best estimate of liabilities? Or does the insurer have to consider the discernible effect on the economics of the contract due to economical penalties described above for for assessing whether future premiums are within the boundaries of the contract?
Background of the question
Interpretation on the ability to compel.
EIOPA answer
The economic penalties described in the question does not imply that the policyholder is legally enforced, or in other words legally obliged, to pay the premium, thus such penalties should not be considered as an ability to compel the payment of the premiums.
The presence of any penalty related to the payment of future premiums does not overrule article 18(5) of the delegated regulation 2015/35. Thus, if the payment of the future premiums cannot be legally enforced, in the absence of a compensation for a specified uncertain event that adversely affects the insured person and of a financial guarantee of benefits, the future premiums will always fall outside the contract boundaries. The fact that these future premiums fall outside the contract boundaries does nonetheless not imply the discontinuance of the concerned insurance policies. The undertaking will, according to guideline 0, still have to take realistic discontinuity options into account.