The insurance industry in Peru experienced exponential growth between 2006 to 2016, expanding to be the sixth largest insurance market in Latin America by the end of 2016. The market did contract in 2017 and 2018, caused largely by the global financial crisis, but the market still remains key and continues to offer opportunities for growth.
This expansion and the consequent opportunities have led to a number of foreign insurers entering the Peruvian Insurance market. This has led to increased competition, in an already concentrated market and also the introduction and distribution of new insurance products, which had previously only be available indirectly through foreign reinsurers with fronting arrangements with local insurers.
There has in particular been an increase in recent years in the number of D&O liability insurance products in the Peruvian insurance market. These products have proved increasingly popular following several high profile investigations and criminal prosecutions against the senior management of various Peruvian companies – for example the fall-out from the Odebrecht scandal in Brazil has effected numerous Latin American countries. In Peru, public prosecutors are investigating allegations that senior public officials and directors of contractors involved with Odebrecht accepted tens of millions of dollars of bribes over a number of years to secure lucrative construction contracts.
However, in October 2018, the actions of the Peruvian Insurance Regulator (the SBS) threatened to halt the expansion of the local insurance industry in its tracks. The SBS issued a memorandum (N° 36805-2018), which stated that the principle of "claims made" insurance (which underpins almost all D&O insurance products and many other liability insurance products (offered outside of Peru)) was illegal and contrary to the Peruvian Insurance Contract Act of 2013. In support of its position, the SBS argued that: (i) claims made policies undermine the time-limits included in the Act (10 years according to article 78 of the Act); and (ii) that articles 105 and 109 of the Act stipulate that only liability insurance policies written on a "loss occurrence" basis are valid under Peruvian law.
This stance generated significant concern and uncertainty amongst local and international insurers and reinsurers and also major corporations operating in the region. It prompted a number of commentators to publish articles and doctrines (see for example TCPR1), which highlighted the fact that the SBS had confused the concepts of temporal delimitation of cover with the time bars and also that the suggested prohibition of claims made policies would have a significant detrimental effect on the entire Peruvian insurance market and in particular on the D&O insurance market.
Whether prompted by the adverse publicity of its memorandum or not, fortunately the SBS reconsidered its position on claims made policies. On 19 August 2019, the SBS published statutory law SBS N° 3695-2019, which in article 1, expressly recognises the validity of "claims made" insurance policies under Peruvian law. This intervention has averted the immediate crisis in the Peruvian insurance market, which was threatened by the SBS's earlier memorandum. The step, however, also means that hopefully Peru will avoid the long drawn out arguments and legal processes experienced by other countries such as Spain, Colombia, France and Belgium, which struggled to introduce and accept "claims made" policies into their legal systems. This should help ensure the Peruvian insurance market continues to flourish and expand.
1. Acosta Olivo, Carlos y Richter Valdivia, Pedro, ¿Están las pólizas claims made realmente prohibidas en la Ley del Contrato de Seguro? Comentarios a propósito de un cuestionable pronunciamiento de la SBS., en https://laley.pe/art/7340/estan-las-polizas-claims-made-realmente-prohibidas-en-la-ley-del-contrato-de-seguro
Acosta Olivo, Carlos y Richter Valdivia, Pedro, Nuevamente sobre la discusión en torno a las pólizas claims made: comentarios a propósito de la prepublicación del Proyecto de disposiciones complementarias para los seguros de responsabilidad civil, en https://legis.pe/discusion-polizas-claims-made-prepublicacion-proyecto-disposiciones-complementarias-seguros-responsabilidad-civil/
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