Draft insurance law announced for public consultations

On 3 February 2021, the Ministry of Finance and Social Welfare of Montenegro (the „Ministry“) announced the public call for consultations of the interested public on the draft of the new Insurance Law. As declared in the public call, the draft is prepared by the Insurance Monitoring Agency and its text is published on the official web-site of the Ministry.
The public call for consultations lasts for 60 days as of the day of public call announcement, meaning that the interested public can send its proposals and suggestions to the Ministry until 4 April 2021.

New Insurance Law effects

The primary aim of enacting the new Insurance Law is to achieve the compliance with the Solvency II Directive, consequently regulating the functioning of the insurance market on the same starting point and under the same conditions as those based in EU member states. It tends to regulate, inter alia, the following:

• conditions of establishment, business rules, technical requirements regarding the management of assets and liabilities, cross-border provision of services at EU level and third countries, as well as the conditions for the provision of insurance brokerage and agency activities,
• rules of distribution, the way of creating of the insurance products, the minimum obligations in terms of information to the clients, depending on the type of insurance (consumer-centric approach), and
• procedure for performing supervision over the insurance activity, supervision measures and conditions for revoking the license, as well as the competencies, rights and obligations of the regulator.

The most significant intention of the new Insurance Law is to create equal conditions for the operations of domestic and EU insurers, both in the EU and Montenegro. Considering the fact that the start of the application of the new Insurance Law will occur as of Montenegro’s accession date to the EU, the entry into force of the rules on cross-border provision of services will affect competition in the domestic market, as foreign EU insurers will be able to provide their services in Montenegro.

The positive effects of the adoption of the new Insurance Law on insurance companies would be related to better risk management, the establishment of capital requirements proportional to the risks to which such companies are exposed in their operations, significant reporting transparency and information availability for the interested parties.

On the other hand, the negative effects are mostly related to the increase in operating costs of insurance companies. Such increase of costs could have significant effect to the local insurance companies, in terms of its transformation into subsidiaries, which was also noted in comparative accession practice. In addition, and despite the fact that the final effects of the new Insurance Law cannot be precisely estimated at the moment (since it will be applied as of Montenegro’s accession to EU), it could possibly be expected that the new regulatory framework and its increase of the capital requirements for insurance companies could consequently lead to requests for capital increase of existing insurance companies.

EU acquis requirements

Currently applicable Insurance Law is based on the principles of the directives from the insurance area that are known under the common name – Solvency I, covering numerous directives related to life and non-life insurance, reinsurance and insurance accounting.

It is known that the conclusion of the Stabilization and Association Agreement resulted in Montenegro’s obligation to comply its legislative framework with the EU acquis, while the negotiation position for the Chapter 9 (Financial Services) determined the necessity for complying of the Insurance Law with the Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of insurance and reinsurance, commonly known as the Solvency II Directive.

Furthermore, the Programme of Accession of Montenegro to the European Union 2020 – 2022 envisaged that the adoption of the new Insurance Law is planned to occur at the final quarter of 2021, while the EC’s Progress Report for 2020 (the “Report”) envisaged that the Montenegro’s rules on insurance are only partially aligned with those of the EU, considering its current compliance with the Solvency I rules. In addition, the work of the Insurance Supervision Agency on further alignment with the EU acquis, notably the Solvency II Directive, has been encouraged in the Report.

Consequently, by the adoption of the new Insurance Law and complying with the requirements of Solvency II Directive, Montenegro will achieve additional progress in negotiations with respect to the Chapter 9 (Financial Services), which progress is continuous, considering the last year’s alignments in the field of banking and financial conglomerates.

The information contained in this document is given for general purposes only and should not be interpreted as legal advice on any particular matter.