28/02/2024 15:04

Regulations on the concluding and carrying out insurance contracts in Vietnam - Shortcomings and recommendations for improvement

Regulations on the concluding and carrying out insurance contracts in Vietnam - Shortcomings and recommendations for improvement

Although it has undergone two amendments in 2010 and 2019, the Law on Insurance Business 2000 (hereinafter referred to as the Law on Insurance Business 2000) still has some unresolved shortcomings. Therefore, the task of amending and addressing the limitations in the provisions regarding insurance contracts is an issue that needs attention.

Since its issuance, the Law on Insurance Business 2000 has contributed to establishing a solid legal framework for insurance business activities in Vietnam. According to statistics from the Insurance Supervision and Control Agency, the scale of the insurance market has rapidly developed, from 15 insurance companies in 2000 to 63 insurance companies and 01 foreign non-life branch in 2017. The financial capacity and operational efficiency of enterprises have been continuously improved, with an average increase of 24% per year. The reserve for business operations has increased by about 23% per year, and the equity capital has increased by 8% per year. The revenue of the companies has also achieved a growth rate of 20% over the past 20 years. However, after 20 years of implementation, there have been many changes in the socio-economic situation that have rendered certain provisions no longer suitable.

1. Regulations on the concluding and carrying out insurance contracts in Vietnam

In essence, the concept of an insurance contract has been relatively comprehensively defined by the Law on Insurance Business 2000. According to the provisions of Article 12, Clause 1 of the Law on Insurance Business 2000, an insurance contract is an agreement between the insurance buyer and the insurance company, whereby the buyer must pay insurance premiums and the company must pay insurance benefits to the beneficiary or compensate the insured person when an insured event occurs. In addition to the provisions of the Law on Insurance Business 2000, insurance contracts are also regulated in other legal normative documents such as the Civil Law 2015, the Maritime Law of 2015, and related implementing guidelines. Maritime insurance contracts are applied according to the provisions of the Maritime Law of 2015, and issues related to insurance contracts not regulated in the Law on Insurance Business 2000 will be applied according to the provisions of the Civil Law 2015 and other relevant legal regulations. Previously, the Civil Law 2005 dedicated Chapter XVIII to regulating insurance contracts, but the current Civil Law 2015 has removed the provisions on insurance contracts, providing a basis for the unified application of the Law on Insurance Business 2000 to regulate insurance contract relationships.

Moreover, competent state agencies have always been concerned with utilizing the potential and developing the insurance market in Vietnam. Section III.3 of Resolution 11-NQ/TW dated June 3, 2017, of the 5th Plenum of the Party Central Committee, 7th Tenure, sets out tasks and solutions: "Develop insurance markets, accounting, auditing, tax consulting, and appraisal services markets...". On the other hand, in Section II.4 of Resolution 99/NQ-CP dated October 3, 2017, the Government assigned the Ministry of Finance to coordinate with relevant ministries and sectors to implement a number of tasks related to insurance, such as: "Research, improve mechanisms and policies to enhance the efficiency of markets: capital, securities, debt trading, insurance, accounting, auditing, tax consulting, appraisal"; "Improve the institutional framework and policy for developing the agricultural insurance market, construct and submit to the Government for promulgation a decree on agricultural insurance in the fourth quarter of 2017". To effectively implement these plans and policies, appropriate and reasonable regulations need to be developed by the legislative bodies. Currently, the regulations on insurance contracts are provided in Chapter II of the Law on Insurance Business 2000. The specific provisions on insurance contracts in the Law on Insurance Business 2000 have contributed to providing a solid legal basis for the development of insurance activities in our country. The insurance premium revenue increased by an average of 20% per year during the period 2011-2020, reaching 3.24% of GDP in 2019; the total reserve for business operations increased by an average of 21% per year during the period 2011-2019, reaching 285.965 trillion VND (in 2019), 5.1 times higher than in 2010; and the total amount of investment returned to the economy increased by an average of 19% per year during the period 2011-2019, reaching 376.555 trillion VND (in 2019). The steady growth partly reflects the positive impacts that the Law on Insurance Business 2000 has achieved, demonstrating the effective management and correct direction of the competent state agencies.

2. Some shortcomings in the regulations on the formation and implementation of insurance contracts

Firstly, there is a provision regarding the consequences if one party violates the duty to provide information.

According to Article 19(1) of the Law on Insurance Business 2000, "When entering into an insurance contract, the insurer has the responsibility to provide complete information related to the insurance contract and explain the insurance conditions and terms to the insured; the insured has the responsibility to provide complete information related to the insured object to the insurer." The Law on Insurance Business 2000 has prescribed two different consequences if one party violates this obligation, specifically: (i) According to Articles 19(1) and 19(2), if one party intentionally provides false information to enter into an insurance contract, the other party has the right to unilaterally suspend the performance of the contract; (ii) According to point d of Article 22, if the insured or insurer engages in fraudulent conduct when entering into an insurance contract, the insurance contract becomes void.

The two acts of "engaging in fraudulent act" and "providing false information" have a similar nature but lead to different legal consequences. If Article 19 is applied to suspend the performance of the contract, the insurance contract will terminate from the time the insurer notifies the termination of the insurance contract, and the insurer will collect premiums until the suspension of the contract. If Article 22 is applied to declare the insurance contract void, according to Article 131 of the Civil Code of 2015, the parties will return what they have received, and the party at fault must compensate for the damage. The legal regulations have not clearly distinguished when to apply Article 19 and when to apply Article 22, making this provision difficult to apply, and the parties will use the legal basis according to their best interests. The insurer will apply point a of Article 19(2) to suspend the performance of the contract in order to retain the insurance premiums paid by the insured, while the insured will want to apply point d of Article 22(1) to request the court declare the insurance contract void in order to recover the insurance premiums paid.

Compared to the provisions of the Civil Code of 2015, according to Article 428 of the Law on Insurance Business 2000, the basis for applying the sanction of suspending the performance of the contract is a violation that occurs during the performance of the contract, while the basis for declaring the contract void is a violation that occurs before the parties enter into the contract as regulated in Article 127 of the Civil Code of 2015. However, the act of "providing false information to enter into an insurance contract" is essentially an act of deception when entering into a contract, occurring before the parties enter into the contract, but the Law on Insurance Business 2000 regulates this as the basis for suspending the performance of the contract. This provision is somewhat inconsistent with the Civil Code of 2015. However, some other opinions argue that this provision is reasonable because it is a specific provision to protect the rights of the insurer. The information provided in the contract directly affects the insurer's risk assessment and contract signing. If point d of Article 22(1) of the Law on Insurance Business 2000 is applied to declare the contract void, the rights of the insurer will not be protected. In the author's opinion, this argument is not convincing. The insurer can still demand compensation for damages when the contract is declared void based on the provisions of Article 131 of the Civil Code of 2015, "The party at fault causing damage must compensate," and the insurer's rights are still protected. Therefore, the author believes that the provision regarding the legal consequences of violating the duty to provide information is still unclear and difficult to apply.

On the other hand, the legal consequences when both parties (insurer and insured) violate the duty to provide information are not proportional. If the insured violates the duty to provide information, the insurer has the right to unilaterally suspend the performance of the contract and collect insurance premiums until the suspension, while in the case of the insurer's violation, the insured has the right to unilaterally suspend the contract and the insurer must compensate for the damages arising from the false information. If the violating party is the insured, the legal consequences are clearly disadvantageous to them, specifically the premium they have paid and will have to pay until the suspension of the contract, without the insurer having to prove damages. However, in the case of the insurer's violation, this obligation is quite vague and abstract, depending on whether the insured can prove actual damages.

Secondly, regulations on risk change and insurance. 

For benefits with higher risk ratios, the insurance premium is usually higher, and vice versa. Therefore, events that change the level of insured risk will lead to changes in insurance premiums. Article 20 of the Insurance Business Law in 2000 mentioned two cases: (i) Changes in factors used to calculate insurance premiums leading to a reduction in insured risks, and (ii) Changes in factors used to calculate insurance premiums leading to an increase in insured risks. However, Article 20 does not distinguish between objective and subjective reasons. If the increase in risk is due to subjective reasons, for example, the insured intentionally reduces their own health, the insurer has the right to adjust the insurance premium for the remaining period of the insurance contract. Conversely, if the increase in risk is due to objective reasons, such as the insured's declining health due to old age, it is somewhat unreasonable for the insurer to increase the insurance premium for the remaining period of the insurance contract. Although current regulations allow the other party to refuse to accept an increase/decrease in insurance premiums, the current provisions lack clear differentiation between objective and subjective reasons, which is unreasonable and has many shortcomings.

Thirdly, regulations on the time limit for initiating legal proceedings. 

According to Article 30 of the Insurance Business Law in 2000, "The time limit for initiating legal proceedings regarding insurance contracts is 3 years from the occurrence of the dispute." Compared to the Civil Law in 2015, the provisions of the Insurance Business Law in 2000 have certain differences. According to Article 154, Clause 1 of the Civil Law in 2015, "The time limit for initiating civil proceedings is calculated from the date the person entitled to request knows or must know that their rights and legitimate interests have been infringed, except in cases where the law provides otherwise." The provisions of the Insurance Business Law in 2000 are not contradictory to the Civil Law in 2015, because the Civil Law in 2015 has provided an exception that if the law has different provisions (in this case, Article 30 of the Insurance Business Law in 2000), then it will be applied according to those provisions. However, in the author's view, the provisions of the Insurance Business Law in 2000 are somewhat more unreasonable than the provisions in the Civil Law in 2015. Not in every case where the person entitled to rights and interests being infringed knows immediately that their rights and interests are being infringed. This leads to the consequence that when they discover their rights and interests being infringed, the time limit for initiating legal proceedings has expired, and they cannot exercise their right to initiate legal proceedings to protect their rights and interests. Therefore, the provisions in the Civil Law in 2015 are more reasonable and should be considered for application to insurance contracts as well.

Forthly, regulations on cases of invalid insurance contracts. 

According to point b, Clause 1 of Article 22 of the Insurance Business Law in 2000, one of the cases of invalid contracts is "At the time of entering into the insurance contract, the insured object does not exist." This provision can be interpreted in various ways. If "the insured object does not exist" is understood as there is no insured object, then the provision of invalid contracts is reasonable. However, if understood as "the insured object does not exist" means the insured object does not exist physically, it is not appropriate in some cases. Assets formed in the future, such as a house formed in the future, are also considered as a type of asset that can be insured, but at the time of entering into the contract, the house does not physically exist.

 

Fifthly, provision regarding cases where insurance claims are not paid.

Point c, Clause 1 of Article 39 of the Insurance Business Law in 2000 states: "The insured person dies as a result of the death penalty being executed,"  in which case the insurance claim is not required to be paid. The act of intentionally committing a crime to receive the death penalty and causing an insurance event to benefit the beneficiary is also a form of insurance fraud.

The first perspective argues that this provision aims to prevent someone from committing a crime that leads to the death penalty. If this is the reason behind the provision, then it is quite reasonable. However, the current provision needs to establish a reasonable time limit, as provided in point a, Clause 1 of Article 39 of the Insurance Business Law in 2000.

The second perspective argues that this provision aims to punish the insured person for committing a crime. Under the current provision, if the insured person commits a crime leading to the death penalty at any time, the beneficiary loses the right to receive the insurance claim. In the author's opinion, regardless of the insured person's criminal behavior, the right to support and maintain the beneficiary should be recognized and protected by law. Therefore, if this provision aims to punish, it would be highly unreasonable and unconvincing.

3. Some recommendations for improvement

Firstly, improve the provisions on handling the consequences if one party violates the responsibility of providing information. The Law on Insurance Business 2000 needs to supplement provisions and criteria to clearly determine cases of "deception in contract formation" and "intentionally providing false information," in order to apply these provisions in a reasonable manner.

Secondly, there should be clear differentiation between subjective and objective reasons for changing the level of insured risk. If the reason is subjective, then the increase/decrease in premiums should not be accepted, whereas if the reason is objective, it should be regulated like other current legal provisions.

Thirdly, regarding the time limit for initiating legal proceedings, based on the analysis in Section 2, the author proposes to amend the provision to set the time limit for initiating legal proceedings for insurance contracts at three years, calculated from the date the person entitled to request knows or must know that their rights and legitimate interests have been infringed. This provision would better protect the rights of the parties involved compared to current legal provisions.

Fourthly, there should be clearer provisions regarding cases where the insured subject does not exist, and this provision should be adjusted to ensure clarity and appropriateness when determining cases of void insurance contracts. Legislators should consider provisions to ensure that assets such as future homes are not considered cases of non-existent insured subjects that render the contract void.

Fifthly, there should be additional provisions for the time period to be calculated from the date of the first insurance premium payment or from the date the insurance contract continues to be effective until the date the criminal act for which the death penalty is applied is committed. This time period should be similar to the provision in point a, Clause 1 of Article 39 of the Insurance Business Law in 2000.

M.Sc. TRAN LINH HUAN - NGUYEN PHUOC THANH TRUONG (HCMC University of Law)

Source: Court Magazine

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