Insurance rules: why they are needed

Under the Law of the Republic of Kazakhstan "On Insurance Activity", insurance is a set of relations for protecting the lawful property interests of an individual or legal entity upon the occurrence of an insured event or another event specified in the insurance contract, by means of an insurance payout made by an insurance organization from its own assets.

Insurance activity is the activity of an insurance (reinsurance) organization related to concluding and performing insurance (reinsurance) contracts, carried out under a licence of the authorized body in accordance with the legislation of the Republic of Kazakhstan, or without a licence in accordance with the legislative act of the Republic of Kazakhstan on mutual insurance.

Insurer – a person who carries out insurance and who, upon the occurrence of an insured event, is obliged to make an insurance payout to the policyholder or another person in whose favour the contract was concluded (the beneficiary), within the amount specified in the contract (the sum insured);

Policyholder – a person who has concluded an insurance contract with the insurer.

Insured person - a person in respect of whom insurance is carried out.

Beneficiary – a person who, under the insurance contract, is the recipient of the insurance payout.

It should be noted that insurance is carried out in both voluntary and compulsory forms.

Voluntary insurance - insurance carried out by the will of the parties, whose classes, terms and procedure are determined by agreement of the parties.

Compulsory insurance - insurance carried out by virtue of the requirements of legislative acts, whose terms are determined by agreement of the parties, unless otherwise established by the legislative acts governing compulsory classes of insurance.

Insurance rules are a document of an insurance organization that sets out the terms of insurance for a particular class of insurance.

An insurance contract is concluded in writing by:

1) the parties drawing up an insurance contract;

2) the policyholder acceding to standard terms (insurance rules) developed unilaterally by the insurer (a contract of adhesion).

The form of the written contract is determined by the insurer or by agreement of the parties. Failure to observe the written form of an insurance contract renders it invalid.

An insurance organization may conclude insurance contracts in the form of a contract of adhesion, issuing an insurance policy to the policyholder, only after its insurance rules have been approved by the authorized body.

If an insurance organization concludes an individually negotiated contract with a client for a particular insurance product, the insurance rules developed for it are not subject to approval by the authorized body.

Compulsory classes of insurance are carried out on the basis of a contract concluded between the policyholder and the insurer by the insurer issuing an insurance policy to the policyholder, except for compulsory crop insurance, which is carried out on the basis of a standard form of contract developed by the Government of the Republic of Kazakhstan.

At the same time, the rules for all compulsory classes of insurance are subject to approval by the authorized body.

What must insurance rules contain?

In accordance with the civil legislation of the Republic of Kazakhstan:

1) a list of insured objects;

2) the procedure for determining sums insured;

3) a list of insured events;

4) exclusions from insured events and limitations of insurance;

5) the term and territory of the insurance contract;

6) the procedure for concluding the insurance contract;

7) the rights and obligations of the parties;

8) the policyholder's actions upon the occurrence of an insured event;

9) a list of documents confirming the occurrence of the insured event and the amount of loss;

10) the procedure and conditions for insurance payouts;

11) the time limit for deciding on an insurance payout or a refusal to pay;

12) the conditions for terminating the insurance contract;

13) the dispute resolution procedure;

14) additional terms.

In addition, consumers of insurance services should know that, to prevent violations of their rights and interests, the authorized body recommends that insurance organizations include the following additional terms when drafting their insurance rules:

1) the procedure for paying insurance premiums;

2) immediate registration by the insurer of a notice of an insured event;

3) the ways in which the policyholder notifies the insurer of the occurrence of an insured event;

4) the obligation to issue to the policyholder a certificate listing the documents on the insured event accepted by the insurer, with the dates of their acceptance;

5) that the insurer has no right to refuse an insurance payout if late notification of the insured event was due to valid reasons on the part of the policyholder (injured party) or beneficiary, provided there are documents substantiating this;

6) terms on the procedure by which the insurer decides to refuse or to compensate the injured party, the time limit for that decision, its postponement, and written notification of the applicant;

7) the time limit for drawing up an insurance report where provided for by the insurance rules, stating in it the amount of the insurance payout and the procedure for making it available to the policyholder (beneficiary) for review;

8) specification of time limits (calendar or business days);

9) grounds for releasing the insurer from making an insurance payout;

10) the insurer's liability for incompleteness of the terms that must be stated in the insurance contract.

Furthermore, insurance rules must not include ambiguous terms such as "other documents", "other rights", "other obligations", "other provisions of the laws of the Republic of Kazakhstan", "and the like", "etc.", which the insurer must disclose and specify in full to prevent disputes between the parties to the insurance transaction when an insured event occurs.

An integral part of the insurance rules is their appendices: the form of insurance contract developed by the insurer and a sample insurance policy, which must contain all the information provided for in the standard form of insurance policy developed by the authorized body.

In addition, the insurance contract must contain:

1) the name, location and bank details of the insurer;

2) the surname, first name, patronymic (if any) and place of residence of the policyholder (if an individual), or its name, location and bank details (if a legal entity);

3) the insured object;

4) the insured event;

5) the sum insured and the procedure and time limits for the insurance payout;

6) the amount of the insurance premium and the procedure and time limits for paying it;

7) the date of conclusion and term of the contract;

8) details of the insured person and the beneficiary, if they are parties to the insurance relationship;

9) the number and series of the contract (insurance policy);

10) the cases and procedure for amending the terms of the contract;

11) the conditions of payment and the amount of the surrender value (for savings insurance). The surrender value is the amount of money the policyholder is entitled to receive upon early termination of a savings insurance contract.

Insurance rules and contracts may provide for a deductible. A deductible is a release of the insurer, provided for by the insurance terms, from compensating a loss that does not exceed a certain amount. A deductible is set either as a percentage of the sum insured or as a fixed amount.

A deductible may be conditional (a franchise, not subtracted from the payout) or unconditional (subtracted from the payout).

With a conditional deductible, the insurer is released from compensating a loss that does not exceed the set deductible amount, but must compensate the loss in full if it exceeds that amount.

With an unconditional deductible, the loss is in all cases compensated less the set amount.

By agreement between the policyholder and the insurer, insurance contracts may be concluded on the basis of the insurance rules with additional terms determined at the time of conclusion. However, if additional terms are repeated more than three times, the insurer must, in the manner established by law, amend the rules for the relevant class of insurance and submit them to the authorized body for approval.

Under civil legislation, if an insurance contract contains terms that worsen the policyholder's position compared with those provided for by legislative acts, the rules established by those legislative acts apply.

In line with civil legislation, the Agency also recommends that insurers include their liability for incompleteness of the terms that must be stated in the insurance contract, as well as a provision that, if a dispute arises under the insurance contract due to incompleteness of any of its terms, the dispute is resolved in favour of the policyholder.

We draw the attention of insurance consumers to the fact that an insurance policy specifically contains only the rights and obligations of the parties; therefore, when concluding a contract by receiving an insurance policy, you should carefully read all the terms of the insurance rules.

To this end, when concluding an insurance contract and receiving an insurance policy, a consumer of insurance services has the right to request from the insurance organization the full insurance rules, marked with the date of their approval by the authorized body, if they are subject to such approval.

Providing the insurance rules at the policyholder's request is a direct obligation of the insurer.