Lecture given on the occasion of the 50th anniversary of La Colonial
October 26, 2021
I. Introduction
It is a great honor for me to participate as a speaker at this event sponsored by La Colonial on the occasion of its 50th anniversary. My special thanks to Miguel Feris Chalas, president of La Colonial, Diones Pimentel, executive vice president of César Iglesias, S.A., Luís Manuel Aguiló, executive vice president of La Colonial, and Mayra Muñoz, legal advisor, for this distinction. Greetings to the other executives of the company and thank you all for your presence.
I would like to take this opportunity to remember Miguel Feris Iglesias, whom I had the opportunity to know closely as he was my wife’s godfather and the godfather of our wedding.
I would also like to acknowledge the work carried out by prestigious lawyers, as well as professionals from other disciplines, for the benefit of the growth and sophistication of the insurance industry in the Dominican Republic. In the legal field, I would like to give special recognition to the contributions of Dr. Luís Bircann Rojas, Dr. Mairení Rivas Polanco, Dr. Fernando Ballista Díaz, and Judge Jorge Subero Isa. The work of these four outstanding professionals has contributed enormously to the development of insurance doctrine and practice.
II. Public economic law and its impact on relations between individuals
a. Public economic law and freedom of contract
In the traditional formation of the legal discipline, marked by the predominance of private law, the focus was mainly on individuals, that is, on the manifestation of their will to generate reciprocal rights and obligations in a jurisdiction where their freedom to contract and bind themselves was conditioned as little as possible by factors external to that will. The framework of law was centered on the principle of freedom of contract, which was enshrined in Article 1134 of the Civil Code, giving legal force to agreements legally formed between individuals.
In the privatist paradigm, the starting point and center of legal construction are individuals and their freedom to agree among themselves as they see fit, provided that public order and good morals are respected, as provided for in Article 6 of the Civil Code.
The emergence of public economic law in a scenario characterized by the growing complexity of the relationship between the state, society, the market, and individuals calls into question this essential postulate of private law, giving way to a new approach in which individuals, even within the framework of a legal system that recognizes private property, freedom of enterprise, and free competition, will be increasingly conditioned by rules, mechanisms, and institutions that are called upon to assert the interests of the community over purely private interests.
The insurance sector is no exception to this reality, as both the insurance policies agreed between the insurance company and the customer, as well as other insurance transactions and the internal corporate operations of these private agents, are conditioned by this complex regulatory environment that produces an intersection between public and private interests.
b. State, economy, and individuals
The backdrop to the emergence and development of public economic law is the complex and changing relationship between the state, the economy, and individuals. This is an old problem that, depending on historical circumstances, takes on different forms and nuances, sometimes expanding the private sphere and shrinking that of the state, sometimes expanding the presence of the state and limiting the private sphere, and sometimes articulating intermediate modalities or a pragmatic balance between the public-state and the private.
In any case, historical contexts, economic reality, and social demands on the state dynamically shape the relationship between the state and the market and individuals in their economic activities. Economic transformation itself, the emergence of new social actors, and the creation of public awareness about certain aspects of economic activity also influence how the state intervenes in the private world of business.
In the classical liberal model, the state had a well-defined role, with specific tasks and functions—public order, security, defense of sovereignty, and a few other specific activities—as opposed to the private sphere and the activities of individuals, which were understood to be as broad and free as possible. Although this model has never operated in its purest form, or has only done so in exceptional circumstances, it at least serves as a reference for understanding a form of relationship between the state, the economy, and individuals in which the former had little presence in the world of private business.
Similarly, we can think of the extreme statist model in which the private sphere was practically non-existent, while the state had a decisive presence in all economic activity, based on its control and ownership of practically all the means of production.
Leaving aside these pure and opposing models, what we find are rather mixed schemes, with a greater or lesser intensity of state presence in the economy depending on historical circumstances. During much of the 20th century, the state in different parts of the world, especially Europe and Latin America itself, had a direct presence as the owner and manager of economic activity, that is, the state as an entrepreneur, either in a monopolistic mode or in competition with the private sector in certain areas of the economy.
This model of strong direct state presence in the economy was consolidated in Europe after World War II when states, in addition to building the so-called welfare state systems, decided to intervene directly in strategic areas of the economy and sometimes even in areas that were not so strategic. The state formed its own industrial complex, while intervening in critical service areas such as transportation, energy, and communication. In this model, state ownership and direct management of companies coexisted with private sector ownership and management, but the notion and practice of the regulatory state, strictly speaking, had not yet been established in its full dimension, at least in the European experience.
The path taken in the United States was different. From the outset, state intervention in the economy was carried out through the regulation of critical areas of public services, which led to the emergence of, for example, the Federal Trade Commission, the Security and Exchange Commission, the Federal Telecommunications Commission, the Federal Energy Commission, and the Federal Insurance Office, among others.
This model of independent regulatory commissions, technically trained and independent of both the executive and legislative branches, was adopted decades later in Europe and other parts of the world, including Latin America. Just as the United States was a pioneer in recognizing the supremacy of the Constitution, it was also a pioneer in developing the concept of the regulatory state through independent entities or commissions called agencies.
During the 1960s and 1970s, the state had an enormous presence in the economy through both state ownership of a large industrial complex and regulation and the welfare state, which eventually began to generate crises in the functioning of the economic system as a result of high fiscal deficits, productive inefficiency, and the great veto power of unions in public enterprises.
The case of the United Kingdom was particularly paradigmatic. After the so-called “winter of discontent” of 1978-1979, Margaret Thatcher, at the head of the Conservative Party, won the British elections and took office as prime minister with a radical agenda of privatization, deregulation, and combating trade unions. Her government spearheaded the most radical process of state retrenchment, economic deregulation, and expansion of the market and private actors ever seen in any society.
At the same time, her soul mate in the United States, Ronald Reagan, won the elections in November 1980, also with an agenda based on deregulation and the defense of state downsizing and the expansion of the free market and private actors. In the United States, however, the privatization agenda did not make much sense because, given the complex federal government structure and the political culture itself, neither the federal government nor state governments in that country have owned industrial complexes, as was the case in Europe.
Nevertheless, the US government did promote the privatization and deregulation agenda abroad, especially in Latin America, and it was in this context that the so-called “Washington Consensus” emerged, whose basic pillars were the redefinition of the state based precisely on privatization, deregulation, the elimination of fiscal deficits through a reduction in the size of the state, and the promotion of trade liberalization.
This agenda dominated economic discourse during the 1980s, but then, after the negative effects of excessive deregulation, there was a reaction in the United States, Europe, and other countries around the world, including Latin America, in favor of re-regulating the economy. What did lose momentum was the notion of the state as owner, since after privatization, with a few exceptions, states have not embarked on processes of re-nationalization or nationalization of the means of production, except in socialist-oriented countries.
In any case, at the present time, the predominant form of state presence in the economy is through regulation, which in itself is not a peaceful issue, as was evident in the context of the financial crisis that began in 2008, which has been attributed to the poor regulation of new financial instruments that ended up generating the worst economic crisis since the Great Depression of 1929. This crisis has led to a process of re-regulation in the financial sector that took several years due to the far-reaching and unforeseen effects that the crisis had in different parts of the world.
c. The state, economic regulation, and markets
Despite the recognition that private initiative is the main source of wealth creation, there is also an awareness of the negative effects caused by the inappropriate behavior of private corporations which, precisely because of the absence of effective regulation, have ended up self-destructing or causing serious damage to society.
This raises a simple but crucial question: why is it necessary for the state to regulate certain markets? The answer is also simple but convincing: regulation seeks to remedy market failures.
These failures can take many forms: monopolistic or quasi-monopolistic practices that affect the competitiveness of the economy and the well-being of consumers; risks inherent in certain economic activities that can impact not only the agents themselves but the entire economic system, as is the case with the financial sector, an area in which regulation is essential; as is the case with the insurance sector, which is essential for protecting the assets of individuals, families, businesses, and even public infrastructure; harmful industrial practices that affect both communities and the environment; power imbalances in the relationships between providers of certain services and their users, which require a minimum balancing factor in these relationships; the strategic and critical nature of certain services that have been concessioned to private companies but require the State to monitor the fulfillment of their essential functions; the highly risky nature of certain productive or service activities for people’s lives and health, as well as the need to protect minors and people with disabilities; and more recently, state regulation has been required to guarantee certain fundamental values, such as equality and non-discrimination.
This is why the most paradigmatic examples of regulated markets are finance, electricity, telecommunications, the food and alcoholic beverages industry, air and rail transport, and the insurance sector itself.
Some prefer not to use the term economic regulation and instead use the concept of market regulation, which refers more to certain specific aspects that for a long time were outside the scope of economic regulation strictly speaking, such as laws relating to competition and measures relating to unfair trade practices in a context of increasing liberalization.
d. The powers or authority of the administration
The discussion on public economic law leads us to another important point, which is that of the powers or authority of the administration in the modern era to carry out this work of regulation and supervision. The administration represents or is called upon to represent the general interest, the common good, which has led to a radical change in the powers that the law recognizes the administration as having to carry out its relations with individuals in a general sense, but particularly in its work of economic regulation and market management. These powers include the privilege of declarative and executive self-regulation, the power of inspection, and the power to impose sanctions.
Of course, the law also recognizes that these individuals are holders of rights that the Administration must respect in the exercise of its powers in order to avoid arbitrariness, privileges, discrimination, and abuse of power.
The challenge lies in how the State, through its various instruments, carries out this work while respecting the rights of private individuals and companies and avoiding stifling private initiative, which is also recognized by the Constitution.
What is certain is that we have entered an era in which virtually all areas of economic activity (including insurance) have some degree of state presence, to a greater or lesser extent, and that companies, impacted or conditioned by that presence, must make the adjustments and changes required by this new public economic law.
The deployment of the state’s regulatory capacity has not been uniform across all sectors of the economy, but varies according to the particular circumstances of each sector and the development of society itself.
In our country, for example, the regulatory power of the state has developed more intensely in the last two decades with the adoption of new laws regulating a variety of sectors of the economy, such as telecommunications, social security, energy, the financial sector, the insurance sector, and the stock market, among others. Given these legislative and institutional advances, we can affirm that the State today is not even remotely what it was two or more decades ago.
In the case of insurance activity, the transformations have varied depending on the impetus that the sector’s regulatory framework has given to different figures that explain the relationship between the State, the market, and individuals.
III. The Dominican insurance sector: its regulatory evolution
With these considerations on public economic law as a backdrop, I will now review the legislative evolution of insurance in the Dominican Republic to highlight the most relevant aspects from the perspective we have adopted in this conference.
The first legislation was adopted shortly after the beginning of the so-called “Trujillo era.” This was Law No. 68, of December 15, 1930, which began to regulate an emerging sector in the Dominican economy but which would occupy an increasingly important place as industrial and commercial development was promoted, even in the midst of that disastrous period in Dominican history.
Among the noteworthy aspects of this legislation are the following: 1) it stipulated that companies intending to engage in this business had to apply for authorization from the Executive Branch through the Superintendent of the Insurance Department of the Ministry of Finance; 2) it classified insurance companies according to the types of coverage they provided (crops, fire, bonds, hurricanes, life, marine, accidents); 3) it defined the areas in which insurance companies could invest their capital and the proceeds from premiums as a way of mitigating investment risks; 4) it established the requirement for quarterly reports on operations, policy expirations, claims and maturities, policies payable, and information on investments made.
This first insurance sector law conceived the authority responsible for supervising insurance companies as an Insurance Department under the then Ministry of Finance. In other words, the law considered this institution to be a decentralized body within the central administration of the State, which reveals a certain awareness among those who drafted the law of the fundamentals of administrative organization in the Dominican Republic. The Department of Insurance did not have regulatory power, but only had the capacity to prepare regulations that it would recommend to the Executive Branch for adoption.
Shortly thereafter, Law No. 96 of March 20, 1931 was adopted. Among the new features it introduced were: 1) the obligation to set aside 10% of net profits annually to constitute a Reserve Fund; 2) the requirement to provide a bond that could be enforced by third parties to guarantee the payment of policies issued by the company or any pending contracts or claims; 3) the classification of insurance companies according to the insurable matter on which they provided their services in an even more precise manner than the previous law; and 4) the requirement that any fire insurance contract made by a foreign company not authorized to do business in the country must pay double the tax on the premiums charged for that concept, which clearly sought to discourage the purchase of policies (in this case, fire insurance) from foreign companies not registered in Dominican territory. The purpose of these legislative provisions was to protect the domestic industry, which was highly controlled by the dictator Rafael Leónidas Trujillo.
As a complement to Law No. 96, Law No. 3551 of May 15, 1953, was enacted, establishing rules on the operation of insurance companies established in the country. It provided, for example, that foreign insurance companies had to be based in the country, under penalty of not being able to enter into new insurance contracts or renew existing ones after the deadline granted for that purpose had expired. In addition, contracts entered into in violation of the prohibitions of this article would have no legal effect in the country. It also stipulated that insurance companies established in the country were required to invest locally no less than 30% of the total value of the net premiums collected each year, while limiting the types of investments that such companies could make, namely: (i) the acquisition of government securities, (ii) the acquisition of shares and bonds of domestic companies engaged in agricultural, industrial, and livestock development, and (iii) mortgage loans for housing construction.
In practical terms, these provisions implied prohibitions on the free movement of capital, restrictions on freedom of enterprise, and obstacles to foreign investment, but they were adopted in a context in which there was a monopoly interest on the part of Trujillo, who owned a high percentage of the country’s industrial and service companies, including the main insurance company, Seguros San Rafael.
A year later, Law No. 3788 of March 19, 1954, was passed, repealing Law No. 96 of March 20, 1931. This new legislation introduced several changes to the insurance business in the Dominican Republic, including the following:
1) It established that only companies organized as insurance companies could engage in this activity; 2) it set out the clearly defined areas in which insurance companies could operate; 3) It established the conditions under which domestic and foreign companies could engage in the insurance business, while also providing that domestic insurance companies, with the prior authorization of the Superintendent of Insurance, could establish branches or agencies abroad; 4) it provided that social insurance, workers’ compensation insurance, and all other types of insurance that were considered social welfare insurance would be governed by special laws, which showed a marked effort to separate purely private insurance activities from those types of insurance that fulfill a social function; 5) required all insurance companies to provide a bond for the payment of obligations arising from insurance contracts and for any compensation agreed upon due to failure or unjustified delay in the performance of contracts; 6) It granted legal coverage to co-insurance or reinsurance by establishing that insurers could cede, in the form of co-insurance or reinsurance, to authorized companies, the portion that exceeded their net retention limits in each insured risk. 7) introduced a peculiar provision requiring foreign insurance companies not based in the Republic that carried out insurance operations with the authorized authorization to pay a tax of five percent (5%) on the premiums stipulated in their contracts to the corresponding Internal Revenue Service for all types of insurance. The insured shall be jointly and severally liable for the payment of the tax.” Obviously, this article created an economic disincentive for the operations of foreign insurance companies not based in the country; and 8) the law established a catalog of sanctions that included, in addition to fines, the possibility of the Executive Branch disqualifying them from conducting insurance business in the country.
On January 9, 1969, Law No. 400 was enacted, creating the Superintendency of Insurance as a branch of the Ministry of Finance. Until that year, there was no formal Superintendency, but rather a Department of Insurance, and the functions of the Superintendent of Insurance were exercised by the Superintendent of Banks.
The justification for adopting this law was that “the increase in the number of entities engaged in the insurance business in the Republic requires the creation of a body to supervise and monitor the activities of insurers, reinsurers, intermediaries, and policyholders.”[1] This law represented a major step forward in the institutionalization of the authority responsible for supervising insurance companies.
Until that date, the Superintendent of Banks performed the functions of Superintendent of Insurance in accordance with the provisions of Article 31 of Law No. 3788 of March 19, 1954.
On May 10, 1971, Law No. 126 on private insurance in the Dominican Republic was enacted, repealing Law No. 3788 on insurance companies of March 19, 1954, as well as the provisions of the Commercial Code relating to insurance that were contrary to its content. Among the main provisions of this law were:
1) It introduced an extensive catalog of definitions of basic insurance terms, while stipulating that private insurance and reinsurance operations in the country would be governed by these regulations and would be considered acts of commerce.
2) It provided that various types of insurance, including import cargo insurance, could only be contracted in the country and by companies authorized to operate in the national territory, although it also provided that this provision would not apply in cases where it conflicted with international treaties, agreements, or conventions to which the Dominican Republic was a party. This was undoubtedly a provision of great importance, as it revealed the legislator’s awareness of the place of international treaties in the system of sources: in this case, supra legal.
3) It established the requirements (corporate, accounting, financial documents, etc.) that Dominican and foreign companies wishing to establish themselves to carry out insurance activities had to meet. The point to note here is that if these companies complied with all these legal requirements, they were granted authorization to operate legally. In other words, this authorization took the form of a regulated power of the Superintendency of Insurance and not a discretionary one.
4) The law took into account reciprocity and equal treatment in other countries because, although Article 19 allowed “insurers and reinsurers incorporated under the laws of the Dominican Republic to establish branches or agencies abroad with the authorization of the Monetary Board, following a ruling by the Superintendency,” the paragraph of that article conditioned the authorization to operate in the country of companies incorporated abroad on Dominican companies being allowed to operate[2].
5) Notwithstanding the foregoing, Law 126 required local insurance companies to have 51% of their subscribed and paid-up capital held by Dominican individuals or legal entities, while the majority of the members of the boards of directors had to reside in the national territory. Foreign insurance companies were required, among other things, to have a certificate from the competent authority of their country of origin stating that they met the requirements to operate as an insurer in that country.
6) The law provided that insurers and reinsurers were required to provide a bond in order to operate in the country, in accordance with a scale detailed in Article 20 of the law for the different branches of insurance. In addition, it was required that such bonds be provided to the satisfaction of the Superintendency of Insurance by means of cash deposits, treasury bonds, or other securities issued or guaranteed by the Dominican State (Article 21) and that they be used exclusively “(…) for the payment of obligations arising from insurance contracts” (Article 22).
7) The law prohibited (Article 34) the coverage of risks from different branches of insurance in the same policy and subjected claims against insurers or reinsurers to a two-year statute of limitations (Article 35) from the date of the occurrence of the loss.
8) Article 41 established as an essential requirement that the insured or beneficiary had an insurable interest in order to enter into an insurance contract. This interest took various forms depending on the types of policies to be taken out.
9) Another aspect of Law No. 126 that we should highlight is that relating to control measures over insurance activity, manifested in the form of revocation of authorization to operate as an insurer or reinsurer. In effect, Article 98 provided that “when the financial situation of an insurer or reinsurer gives sufficient reason to believe that it could incur a cessation of payments or a state of bankruptcy, or when its reserves and capital do not comply with the provisions of this law, the Superintendency shall order the adoption of appropriate measures to correct that situation (…) if the insurer or reinsurer does not regularize its situation within the period granted, the Superintendency of Insurance shall, by reasoned resolution, revoke its authorization to operate in the country.” (emphasis added)
10) For its part, Article 99 provided for the revocation of the authorization granted to the insurer or reinsurer in the following cases: (i) if it did not commence operations within 90 days of the authorization, or, where applicable, the extension of the authorization to operate, (ii) if it had ceased operations for any reason, and (iii) in cases specifically provided for in Law No. 126. In accordance with this power, the Superintendency of Insurance could “(…) deny, suspend, cancel, or revoke the authorization granted to operate in the Dominican Republic to any insurer or reinsurer in one or more insurance lines”[3].
It is worth noting that under the current configuration of our legal system, it would also be possible to revoke an administrative authorization for companies to operate as economic agents in a regulated market. However, the administrative act revoking the authorization must, in addition to being justified, demonstrate that the revocation is due to causes provided for in the law and that the law itself provides for this possibility.
While it is true that the general rule is that favorable acts in the legal sphere of individuals cannot be revoked unilaterally by the public administration, but only by following the procedure provided for in Law No. 107-13 on administrative procedure and the guidelines of the precedent contained in Constitutional Court Ruling TC/0226/14, it is no less true that in the case of administrative authorizations (such as operating licenses for insurance companies), such authorization is conditional upon the maintenance of the factual circumstances, provided for by law, that justified its granting.
11) Article 127 of the law regulated the organization of the Superintendency of Insurance and established that this institution was “(…) responsible for the supervision and monitoring of the activities of insurers, reinsurers, intermediaries, and insured parties (…)”. Although Law No. 400 provided for the creation of the Superintendency of Insurance in 1969, Law No. 126 is the first time that direct reference is made to this institution in the body of an insurance law.
12) Paragraphs II and III of Article 129 introduced interesting provisions on ethics and conflicts of interest by prohibiting officials of this state agency, on the one hand, from having a financial interest in activities related to the sector and, on the other hand, from becoming professionally involved with insurance companies once they have left office in any matter they may have handled while in office.
13) A fairly strong system of sanctions was established for insurance companies, but it was not backed by an administrative sanctioning procedure that would ensure the adequate defense of those sanctioned with the contribution of exculpatory evidence, deadlines for the submission of defense briefs and, in short, the demonstration of innocence of the charges brought against them. However, Article 152 provided that the decisions of the Superintendent of Insurance would be “(…) appealable to the Secretary of State for Finance within 10 days from the date of notification to the interested party.”
On the other hand, the paragraph of the aforementioned article (amended by Law No. 280 of December 23, 1975) established that decisions made by the Secretary of State for Finance in accordance with this law could be appealed before the Administrative Court. It also provided that in the case of the imposition of a fine, the appeal could not be exercised unless payment had been made in accordance with the procedure established by Law 540 of December 16, 1964, which amended Article 8 of Law 1494 of August 2, 1947, establishing contentious-administrative jurisdiction.
We would like to point out that the amendment introduced by Law No. 280, in the sense of making the exercise of the appeal conditional on the prior payment of the fine (solve et repete), constituted a real obstacle to access to justice, which is why, years later, the Supreme Court of Justice, in its then constitutional powers, declared it unconstitutional. However, local doctrine had previously ruled on the issue, considering the provision to be contrary to equality, access, and free justice[4].
It is curious that at the time, the right to appeal (both administratively and judicially) was guaranteed in a matter such as contentious-administrative law, which developed slowly despite the existence of Law No. 1494 of 1947, which provided, among other things, the possibility of subjecting administrative acts to legality control and contentious-administrative jurisdiction, whose functions were exercised by the Chamber of Accounts until 2007.
Law No. 126 of 1971 remained in force until 2002, when it was repealed by the current Law No. 146-02 on insurance and surety bonds in the Dominican Republic.
On September 9, 2002, Law No. 146-02 on insurance and surety bonds in the Dominican Republic was enacted, repealing, among others, Law 126 on private insurance. Law No. 146-02 was the result of a consensus between the public and private sectors to produce a text that reflected the changes experienced in the sector and was more in line with the new times and the constant modernization of the insurance industry.
At the same time, other important laws were also passed that had a significant impact on various sectors of the economy, such as Law No. 19 on the Securities Market, dated May 8, 2000; Law No. 20-00 on Industrial Property, dated the same day; Law No. 87-01, which created the Dominican Social Security System, dated May 9, 2001; Law No. 183-02, Monetary and Financial Law, dated November 21, 2002, among others. Previously, in 1998, Law No. 153-98, General Telecommunications, had been adopted, and in subsequent years new laws were adopted to regulate other sectors of the economy.
Below, we present the main aspects of Law No. 146-02, which has regulated the insurance sector to date.
Chapter 1 presents the definitions of insurance, insurance contract, endorsement or annex, excess line insurance, and, in general, all the basic concepts that will aid in the interpretation and application of this law. Chapter 2 consists of the general provisions for all insurance, reinsurance, and surety operations carried out in the country.
Chapter 3 regulates the authorization to act as an insurer or reinsurer, the requirements for foreign companies to apply for authorization as insurers and reinsurers, and the application for authorization to begin operations as a national insurer or reinsurer. Similarly, this chapter contains provisions on authorization to commence operations as a foreign company, applications to operate new lines of business, and procedures for carrying on the insurance trade or business in the country.
Chapter 4 deals with the procedure for underwriting and transparency of actions, while Chapter 5 regulates matters relating to contracts, their characteristics, common provisions, basic principles, application for surety insurance, sureties, insurable interest, premium payment, co-insurance policies, premium rates, claims against the insurer, and conciliation arbitration.
Chapter 6 deals with the regulation of compulsory motor vehicle insurance, while Chapter 7 refers to retention of the full amount and reinsurance, material conditions for the execution and completion of these processes.
The investment of reserves and the sources of such reserves and the destination of their investment are covered in Chapter 8. Chapter 9 deals with the prohibitions and limitations on the operations of insurers and reinsurers.
Chapter 10 regulates the compensation established by this law for the breach of obligations by domestic and foreign insurance companies.
Other contents of Law No. 146-02 include: accounting (Chapter 11), solvency margins, adjusted technical equity, and minimum liquidity requirements (Chapter 12), portfolio transfer, company mergers, partial portfolio transfer and assignment (chapter 13), revocation of authorization, voluntary liquidation, and compulsory liquidation (chapter 14), intermediaries and adjusters (chapter 15), payment of commissions (chapter 16), creation, purpose, functions, powers, operational authority, and organization of the Superintendency of Insurance (chapter 17); chapters 18 and 19 contain provisions relating to the Insurance Advisory Board and special provisions, respectively, while sanctions, resolutions, appeals, and transitional provisions are covered in chapters 21 and 22.
Finally, it should be noted that one of the new features introduced by this law was arbitration and conciliation. Law No. 146-02 provided rules for the appointment of the arbitrator responsible for hearing disputes between insurers and insured parties in relation to insurance policy claims, although these provisions are of little practical application.
As can be seen, Law No. 146-02 offered a much more coherent conceptual framework than previous legislation on the subject; it structured more precisely the requirements to be met for approval processes, the role of the Superintendency of Insurance, the types of contracts, the sanctions regime, among other aspects.
Regulation of the insurance sector had undergone a long process of change since 1930, when initial legislation was enacted, which was later replaced by other legislation that created an increasingly sophisticated legal framework until the adoption of this legislation in 2002. This is a sector that has been regulated since early on and whose regulations have been adapted to changes and new challenges.
IV. Where are we headed?
No economic activity, or any other activity for that matter, remains static. The insurance sector, which cuts across the economy, is also in constant transformation, which means that from time to time it is necessary to take stock and identify new challenges from both an operational and a legal point of view. The latter is of particular interest to us.
In this last section, I will briefly refer to three issues of great relevance to the insurance business that pose challenges for the future. The first is the corporate governance of insurance companies; the second is insurance in relation to public-private partnership (PPP) projects for the development of infrastructure projects; and the third is a look at innovative initiatives in the field of insurance.
With regard to the first issue, corporate governance is a mechanism for corporate governance designed to implement principles and rules aimed at promoting transparency, balance, stability, integrity, and good business management in order to encourage long-term investment and help companies achieve organic growth.
At the international level, the Organization for Economic Cooperation and Development (OECD) has developed general principles that serve as a basis for addressing corporate governance in the financial market in general and in the insurance market in particular.
The OECD’s corporate governance principles were first adopted in 1999 and have since become a benchmark in this area. Subsequently, in 2015, a revision was approved that took into account changes in the financial and business world, particularly the 2008 financial crisis and its impact on the global economy.
These principles offer general guidelines aimed at achieving a balanced relationship between the state, the economy, and individuals, meeting development objectives, generating wealth, and, above all, stability in the financial market, particularly for insurance activities.
The document is divided into six chapters, each of which contains a principle. Below, we highlight each chapter and its content.
1) Consolidating the basis for an effective corporate governance framework;
“The corporate governance framework will promote market transparency and fairness, as well as the efficient allocation of resources. It will be consistent with the rule of law and will support effective supervision and enforcement.”
2) Rights and fair treatment of shareholders and key ownership functions.
“The corporate governance framework will protect and facilitate the exercise of shareholder rights and ensure fair treatment of all shareholders, including minority and foreign shareholders. All shareholders will have the possibility of effective redress for violations of their rights.”
3) Institutional investors, securities markets, and other intermediaries
“The corporate governance framework should provide strong incentives throughout the investment chain and facilitate the functioning of securities markets in a manner that contributes to good corporate governance.”
4) The role of stakeholders in corporate governance
“The corporate governance framework shall recognize the rights of stakeholders as provided by law or by mutual agreement and shall encourage active cooperation between them and companies with a view to creating wealth and employment and ensuring the sustainability of financially sound companies.”
5) Disclosure of information and transparency
“The corporate governance framework shall ensure timely and accurate communication of all relevant matters concerning the company, including its financial position, results, ownership, and governing bodies.”
6) Responsibilities of the Board of Directors
“The corporate governance framework shall ensure the strategic direction of the company, effective control of management by the Board, and accountability to the company and shareholders.”
At the local level, Law No. 146-02 requires special conditions when structuring an insurance company, which allow us to develop a general theory of corporate governance in the insurance sector.
The specific aspects required by this law are as follows: a) residence in the national territory of the majority of directors and officers; b) financial and moral solvency of shares and directors; and c) mandatory submission of a business plan.
These provisions are intended to maintain levels of solvency and good management of insurance companies, given their relevance in the financial market and the role they play in providing security against the risks associated with business development, with a view to structuring increasingly diverse, innovative, and stable insurance schemes that translate into development for the sector and the economy in general.
With regard to the second issue, insurance companies are called upon to play an important role in the field of Public-Private Partnerships, or PPPs as they are also known, especially those aimed at the development of infrastructure projects and the provision of public services.
According to the Dominican Republic’s National Infrastructure Plan 2020-2030, by June 2020, the infrastructure gap in our country was estimated at approximately US$9.926 billion. This figure is a constantly updated reference value that indicates the approximate amount of capital investment that must be allocated to the development of infrastructure projects to achieve adequate and universal provision of basic and social services.
These levels of capital investment far exceed the State’s budgetary capacity. Given the need to allocate public resources to priority sectors (e.g., public health, citizen security, public payroll, among others), it is necessary for private investors, together with the State, to develop the service and infrastructure platform for the growth of the country’s productive sectors.
With the aim of achieving this increase in long-term private investment levels for the development of road, port, energy, and telecommunications infrastructure, among others, Law No. 47-20 on Public-Private Partnerships was enacted in February 2020, which regulates a new contracting mechanism between public and private agents for the provision, management, and operation of goods and services of social interest in which there is total or partial investment by private agents, tangible or intangible contributions by the public sector, distribution of risks between the parties, and in which remuneration will be linked to performance.
Over the last 20 years, public-private partnerships (PPPs) have played a fundamental role around the world in bringing together resources from the public and private sectors to reduce the infrastructure gap and encourage innovation in the provision of public services.
This type of contract has four main characteristics: 1) it is a medium- to long-term agreement; 2) it generally involves the investment of private capital and, in some cases, the co-investment of public funds; 3) payment is linked to the performance of the infrastructure developed; and 4) risks are shared between the parties. This last characteristic is what distinguishes PPPs from other types of public works and service contracts.
The development of this type of project exposes the parties to various types of risks that can affect the cost structure envisaged in the preparatory stage, as they translate into higher interest rates and, therefore, higher financial costs for investors. Article 57 of the law provides that PPP contracts must take into account, at a minimum, economic, social, political, institutional, legal, operational, financial, natural, environmental, and technological risks, among others. The following article of the same law suggests that these risks be transferred partially or totally to the private agent and that a plan be provided for their mitigation. Since in most cases it is the private agent who structures the project’s financing scheme, it is usually the private agent who provides for the mechanisms to adequately manage or mitigate such risks.
Internationally, the most commonly used mechanism for risk mitigation during the development of public infrastructure projects is the purchase of insurance policies. This alternative is often much more efficient and competitive than other guarantees also considered to be first-rate[6].
The World Bank, through its Legal Resource Center for Public-Private Partnerships platform, identifies, among others, the following types of insurance to be considered by the parties in this type of contract, as these are the most commonly used in international practice: 1) transportation insurance; 2) all-risk construction policies; 3) professional liability insurance; 4) operational damage insurance; 5) third-party liability insurance; and 6) mechanical breakdown insurance. For reasons of time, I will not consider each of these in particular and in detail.
At the local level, the General Directorate of Public-Private Partnerships has indicated that for the development of this type of contract, a risk mitigation scheme must always be provided for, which, as we have said, involves taking out insurance. In this regard, in October 2020, the Directorate General signed an inter-institutional agreement with the Dominican Chamber of Insurers and Reinsurers, Inc. (CADOAR), with the aim of promoting best practices in the insurance sector and establishing and providing for the use of insurance policies, mainly comprehensive coverage and faithful compliance in PPP contracts.
The third and final topic I would like to mention relates to certain innovative initiatives in the insurance industry that have been reflected in a preliminary draft or draft bill to reform or enrich Law No. 146-02. Among the most relevant aspects of this draft or preliminary draft, from the perspective of this conference, are the following:
1) Creation of an insurance database. The text proposes that “insurance companies may establish common databases containing data for the settlement of claims and actuarial statistical collaboration for the purpose of enabling the pricing and selection of risks and the preparation of insurance technical studies. Likewise, common databases may be established for the purpose of preventing insurance fraud” (Article 126).
The possibility, as proposed in this article, of insurance companies establishing databases to store large amounts of information that would be used to facilitate their daily operations, as well as to prevent or mitigate fraud in the sector, is an initiative that would result in tangible benefits for both insurers and policyholders due to the ease of access and processing of data.
However, these databases must comply with the protection of privacy and personal honor as provided for in Article 44, paragraph 2, of the Constitution. Likewise, this database must comply with the requirements of Article 5 of Law No. 172-13 on the protection of personal data, dated December 13, 2013, regarding the legality of personal data files, data quality, the right to information, consent of the affected party, data security, duty of secrecy, loyalty, and purpose of the data.
As can be seen, the collection, processing, and storage of personal data entails risks that companies must prevent and mitigate to ensure the quality and efficiency of the resource used without affecting the rights and interests of third parties.
2) Creation of a Single Insurance Registry (RUS). The proposed bill contemplates the creation of the Single Insurance Registry (RUS), which will be accessible via the internet, in order to provide insurers, insured parties, and beneficiaries with specific, accessible, and secure information about the persons who have purchased insurance policies, those who are insured by such policies, and the beneficiaries thereof. This task would be assigned to the Superintendency of Insurance, while insurance companies would be required to permanently provide the information necessary for the creation and operation of the registry (Article 127).
It is worth noting that public initiatives aimed at promoting and using new information and communication technologies (ICT) result in more dynamic, higher quality, simpler, and more accessible public services for citizens, which is particularly valuable for those living in more remote communities within the country.
In fact, Law No. 247-12, on public administration, dated August 9, 2012, establishes in Article 11 the concept of e-government, through which the public administration will seek to “(…) use new technologies, such as electronic, information, and telematic means, which can be used to improve the efficiency, productivity, and transparency of administrative processes and the provision of public services.”
4) Definitions in Inclusive Insurance. The draft bill includes provisions on inclusive insurance, which it defines as insurance that is easy to obtain and aimed at sectors of the population that, given their circumstances, do not have easy access to traditional insurance products, such as the rural population and people with disabilities, among others. It also contemplates the figure of “inclusive insurance correspondents,” which it defines as any legal or natural person who enters into a correspondent agreement with the insurer to market inclusive insurance. The Superintendency of Insurance will be responsible for determining the scope and content of the correspondent agreement (Article 253).
5) Branches of inclusive insurance. The following branches are identified as suitable for marketing through inclusive insurance: i) compulsory traffic accident insurance; ii) automobile insurance; iii) funeral insurance; personal accident insurance; iv) unemployment insurance; v) education insurance; individual life insurance; vi) voluntary pension insurance; vii) health insurance; viii) civil liability insurance; ix) fire insurance; x) earthquake insurance; xii) theft insurance; xiii) agricultural insurance; xiv) home insurance; xv) group life insurance; and xvi) group life insurance. The Superintendency of Insurance may authorize additional branches to those mentioned above for the marketing of inclusive insurance (Article 255).
Establishing a branch of inclusive insurance is consistent with the mission of promoting and respecting the essential rights of citizens. The Superintendency of Insurance would be responsible, in accordance with its powers, for ensuring compliance with these provisions if this bill becomes law. Logically, these new types of insurance must meet equally inclusive criteria and guarantee access to as many people as possible in the simplest way possible.
6) Regulatory improvement. The draft bill also provides for the Superintendency of Insurance to establish regulations that are in line with international best practices in regulatory design, allowing public participation in the design of regulations and public policies in the insurance sector, which will lead to greater inclusion, transparency, and democratization in the regulatory process (Article 260).
Regulatory improvement processes fall within the broader scope of public administration, namely quality public management. In this regard, Article 10 of Law No. 247-12 provides that the Administration “(…) shall have among its objectives the continuous improvement of management, under parameters of technical and legal rationality, in accordance with established policies and available resources.” Consequently, even the regulatory improvement processes of decentralized agencies such as the Superintendency of Insurance must meet quality criteria.
CLOSING NOTE
I hope that these reflections will be useful in the debate on the legal challenges facing the insurance sector and the reform proposals being put forward in response to the economic and institutional transformations that are impacting this sector. I have addressed the problems of the insurance sector from the perspective of public economic law, as I believe that this discipline offers us the ideal concepts for understanding the evolution and current situation of a regulated sector that plays a vital role in many areas of the lives of individuals, companies, and the State itself.
We have seen the legislative evolution in this area from the first law in 1930 to the current legislation adopted in 2002, which has allowed us to identify the legal and institutional changes that took place as the economy became more complex and the strongly monopolistic conception that existed during the Trujillo era was left behind, gradually giving way to an expansion and diversification of the services offered by a variety of domestic and foreign companies that began to enter the Dominican market. We also saw how the regulatory role of the State evolved in the same way as in other sectors of the economy, such as finance, the stock market, social security, telecommunications, and energy, among others.
I would like to conclude my speech by offering my warmest congratulations to the directors, executives, and employees—including the female directors, executives, and employees—of La Colonial on their 50th anniversary, while wishing them every success in the future.
Thank you very much!
Bibliography
§ Ballista Díaz, Fernando. Concepts of insurance and surety bonds. Basis for study. Universal: Santo Domingo, 2020.
§ Bircann, Luís. In the light of the law. Editora Taller: Santo Domingo, 1991.
§ Esteve Pardo, José. Technique, risk, and law. Editorial Ariel: Barcelona, 1999.
§ Guzmán Ariza, Fabio. Repertory of civil, commercial, and real estate case law of the Dominican Republic (2001-2014). Editora Judicial: Santo Domingo, 2015.
§ Headrick, William. II Dominican Legal Compendium (1997-2011). 1st edition. National School of the Judiciary: Santo Domingo, 2015.
§ ________________. III Dominican Legal Compendium (2012). National School of the Judiciary: Santo Domingo, 2015.
§ Jorge Prats, Eduardo. Unconstitutionality of solve et repete. Legal Studies. Volume V, Number 3. September–December 1995. Capeldom Editions: Santo Domingo.
§ Law No. 126 on private insurance in the Dominican Republic, of May 10, 1971
§ Law No. 146-02 on insurance and surety bonds in the Dominican Republic, dated September 9, 2002
§ Peralta Michel, José. Life insurance: a profession for men of action. Editora Nuevo Mundo: Santo Domingo, 1978.
§ __________________. History of life insurance in the Dominican Republic. Editora Búho: Santo Domingo, 2010.
§ Rivas Polanco, Mairení. Insurance, law, technology. Gaceta Judicial magazine. Editora Gaceta Judicial: Santo Domingo, January 25, 2002.
§ Rivero Ortega, Ricardo. Economic administrative law. Marcial Pons: Madrid, 2009.
§ Vicens De León, Francisco. Legal study of Law 126 on private insurance in the Dominican Republic: evaluation of reform proposals. Legal Studies. Nueva Época, volume IX, no. 3, Sept. – Dec. 2000. Ediciones Capeldom: Santo Domingo.
[1] Recitals of Law No. 400 of January 9, 1969.
[2] Article 19, paragraph. Insurance or reinsurance companies organized under the laws of other countries in which Dominican companies are not allowed to operate will not be authorized to operate in the Dominican Republic.
[3] Vicens De León, Francisco. Legal study of Law 126… op. cit. p. 34.
[4] Cf. Jorge Prats, Eduardo. Unconstitutionality of solve et repete. Legal Studies. Volume V, Number 3. September–December 1995. Ediciones Capeldom: Santo Domingo.
[5] Sector study prepared jointly by the Ministry of Economy, Planning, and Development (MEPYD) and the Inter-American Development Bank (IDB).
[6] Ferretti, Eduardo. “Public-Private Partnerships and the Insurance Industry.” Feller Rate Risk Rating Agency. June 2020. Available online at the following link: http://www.feller-rate.com.do/grd/articulos/artseguros2106.pdf
[7] For more information, visit the following link: https://ppp.worldbank.org/public-private-partnership/ppp-overview/practical-tools/checklists-and-risk-matrices/insurance-checklist