Features of bankruptcy of insurance organizations

Legislative norms for regulating the insolvency of insurers

Federal Law No. 127-FZ of October 26, 2002, with subsequent amendments, regulates the procedure for conducting bankruptcy procedures. The law is called “On Insolvency” and deals with issues related to the financial insolvency of enterprises and individuals unable to pay their obligations to creditors. Insurance organizations are discussed directly in Chapter XI, which is devoted to the characteristics of certain categories of enterprises.

The grounds for initiating bankruptcy proceedings are given in Article 183.6. To initiate an insolvency case for an insurance company, one of the following reasons must exist:

• debt in the amount of 100 thousand rubles or more;
• the period of existence of outstanding obligations is at least 14 days;
• the total amount of debts exceeds the value of the organization's assets.

Additional conditions for insurance institutions are given in Article 184.1 of the specified Federal Law:

• failure to fulfill obligations to pay policyholders, untimely or improper fulfillment of their obligations;
• repeated violations during the year of laws regulating the financial activities of insurers;
• revocation, suspension or restriction of the license.

General rules of activity are regulated by the Law of the Russian Federation of November 27, 1992 N 4015-1 “On the organization of insurance business in the Russian Federation,” including the rules of supervision and control in this area of ​​activity.

Reasons for implementing preventive measures

Measures to prevent bankruptcy of an insurance company are taken when:

1. Repeated refusal to repay monetary obligations to creditors within a month. Refusal should be understood as non-fulfillment/improper fulfillment of requirements within ten days from the date of occurrence of the corresponding obligation, unless otherwise provided by law. Only working days are taken into account.
2. Failure to fulfill the obligation to deduct payments to the budget within 10 days (working days) from the date of its occurrence.
3. Insufficient funds for timely repayment of debt (including to the budget), if the deadline for this has come.
4. Repeated violation of the requirements for the structure and composition of assets established by the Ministry of Finance within 12 months. from the date of detection of the first violation.
5. Revocation, suspension or limitation of a business license.

Within 15 days from the date of occurrence of these circumstances, the insurance company must send a notification about this to the supervisory authority (Central Bank). Attached is a plan to restore solvency. These actions are performed if there are no signs of bankruptcy of the insurance company.

Within 30 days (working days) after receiving the plan, based on the results of its study, the supervisory authority makes a decision on the appointment of a temporary administration in the insurance company or on the inappropriateness of this appointment. In cases provided for by the resolutions of the Ministry of Finance, it also has the right to decide to conduct an on-site inspection. The inspection is carried out in the manner established by the supervisory authority.

Classification of types of insurance

The Law on Insurance provides a classification of available types of insurance. The main distribution criterion is the type of insured object. In total, the law provides for 24 types. All of them can be grouped into the following groups:

• property, i.e. protection of property of legal entities and individuals from all kinds of risks;
• liability that protects the interests of third parties, for example, OSAGO;
• personal (medical, pension, life and health insurance);
• other risks (business, financial).

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In addition, insurance is divided into voluntary and compulsory.

What causes insurance companies to go bankrupt?

In most cases, insurance is a profitable and profitable business. Most often, the bankruptcy of such institutions has subjective reasons, for example:

• fraudulent schemes on the part of insurers or collusion with clients;
• unjustified dumping actions (reduction of insurance premiums while increasing the level of payments);
• incorrect determination of the level of risks when concluding contracts due to poor training of employees or as a result of intent;
• excess of the level of payments over income as a result of insufficient capital with a significant number of payments for insured events.

Sometimes bankruptcy occurs for objective reasons, for example, due to the occurrence of natural or technical disasters or other force majeure circumstances.

Features of bankruptcy of insurance organizations

Basically, a standard bankruptcy scheme is used for all enterprises. There are certain features regarding insurance companies as financial institutions. When initiating the procedure:

• a temporary administration is introduced, for which enterprises operating in the same field and having the appropriate license are attracted;
• the sale of assets is carried out with the participation of appointed managers;
• payments under existing contracts are terminated.

Policyholders and insurers' creditors need to know that:

• all claims are accepted within a month from the date of publication of information about bankruptcy;
• in case of declared bankruptcy proceedings, the period for accepting claims is 2 months;
• if the company does not go bankrupt, but follows the path of recovery procedures, then claims of creditors can be presented during the recovery period;
• all obligations are divided into current and registered, and current payments are made first.

Creditors need to declare their claims and find out the prospects for receiving insurance payments or the conditions for the further validity of the insurance contract.

Sample application for bankruptcy of an insurance company

The control body indicates in the document:

1. The name of the court in which it is filed.
2. Insurance company name, address, identifying information. The latter include the number of the state registration record in the status of a legal entity, TIN.
3. Name of the control structure and its address.
4. The volume of claims for monetary obligations, the amount of debt for contributions to the budget, the value of assets (property) or other information relevant to the proceedings of the case.
5. Full name of the arbitration manager, name and address of the self-regulatory structure in which he is a member, or the name of the organization from whose members he must be approved, its address.
6. List of applications.

The statement of the provisional administration contains almost similar information, with the exception of a number of points:

1. Instead of the name of the control body, the full name of the head of the temporary administration, the address to which correspondence will be sent to him, and details of the document confirming the approval of the person in this position are indicated.
2. The name of the self-regulatory structure and its address are indicated if the head of the administration is an arbitration manager.
3. Information about the candidacy of the bankruptcy trustee, if, in accordance with Federal Law No. 127, it is not the Deposit Insurance Agency.

Initiation and stages of bankruptcy

To declare a company bankrupt, you must file a claim in court.
This can be done by a creditor of an organization, a professional association, the Bank of Russia, as well as the insurance company itself, which is subject to the requirements of the insolvency law. The arbitration court begins the process if:

• a statement of claim drawn up according to the rules;
• documentary applications confirming the information set out in the claim;
• payment of state fees and legal costs.

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Before submitting an application to the court, an announcement is submitted to the media with a warning to creditors.

All processes related to insurance authorities are controlled by the Bank of Russia.

Insurance organizations go through the following stages:

• observation for a period of up to 7 months, during which activities continue as usual, except for the free disposal of funds and profits by the owners of the enterprise;
• measures to prevent bankruptcy within six months, during which a temporary administration is appointed;
• bankruptcy proceedings with the appointment of a manager and determination of the order of repayment of debts to creditors for a period of 6 months to 1 year;
• declaration of bankruptcy and exclusion from the register of legal entities.

The main feature is the absence of stages of financial recovery and external management in accordance with Art. 183.17 Federal Law “On Insolvency”.

Rules for filling out a statement of claim

The basic requirements for filing a claim are no different from other organizations. Mandatory points that must be contained in the claim:

• the name of the court authorized to consider this issue;
• the name or title of the plaintiff, indicating the address and other contact information;
• title of the document “Statement of Claim for Declaration of Bankruptcy”;
• description of claims indicating the amount of financial claims;
• listing of evidence and pre-trial correspondence with the organization.

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The conclusion once again indicates the claims and demands, and also lists the attached documents.

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If the statement of claim is filed by the organization itself or its controlling body, then the full amount of the debt is given, including budget payments.

Responsibilities of the provisional administration

On the initiative of the Bank of Russia or a professional association, after receiving the decision of the arbitration court, a temporary administration is appointed. From the moment of her appointment, the head of this administration performs all the functions of the head of the organization.

The powers of management last from 3 months to six months, but if necessary, they can be extended to 9 months by sending an application (petition) to the branch of the arbitration court in which the bankruptcy case is pending.

The main task of the administration is to improve the organization’s work and prevent possible bankruptcy. During this period, all documentation comes into the possession of the new department, an audit of the financial condition is carried out, and its results are sent to the control body.

Based on the results of the analysis, a decision is made on a more in-depth check of how managers fulfill their obligations and the development of measures that can prevent bankruptcy.

If it is not possible to correct the situation, then the temporary administration is instructed to go to court to declare the insurance company bankrupt.

Provisional Administration

It is assigned if:

1. The grounds for implementing measures to prevent the bankruptcy of an insurance organization in the absence of notification of the supervisory authority about their existence have been identified.
2. A decision was made to implement a plan to restore solvency or to establish control over its implementation.
3. The legal entity does not/improperly fulfills the points of the plan.

The decision to introduce a temporary administration must be motivated by the supervisory authority.

Bankruptcy prevention stage

During the work of the temporary administration, the necessary steps are taken to restore the normal activities of the organization, eliminate debt and move on to timely repayment of payments and the conclusion of new contracts.

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The following precautions are used:

• financial investments from owners, attracted persons or Bank of Russia;
• change in the size of the authorized capital;
• organization of property auctions;
• reorganization of a company, its merger into another organization through a merger or acquisition;
• restructuring of accounts payable, review of the composition of assets and liabilities.

The measures taken are controlled by Bank Russia at the planning and implementation stage.

Stage of bankruptcy proceedings

If the bankruptcy of the insurance organization cannot be prevented, then the final stage begins - bankruptcy proceedings.

At this stage, a bankruptcy trustee is appointed, to whose jurisdiction all management powers are transferred.

The actions of the manager last from the date of appointment until the organization is excluded from the Unified State Register of Legal Entities. This period is allotted 12 months, with the possibility of a one-time extension for another 6 months.

All concluded insurance contracts and strict reporting forms confirming their conclusion (policies) are transferred to the management of the manager. The transfer work should be completed within a month.

During its activities, the bankruptcy trustee regularly sends reports on its work, as well as on financial activities, to the supervisory authority.

The actions or inaction of the manager can be appealed by the meeting of creditors of the bankrupt organization.

To repay the debt the following is assigned:

• sale of property complex;
• sale or transfer of insurance portfolio;
• the management of the organization is held accountable;
• decisions are made to terminate contracts concluded in violation of insurance legislation.

If necessary, a settlement agreement is concluded with creditors.

Signs of bankruptcy

They are established in Art. 183.16 Federal Law No. 127. The bankruptcy procedure of insurance organizations is initiated if:

1. The total amount of claims made by creditors for monetary obligations, for the payment of severance pay or wages for citizens working (working) under employment contracts, or the total debt to the budget is at least 100 thousand rubles, and these requirements are not met within two weeks from the day of their execution. Obligations to employees must be confirmed by judicial acts that have entered into force.
2. The decisions of the arbitration tribunal or the general jurisdiction authority, according to which the IL (writs of execution) were issued for the forced execution of the decision of the arbitration tribunal to foreclose on the funds of the financial organization, have not been executed. The amount of creditors' claims does not matter.
3. The value of the company's property/assets is not enough to pay off obligations to creditors and the budget.
4. The activities of the provisional administration did not lead to the restoration of solvency.

The order of repayment of accounts payable

Article 134 of Law No. 127-FZ provides general rules for determining the order of repayment of debts to creditors of a bankrupt enterprise.

In relation to insurance organizations, there are some features that are listed in Article 18.10 of this law.

1. So, first of all, along with regular payments, claims under life insurance contracts concluded for survival to a certain age or term are satisfied, i.e. with elderly people.

2. The second priority is wage arrears to employees, like other enterprises;

3. Special rules are established for the third stage, which provides the following order by type of agreement:

• compulsory insurance;
• personal insurance;
• civil liability agreements;
• property insurance;
• other creditors.

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4. Lastly, penalties and financial sanctions on loans are repaid.

Regardless of the order of priority, creditors must submit an application within a month from the date of initiation of bankruptcy proceedings. Only after this the applicant is included in the register of creditors and receives the right to participate in the work of the meeting (committee) of creditors.

After the announcement of bankruptcy proceedings, applications are additionally accepted for two months.

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After the expiration of the specified deadlines, documents will be accepted only if there are valid reasons.

Where to apply for insurance payment

Insurance bankruptcy does not mean that insurance payments cannot be collected. There are options, and there are several of them:

1. Mandatory statement of requirements to the bankruptcy trustee. You have 2 months for this from the date of receipt of notification of the commencement of bankruptcy by your insurance company.
2. Renewal of the contract with a new company. This point is fulfilled if the insured event does not occur, but the contract with the bankrupt company is terminated.
3. If the insurance company goes bankrupt, it is possible to receive payments for certain types of insurance from authorized companies. As an example: all settlements under MTPL will be provided by the union of auto insurers.

Results of bankruptcy of insurance companies

Upon completion of the bankruptcy procedure, the insurance company ceases to exist. It means that:

• all contracts are automatically terminated and cease to be valid;
• licenses are revoked;
• employees and agents leave;
• the property of the enterprise is sold to pay off debts to creditors;
• the organization is excluded from the Unified State Register of Legal Entities.

If financial assets or unrealized property remain after liquidation, everything is distributed among the founders in proportion to their participation in the authorized capital.

What happens to the license

Legal activities of insurers are possible only with permits. Revocation or deprivation of a license is one of the ways to control the work of insurance organizations.

The grounds for revocation of a license may include:

• non-compliance with insurance legislation requirements;
• conducting illegal activities and repeated violations;
• customer complaints about unfair work;
• initiative of the Bank of Russia in case of failure of an insurance organization to comply with mandatory requirements.

Bankruptcy of an insurance company is one of the reasons for revocation of a current license.

Violations are recorded in inspection reports and referred to the Arbitration Court or the Antimonopoly Committee. Based on the decision of these organizations, the license may be suspended until the shortcomings are corrected or completely revoked.

After deprivation of a license, an insurance organization does not have the right to continue operating or enter into new contracts, but is obliged to make payments on previously concluded obligations within 6 months.

Who pays the insurance amounts?

After an insurance company goes out of business due to bankruptcy or deprivation of its license, the policyholder needs to know where to go to get their funds.

Owners of compulsory MTPL policies have priority rights. If the company with which the insurance contract is concluded is liquidated, then its functions are assumed by the Union of Auto Insurers. This organization pays insurance amounts according to the contract upon the occurrence of an insured event. Repairs to the vehicle of a participant in an accident are compensated upon completion of an application and mandatory documents in accordance with established rules.

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Debt for other types of insurance can be collected while the company is in bankruptcy and has not yet been liquidated. To do this, you must timely submit an application to the bankruptcy trustee or the Arbitration Court.

The debt is assigned a priority. As property is sold, debts to creditors are repaid.

Who pays bankruptcy insurance?

It is possible to receive insurance amounts if:

• the contract as part of the insurance portfolio was sold to another organization, i.e. reinsurance occurs;
• the insurance company was liquidated by merging into another organization with full transfer of assets and liabilities.

The Federal Insurance Supervision Service may order a forced transfer of the insurance portfolio in order to stabilize the position of the insurance company and protect the interests of policyholders.

Information about reinsurance is mandatory published on the websites of both companies. During 2021, 10 insurance companies posted information about the transfer of their insurance portfolio.

Contracts not transferred to other companies are considered terminated. The policyholder has the right to demand the return of the insurance premium paid by him for the period from termination of the contract to the expiration date specified in the document. In bankruptcy, such claims are satisfied in order of priority depending on the type of agreement.

Bankruptcy of an insurance company: features of the procedure and what clients should do

Cases of bankruptcy of insurance companies are not so rare these days. This always has a big impact on their clients who lose money and have to look for some way to get it back. What to do if an insurance company goes bankrupt? Of course, follow the procedure established by law.

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What legislation governs the issue of insurance insolvency?

Bankruptcy is financial insolvency, that is, the inability to meet one’s claims to creditors within the time period specified by the legislation of the Russian Federation. This procedure is regulated by Federal Law No. 127 of November 26, 2002.

Bankruptcy of an insurance company is a procedure regulated at the legislative level.

It is he who establishes the grounds on which a company can be declared bankrupt, according to Article 183.16 of Federal Law No. 127:

• the amount of the creditors' claim is at least 100 thousand rubles. ;
• within 2 weeks the company is not able to cover them;
• the value of all existing property of the company is insufficient to pay off its debts;
• its solvency was not restored during the period of the provisional administration.

Features of bankruptcy of credit institutions are presented in this article.

Another legislative act that regulates this area is the Federal Law “On the organization of insurance business in the Russian Federation.” It establishes certain requirements for the insurance companies themselves, in contrast to Federal Law No. 127, which deals with bankruptcy issues of basically any company.

Types of insurance

After the collapse of the Soviet Union, the first classification of types of insurance on the territory of the Russian Federation was the one approved by Rosstrakhnadzor in 1994. But before we talk about types of insurance, let’s define the term itself. This is insurance of individual objects in a certain volume and at established rates.

There are several types of insurance, each of which has its own characteristics.

The classification criterion for such types is the object of insurance and the insured risks. Here are the types that stand out:

• property insurance (individuals and legal entities can enter into contracts in order to provide protection against any risks to their property. This includes insurance of real estate of all types, vehicles, cargo, etc. );
• liability insurance ( the object is the property interests of third parties. This includes compulsory motor liability insurance, liability insurance of the manufacturer, directors and officers, employer, Green Card, etc.);
• personal (this includes all types of insurance related to any events in the life of an individual citizen that are related to his health, pension, ability to work, etc.);
• insurance of specific and financial risks ( failure to fulfill financial obligations, political risks, etc. ).

Of course, due to changes in the insurance market, which are simply inevitable, various additional types and subtypes appear. So, since 2012, such a type of insurance as public insurance has been allocated. This is the provision of insurance to the owner of a dangerous object for damage in the event of an accident involving this object.

Names of all types are formally assigned, by order of the Ministry of Finance of the Russian Federation, and are used by the Central Bank of the Russian Federation, the Federal Social Insurance Fund, etc.

The main reasons for the bankruptcy of insurance companies

Bankruptcy of insurance organizations can occur for various reasons. Such situations may arise due to the following circumstances:

• dishonest actions of the company's employees or its clients;
• dumping pricing policy (low insurance payments and high payments for them are assigned);
• underestimation of economic risks when executing certain contracts;
• low qualifications of the company's top managers and its management;
• lack of capital in the company;
• occurrence of insured events in large numbers.

Features of bankruptcy

The features of bankruptcy of insurance companies include the following features, which are specific only to this type of business activity:

• the sale of property is not carried out on a generally accepted basis (for this purpose, external management is introduced, and only a company that has the appropriate license to carry out insurance activities );
• all obligations under existing contracts are immediately terminated (in practice, this means that it is almost impossible to receive your payments under such contracts);

The bankruptcy process of an insurance company has its own characteristics.

• obligations to creditors are divided into two types: current and registered ( first of all, payments on current debts come, and creditors have the right to present their claims during the period of recovery procedures );
• when a message about the bankruptcy of a company was published, creditors can present their claims within a month (when bankruptcy proceedings open, they can be filed within two months ).

Stages of the bankruptcy award procedure step by step

Insurance companies that go bankrupt must go through certain stages of this procedure. They will be discussed in this section. They are established by the legislation of the Russian Federation.

You can read about the debt restructuring procedure in bankruptcy here.

According to Article 32 of Federal Law No. 127, it is established that the beginning of the bankruptcy process itself can be initiated by a court decision. Only the arbitration court has the right to deal with cases of this kind.

The bankruptcy procedure of an insurance company proceeds in stages, in accordance with the current legislation of the Russian Federation.

Only the following have the right to initiate financial insolvency cases:

• Federal Tax Service or any other government agency that controls insurance companies;
• temporary administration.

During a difficult period, a temporary organization is very rarely organized, so most often an application is submitted to the Federal Tax Service.

Stage 1. Observation

In fact, the first stage of bankruptcy of any insurance company is observation under Ch. 4 of the Bankruptcy Law. What does it mean? A special supervisory board is created, which monitors the correct compliance with all the norms of the process.

This procedure has its own characteristics:

• the founder of the company cannot withdraw assets;
• When an insured event occurs, the company’s clients can immediately directly apply to the arbitration court with claims against the company;
• Bailiffs cannot seize company property.

Stage 2. External control

The introduction of such management is aimed at bringing the company out of the deplorable state into which it has fallen. It is entrusted to crisis managers, whose responsibilities include:

• property management;
• calculation and payment of insurance;
• termination of all contracts with clients (if at the time of bankruptcy there were no insured events);
• selling property to cover the company's debts;
• implementation of a plan to revive the company.

Even with effective external management, the fate of the company is its liquidation.

According to Article 124 of the Federal Law “On Insolvency”, a bankruptcy trustee is appointed. He is required to perform the following tasks:

• assessment of the general condition of the company;
• repayment of mandatory payments;
• implementation of the payment plan for compulsory insurance benefits;
• settlement with clients.

Next, the entire property is assessed and sold.

What does bankruptcy of insurance companies lead to?

After all the above actions, the insurance company is declared bankrupt. As a result, the following consequences occur for the company itself:

• revocation of the permit (this is the actual deprivation of her ability to carry out her activities);
• liquidation and removal of information about the company from the Unified State Register of Legal Entities;
• termination of all contracts;
• staff dismissal;
• sale of all property with division of the remaining amount between the founders.

Where to apply for insurance payments

What to do if the insurance company goes bankrupt? When her license has already been revoked, you shouldn’t despair right away. The procedure differs depending on the type of insurance.

Insurance clients need to immediately contact their company to try to get their payments back.

The following procedure applies to MTPL policy holders: you need to contact the Union of Auto Insurers, which performs the functions of the insurance company during its bankruptcy.

When an insured event occurs, RSA pays the amount to repair the damaged car of the second participant in the accident , but only if the owner of the MTPL policy is not the culprit of the accident.

At the same time, the same conditions for tariffs of bankrupt companies apply in the RSA.

For those who have CASCO policies, contacting the Russian Union of Auto Insurers makes no sense. They will not refund payments, so you must apply for a refund before the company is declared bankrupt.

Who pays the insurance for other types of insurance? To do this, you need to contact your insurance company within a month after declaring it bankrupt and try to get at least part of your money back. After all, the company must have reserve funds from which these same funds are taken. However, in practice they are not always available, so obtaining them can be problematic.

When the case is transferred to the Arbitration Court, you can collect a whole package of documents and submit them there to receive your funds. After the sale of the company's property, one can just hope for their registration.

Conclusion

Bankruptcy of an insurance company leads to numerous consequences, both for the company itself and for its clients. The reasons for this event lie in poor management of the company, the use of dumping pricing policies, etc. The insolvency of the insurance company has its own characteristics. For example, the purchase of company property can only be carried out by another insurance company.

To receive payments to citizens who have a contract with a bankrupt insurance company, they need to submit a package of documents to the regulatory government agency that controls the activities of insurance companies.

List of bankrupts

In the insurance industry, company bankruptcy is a common occurrence. During 2021, Bank Russia made 12 decisions on the appointment of temporary administrations and about 50 decisions on the revocation or termination of licenses to carry out insurance activities.

Information about existing insurance organizations, as well as those that have been declared bankrupt or do not have a license, is regularly updated on the Internet.

Before deciding on insurance, you need to collect all the information about the company, find out its rating and read reviews from other clients.