Insurance law and regulation in Luxembourg

Luxembourg’s insurance market developed in the 1990s. Since then, Luxembourg authorities have created a prosperous environment that has contributed to the growth of the Luxembourg financial sector. Insurances activities in Luxembourg can be carried out by Luxembourg companies as well as by foreign companies, either through a branch office or directly without any establishment in Luxembourg, provided that they have been duly approved by or, as the case may be, the exercise of their activities has been duly notified to, the Luxembourg Insurance Regulator (‘Commissariat aux Assurances’, the “CAA”).

Authorisation is granted for each specific insurance field provided certain conditions are met, inter alia:

• The company must be effectively managed in and from Luxembourg. This means that the effective management and central administration must be carried out in Luxembourg;
• The direct and indirect shareholding of the company structure must be transparent, and the shareholders’ identities must be disclosed to the CAA;
• The company must be effectively managed by one or more persons meeting the required conditions for integrity, qualifications and professional experience;
• Any natural or legal person wishing to directly or indirectly take over a qualifying holding (defined under Luxembourg law as ‘a direct or indirect holding in an undertaking which represents 10% or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of the undertaking’) or to further increase their qualifying holding in an insurance company will be required to seek the CAA’s prior approval. The CAA will in this context assess whether the sound and prudent management of the insurance company is ensured;
• The company must appoint an approved independent auditor (‘réviseur d’entreprises agréé’);
• Insurance companies wishing to operate in Luxembourg must comply with specific rules regarding solvency margins, assets and accounting principles.

Insurance companies based in another EEA Member State may carry out insurance activities in Luxembourg under the freedom of establishment or freedom to provide services principles. Before the insurer can initiate its activities in Luxembourg, the authorities of the country of origin will have to submit a file to the CAA in order for it to be authorised.

It is in principle illegal for a Luxembourg insurance company to carry out both life insurance and non-life insurance activities (certain exemptions do, however, exist for certain insurance classes).

Luxembourg insurance law provides that the insured has the obligation to disclose accurately all the information that may have a direct impact on the assessment of the risk by the insurer. The policyholder is not required to disclose circumstances already known by the insurer or that the insurer should reasonably be expected to know.

On the other hand, where intentional omission or inaccuracy have misled the insurer in his risk assessment, the insurance contract shall be deemed null and void.

Unintentional omission or inaccuracy does not void the insurance contract. Within one month of becoming aware of such unintentional omission or inaccuracy, the insurer shall propose the amendment of the insurance contract. The amendment will take effect on the date at which the insurer became aware of the omission or inaccuracy.

Alternatively, if the insurer is able to produce evidence that he would not have insured the risk if he had been fully aware of all circumstances (including any unintentional omissions or inaccuracies), the insurer may terminate the contract within the same period mentioned above, i.e. one month.

If the policyholder refuses the proposed contract amendment, or if, at the end of a period of one month from receipt of the proposal, the amendment has still not been accepted, the insurer may terminate the contract within fifteen days.

Luxembourg insurance law provides that an insurance policy may only provide for the partial or total forfeiture of the right to insurance benefits due to the non-fulfilment of a specific obligation imposed by the policy and provided that such breach is causally linked to the occurrence of the loss.

In addition, when entering into an insurance policy, the policyholder is obliged to disclose accurately all the information that may have a direct impact on the assessment of the risk by the insurer (see section 2). Where intentional omission or inaccuracy can be evidenced and have misled the insurer in his risk assessment, the insurance contract shall be deemed null and void.

Condition precedents are not explicitly foreseen under the Luxembourg insurance law and shall therefore be subject to general contract law.

The insured must notify as soon as possible, and in any case within the timeframe provided for under the policy, any damage that occurred and which is covered by the policy. Furthermore, the insured has a general obligation to take reasonable steps to prevent and mitigate the consequences of the damage.

If the policyholder fails to notify the insurer on time or if the policyholder fails to mitigate the damage and this results in damage for the insurer, the insurer will have the right to claim a pro-rata reduction of the coverage to be provided. The insurer could even decline payment if the insured’s misconduct was intentional and / or unlawful.

Third parties are not usually entitled to raise a claim against the insurer resulting from the insurance contract. Nevertheless, under liability insurance contracts, damaged third parties are empowered to raise a claim directly against the insurer. In the event of mandatory civil liability insurances, the exceptions, nullities or forfeitures contained either under Luxembourg law or in the insurance contract will not be enforceable against the damaged third party. For non-mandatory civil liability insurance, the exceptions, nullities or forfeitures contained under Luxembourg law or in the insurance contract will be enforceable, provided they arose prior to the claim.

Luxembourg insurance law provides that the insurer must pay the agreed benefit as soon as it is in possession of all relevant information concerning the occurrence and circumstances of the claim and, where applicable, the amount of the claim.

The sums due by the insurer shall in any case be paid within thirty (30) days of their being determined. After this period, default interests at the applicable legal rate shall be payable. 

In principle, any claim resulting from an insurance contract may be raised up until three years, starting on the day of the event that gave rise to the claim. However, where the claimant proves that he/she became aware of the event giving rise to a claim at a later date, this timeframe will start on the date the claimant actually became aware of the event. This timeframe shall in any case not exceed five years from the occurrence of the event (except in case of fraud).

The insurer could raise a claim against the policyholder within three years, starting from the date the policyholder receives its insurance payment.

For liability insurance, Luxembourg law opted for the occurrence principle; the insurance cover shall relate to damage or loss occurring during the term of the contract, even if a claim is lodged after the expiry of the contract. Notwithstanding the above, save for third-party liability insurance on motor vehicles operating on land, parties can agree on a claims-made policy in stating that the cover shall be limited to claims lodged within three years of the occurrence of the damage or loss.

Under a liability insurance policy, the insurer must compensate the costs related to civil proceedings as well as the fees and costs of lawyers and experts, but only insofar as these costs have been incurred by the insurer or with the insurer’s consent or, in the event of a conflict of interests that is not imputable to the insured, insofar as these costs have not been made unreasonable.

Luxembourg insurance law provides that no fine or criminal settlement may be covered by an insurance contract, with the exception of those for which the person liable is responsible.

There are no specific legal provisions related to the insurability of administrative penalties or fines. However, Luxembourg doctrine seems to be against the insurability of administrative sanctions, insofar as they are of a criminal or quasi-criminal nature.