Overview (July 2008) - International Law Office

Forms of Insurance
Insurance Activity
Risks

The legal framework for insurance in Algeria is mainly set out in Ordinance 95-07 of January 25 1995, modified by Law 06-04 on February 20 2006, and by the Finance Act. However, the system is in transition as a result of the recent introduction of bancassurance and the relaxation of the regime for foreign insurance. An influx of new products and companies is eagerly awaited. This Overview offers an interpretation of certain key concepts in Algerian insurance law for companies which may be considering entering the market.

Forms of Insurance

The term 'insurance' is defined in the ordinance as a contract by which the insurer, in exchange for payment, is required to provide the insured (or a third-party beneficiary for whose benefit the insurance is acquired) with a sum of money, revenue or other pecuniary service on the occurrence of a risk event covered by the contract. Such service can also be provided in kind for insurance assistance and for motorized land vehicles. Other key concepts can be explained as follows:

• The term 'mutual insurance' is defined as an agreement between more than one insurer to cover a common risk within the framework of a single insurance contract.
• A reinsurance agreement or reinsurance contract allows an insurer or assignor to transfer to a reinsurer or assignee all or part of an insured risk. However, the insurer retains sole responsibility in respect of the insured party.
• Insurance can be acquired on behalf of a designated person. If the latter has not ceded power of attorney, he or she is entitled to benefit from the insurance cover thus provided, even if ratification occurs after the event for which he or she wishes to claim. A party may also acquire insurance as a stipulation of another party for the benefit of a known or potential beneficiary.
• A party can take out only one insurance contract of the same type in respect of each risk. If several insurance contracts are agreed, each has effect in proportion to the sum to which it applies up to the value of the insured object. If a party acts with fraudulent intent in agreeing to more than one insurance contract for the same risk, all such contracts are declared null and void.
• An insurance guarantee is a contract whereby the insurer, in exchange for a premium, guarantees the refunding or repayment of debt on commercial or financial deals to financial institutions and banks in the event of the debtor's insolvency.
• Personal insurance is an agreement between an insured and an insurer by which the insurer is required to pay a fixed sum to the insured or a third-party beneficiary if a specified risk event occurs (or as otherwise stipulated in the terms of the contract). The subscriber must pay premiums according to an agreed set of tariffs.
• Capitalization is an operation whereby the insurer is required to pay an insured or a third-party beneficiary a given sum in the form of capital or income within the term of the contract in return for payment of an insurance premium for a contractually agreed term.
• A group insurance contract is acquired by a legal person or the head of an undertaking. Individuals who meet the conditions prescribed in the contract may join this insurance scheme to obtain cover for one or more personal insurance risks, but such individuals must have the same form of bond with the subscriber.
• Reinsurance may be obtained in respect of life insurance to allow for a refund of paid premiums if the insured dies before the term. This reinsurance is subject to the payment of a specific premium in addition to the principal premium.
• The term 'insurance in the event of death' refers to a contract by which the insurer engages, in exchange for either a single or a periodic premium, to pay a beneficiary a fixed sum on the death of the insured.
• Insurance against injury guarantees compensation in the form of capital or income to be payable to the insured or a third-party beneficiary in the event of an accidental injury as defined in the contract

Insurance Activity

Insurance activity is carried on by reinsurance and/or insurance companies and by insurance intermediaries (agents), experts and commissioners of damages.

Insurance companies
A distinction within insurance and reinsurance companies can be drawn between: (i) companies that agree to contractual commitments whose execution relates to an individual's lifespan, health and physical integrity, and to capitalization and assistance; and (ii) all other kinds of insurance companies.

Reinsurance and insurance companies can carry on their activities only once they have applied for and obtained authorization from the Ministry of Finance. Such companies may not carry on activities for which they are not registered. Approval must be sought in the event of:

• the establishment of a new company;
• the merger or division of registered companies; and
• a proposal to offer new categories of insurance.

The approval must indicate the insurance operation(s) that the companies are authorized to undertake.

A foreign insurance company wishing to open a branch or representative office in Algeria must apply to the minister of finance for prior authorization, which will be granted if the application is duly completed and the foreign company's home state offers reciprocal arrangements to Algerian companies. The authorization applies to activities in support of the parent company’s existing activities to establish business relationships between economic operators and insurance or reinsurance companies. All direct commercial activities are excluded. Initial permission is granted for three years and may be renewed.

Algerian residents and property or objects of risk which are registered and located in Algeria can be insured only by registered insurance companies.

Intermediaries, experts and commissioners of damage
The term 'insurance intermediaries' covers: (i) 'general insurance agents', defined as natural persons representing one or more insurance companies under a contract of appointment; and (ii) 'insurance brokers', defined as natural or legal persons acting as intermediaries between policyholders and insurance companies in order to execute insurance contracts. An insurance broker is the insured's agent and is accountable to the insured.

Insurance companies can distribute insurance products through banks, financial institutions and other equivalent distribution networks.

An insurance expert is a service provider empowered to investigate the cause, nature and extent of damages and the evaluation of such factors, and to verify the insurance guarantee, if appropriate.

A commissioner of damages is a service provider empowered to (i) record and establish the cause of damages and losses incurred to insured ships and merchandise, and (ii) recommend precautionary measures for the prevention of damage.

An actuary carries out economic, financial and statistical studies to develop or modify insurance contracts, assessing risks and costs for the insurers and the insured and setting the levels of the insured's contributions to ensure the profitability of the company. The actuary monitors the company's operating results and financial reserves.

Risks

An insurance company is required to grant coverage for any risk submitted for compulsory insurance in respect of insurance operations for which the company is registered. An insurance contract signed by a person liable for compulsory insurance must include guarantees which are at least equivalent to those contained in model clauses.

Forms of compulsory insurance include the following:

• Civil liability insurance - companies are required to insure themselves against civil liability to third parties with a policy covering human injury and material damages. Such a contract may not anticipate or provide for any loss of victims' rights.
• Fire insurance - public institutions in civil economic sectors must be ensured against fire.
• Construction insurance - natural or legal persons liable to incur professional civil liability in the course of construction or restoration works must be insured. The contract must include a clause ensuring guarantee maintenance for the duration of the insured’s liability subject to compulsory insurance. The compulsory insurance requirement does not apply to (i) the state and local authorities, or (ii) natural persons building houses for family use.
• Hunting insurance - hunters must take out insurance to cover civil liability for human injury or material damages to others during the hunting and killing of dangerous animals.
• Motor vehicle insurance - persons who are required to have insurance under Article 1 of Ordinance 74-15 of January 30 1974 and fail to fulfil this obligation may be liable to a fine of between Ad500 and Ad4,000, a term of between eight days' and three months’ imprisonment, or both.

Marine insurance
Ships registered in Algeria must be insured by companies registered in Algeria for damages they may incur, as well as for third-party claims.

Marine transportation companies must be insured by insurance companies registered in Algeria in respect of civil liabilities with regard to transported persons and goods, as well as third-party claims.

Importers wishing to insure goods and materials transported by sea must take out insurance with an insurance company registered in Algeria.

Aviation insurance
Registered aircraft in Algeria must be insured by an insurance company registered in Algeria for damages they may incur. Airlines must be insured by an insurance company registered in Algeria in respect of their civil liability for transported persons, goods and others.

Importers wishing to insure goods and material transported by air must take out insurance with a company registered in Algeria. However, imported goods or materials which benefit from specific financing are not subject to such compulsory insurance.

Aircraft operators registered in Algeria and charterers must be insured by a company registered in Algeria for their civil liability to third parties while their aircraft are on the ground.

For further information on this topic please contact Amine Ghellal or Nabila Benouniche at Ghellal & Mekerba by telephone (+213 21 60 08 13) or by fax (+213 21 60 08 12) or by email (amine.ghellal@ghellal.com or nabila.benouniche@ghellal.com).