Introduction Scope of application and mandatory provisions Obligation to insure Premiums, bonus system and claims history Compensation for traffic accidents Claims process Right to recourse
The new Motor Liability Insurance Act entered into force on January 1 2017. The previous act dated from 1959 and although it was heavily amended, it had become obsolete and difficult to understand. The law required complete reform and modernisation to respond to existing and future needs (eg, the introduction of self-driving cars).
The law reform process began in 2004 and the new act is clear and easy to understand. The number of provisions has slightly decreased, as overlapping legislation or otherwise unnecessary provisions were removed as part of the government's deregulation process. The act is structured to follow the typical chronology of the underwriting and claims handling process.
The act aims to promote competition by giving the insurance industry the opportunity to develop new products. This appears to be succeeding, as insurers have already launched new products.
However, the act's fundamentals (eg, scope, obligation to insure and the principles and reimbursement benefits of compensating damage) have remained the same.
Scope of application and mandatory provisions
Motor liability insurance safeguards the innocent party's legal protection and compensation. The protection given by motor liability insurance in the act remains as broad as before.
Section 1 of the act lays down provisions on compensation for personal injury and material damage caused by the use of a motor vehicle in traffic, as well as motor liability insurance taken out to cover such damage. The meaning of 'traffic' is not defined exhaustively in the act. It is instead stated only when a motor vehicle is definitely not in traffic, which is generally when a vehicle is used outside of traffic routes essentially for purposes other than transporting people and goods.
As the act is statutory, due to the EU Motor Insurance Directive, its provisions (with some minor exceptions) are mandatory.
As the act is statutory, the obligation to insure remains. With some exceptions, a vehicle that is normally based in Finland should be insured and an insurer dealing in motor liability insurance cannot refuse to issue and uphold such insurance.
The exceptions to the obligation to insure have been clarified and simplified – for example, in case of withdrawing a vehicle from use in traffic. Further, the act enables companies to insure their whole fleet with one policy (group motor liability insurance) without distinguishing between separate vehicles.
The consequences of failing to insure are now more severe because:
- uninsured vehicles are not allowed on the road;
- the police can immediately remove an insured vehicle's registration plates; and
- those failing to insure their vehicle may be liable to pay a fine in addition to the insurance premium (which may be significantly higher than the original premium).
The amount of the fine depends on:
- the period of time that the vehicle was uninsured;
- the degree of negligence; and
- whether the vehicle was used in traffic.
Premiums, bonus system and claims history
As in the past, insurance premiums will be in reasonable proportion to the capital value of expected costs arising from insurance policies. According to Section 20 of the act, an insurer must have bases of calculation of premiums indicating how the insurance premiums are determined in order to be based on calculated actual risks. The bases of premiums should be applied equally to all policyholders.
The bonus system remains, meaning that insurers must still take claims history into account when determining premium levels – for example, a bad claims history means higher premiums. However, it is now possible to use the claims history more flexibly to develop distinctive and innovative products. For example, it is possible to take the policyholder's claims history for one vehicle into account when pricing the insurance for a number of vehicles. Claims history is specific to each individual policyholder, so that it can no longer be transferred to another person.
Compensation for traffic accidents
The basic compensation principles have not changed. The act provides comprehensive coverage by compensating the personal injuries of both the innocent party and the party that caused the accident. According to the main rule in Section 31 of the act, traffic accidents are covered by the motor vehicle's motor liability insurance policy, even when no one has a personal indemnity liability for using the vehicle in traffic.
In a traffic accident involving two or more vehicles, the distribution of the liability is generally based on the assessment of whether the driver was negligent or whether a vehicle was driven or moving in violation of traffic rules. However, compensation for personal injury will always be paid to the injured party entirely from the insurance for the vehicle in which the injured party was a passenger or driver, and to other injured parties based on the insurance of an involved vehicle of their choice, whereafter the allocation of liability between the insurers will be determined separately.
The maximum compensation for material damage has been increased from €3.3 million to €5 million per motor liability insurance liable for damage. Certain types of material damage are not eligible for compensation.
The Finnish Motor Insurers' Centre is primarily liable for traffic accidents in Finland caused by a vehicle not normally resident in Finland. The centre also covers damages caused by unknown vehicles and compensates the damage to the innocent party when the other party has failed to insure the vehicle.
The claims process has now been more accurately specified in the act. According to Section 60 of the act, an injured party is entitled to claim damages directly from the insurer within three years of the person claiming for damages becoming informed of the loss event and resulting damage. The new provision is that the claim must in any case be presented within 10 years of the occurrence of the damage.
Processing times have been shortened. The claims process must now begin within seven days of when the claim has been filed and the decision must be given quickly and within one month. The insurer must justify its decision and in case of a personal injury must also provide key medical findings and explain its reasoning. If the claims process is delayed, the insurer must explain the reasoning within three months. When compensation becomes late, the insurer must pay interest thereon.
An injured party, policyholder or other party entitled to compensation has the right to request a statement on a compensation case from the Traffic Accident Board within one year of the insurer's decision. In certain matters the insurer will request a statement from the Traffic Accident Board before issuing its decision.
According to Section 79 of the act, a legal action concerning an insurer's decision must be instigated within three years of the involved party having received information in writing of the insurer's decision and the time limit. The statute of limitations is also suspended if the matter is pending before the Insurance Complaints Board, Traffic Accident Board or any other body resolving consumer disputes.
According to Section 73 of act, the insurer has right of recourse against a third party. If the third party is a private person or an employee, civil servant or other comparable person as defined in the Tort Liability Act, or the owner, holder, driver or passenger of the vehicle, the right is transferred only if he or she has caused the loss event intentionally or through gross negligence, or if the driver has caused the accident while driving the vehicle under the influence of alcohol or another intoxicating substance.
In this area the act is largely equivalent to previous practice. However, the new aspect covers the fact that the right of recourse is also against a person that is liable under the Product Liability Act. In principle, this now means that even the manufacturer of the entire vehicle or just a part of it can be held liable for compensation as a result of a traffic accident, if the accident was the result of a design or manufacturing defect or programming fault. According to the legislature, developing automation of the motor industry may increase product liability cases, meaning that manufacturers can no longer be overlooked.
For further information on this topic please contact Matti Komonen at HPP Attorneys Ltd by telephone (+358 9 474 2207) or email ([email protected]). The HPP Attorneys Ltd website can be accessed at www.hpp.fi.
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