The lives and activities of people – individuals, families and businesses alike – always involve various uncertainties and hazards, referred to as risks. For a risk to be insurable, it must meet the following conditions:
- Multiple insured entities (persons, objects or assets) must be exposed to the same risk, and the probability and frequency of the risk must be assessable.
- The damage must be sudden and unforeseeable; it cannot be, for example, normal wear and tear.
- The damage must be quantifiable in monetary terms.
Finnish society provides its members with extensive social security and a safety net of social insurance schemes. However, these statutory protection systems are not all-encompassing. Insurance companies play an important role in maintaining and developing Finnish social security, and a substantial part of Finnish social security is in fact managed through statutory insurance. The need for and importance of voluntary insurance cover that complements statutory protection is continuously growing.
Insurance is based on the “law of large numbers”: sharing a risk across a large group of policyholders ensures it does not jeopardise anyone’s ability to pay. All policyholders pay insurance premiums, and the accumulated funds can be used to compensate for losses. Risk pooling makes it possible to keep the price of premiums reasonable for policyholders and ensures the insurer will have sufficient resources to pay claims.
For a business, insurance is a way to replace the uncertain and potentially large costs of unforeseeable loss events with a predictable, consistent annual expense (annual insurance premium) that can be budgeted around. Insurance cover enables companies to operate in high-risk sectors and ensures uninterrupted operations in various risk situations.
Insurance can also be used as a means of investment. Savings and investment policies include unit-linked insurance and life insurance savings policies and are meant for long-term saving and investing. Pension insurance policies add supplementary security for retirement. Insurance investment also includes capital redemption policies, although they do not involve an insured person.
Insurance distribution
Insurance is distributed through various channels:
- Full-time or part-time sales agents (for one company or group)
- Agents representing several insurance companies (e.g. car dealerships, travel agencies)
- Banks acting as insurance agents
- Branch offices (especially for household insurance)
- Insurance brokers (especially for corporate and personal insurance)
Insurance can also be sold in connection with another purchase (e.g. eyeglass insurance), but the purchase must be optional. So-called “bundled sales” are prohibited in consumer sales. The customer must be able to purchase insurance, a service, or a product separately, without other parts being attached to the contract.
Legislation on the distribution of insurance is based on the EU Insurance Distribution Directive (EU) 2016/97. The directive harmonised the regulation of insurance and reinsurance distribution in EU member states. It applies to all types of actors offering insurance. In Finland, the directive was transposed into national law with the Act on Insurance Distribution and the Act Amending the Insurance Contracts Act, which both entered into force on 1 October 2018.
The legislation on insurance distribution and insurance contracts contains provisions on the registration of agents and brokers and professional competence and expertise requirements for all persons involved in offering insurance. It also covers other sales-related matters and procedures, such as conflict of interest management, specific requirements for the offering of investment insurance, sales targets and remuneration arrangements, product management processes during the development and lifecycle of insurance products, and supervision of actors. The legislation sets out disclosure obligations and requirements concerning standardised key information documents for non-life insurance products.
Although one of the main objectives of the directive was to promote consumer protection by raising the level of minimum regulation, much of it also applies to corporate insurance.