1 Legal framework
1.1 Which legislative and regulatory provisions govern the insurance sector in your jurisdiction?
The sources of insurance laws governing the insurance sector in the Turks and Caicos Islands (TCI) are primarily the Insurance Ordinance (Cap 16.06) and its accompanying Insurance Regulations (together, 'Insurance Laws'), along with the rules, statements of guidance, policies and procedures issued by the Financial Services Commission (FSC), the local regulator. The regulations relate primarily to licensing applications and fees, capital and solvency requirements, and reporting. The TCI is a British Overseas Territory and has a combined common law and statute-based legal system. While the TCI has its own body of case law, English case law is also of persuasive authority and may often be cited in court. The ultimate court of appeal is the Privy Council in London.
1.2 Which bilateral and multilateral instruments on insurance have effect in your jurisdiction?
There are no bilateral or multilateral instruments which have effect on the insurance industry in the TCI to our knowledge.
1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?
There is a well-established FSC which oversees all regulatory aspects of the TCI financial services industry, including the insurance sector, and regulates the insurance sector in accordance with the Insurance Laws. The FSC plays an active role in relation to its approximately 120 active licensee companies in the domestic financial services industry.
Within the FSC, there is a standalone Insurance Department which is dedicated to enforcing the Insurance Laws and regulating the sector.
The FSC has broad powers to take regulatory enforcement action, which it may exercise without notice on an urgent basis, where appropriate, including the power to:
- issue financial penalties for any breaches by an insurer; and
- suspend or revoke an insurance licence where the licensee commits a material breach.
1.4 What is the regulators' general approach in regulating the insurance sector?
The regulator has a firm approach to regulating the sector. There are strict deadlines that must be complied with. Failure to comply with these deadlines will result in the insurer being subject to financial sanctions. Financial penalties range from $5,000 to $100,000, or a term of imprisonment of two years.
2 Insurance contracts
2.1 What are the main types of insurance available in your jurisdiction?
- General insurance:
- commercial property;
- commercial liability;
- homeowners; and
- motor vehicle; and
- Long-term insurance:
- life insurance - whole life;
- term life;
- universal life; and
- health/medical insurance
2.2 Are all insurance contracts regulated? What terms do they typically include?
Yes. Insurers wishing to conduct business in the Turks and Caicos Islands must submit samples of contracts of insurance for the classes of business they intend to write to the Financial Services Commission for review and approval during the licensing process and, once licensed, can only use those approved policy contracts. Any new types of policies/contracts must be pre-approved by the regulator.
2.3 What are the formal and documentary requirements for conclusion of an insurance contract?
The formal and documentary requirements for the conclusion of an insurance contract is the insurer's application form, which contains the key information, photo identification and proof of ownership of the insurable risk and/or asset.
2.4 What are the procedural requirements for conclusion of an insurance contract?
To conclude an insurance contract, the application form will need to be completed and relevant payments made to the insurer. Once payments are made, the insurer will issue a certificate of insurance and a copy of the documents that governs the insurance policy.
2.5 What are the respective obligations and liabilities of insurer and insured, both on concluding an insurance contract and during its term? What are the consequences of any breach?
Contracts of insurance are based on the principle of utmost good faith and the general principles of English insurance common law, including regarding non-disclosure and misrepresentation. On this basis, each contracting party is obliged to disclose all circumstances material to the risk to the other contracting party.
The obligations and liabilities of the insured depend on the type of insurance policy. Once a premium is collected, assuming that an application form and other know-your client due diligence information and requirements are met, the insurer and insured are bound by the terms of the policy, which will vary with each insurer. Typically, an insurance policy is valid for one calendar year, and the insurer must inform or remind the insured that the insurance policy is due to expire and query whether he or she would like to renew it.
In the event of a breach of the insurance policy, the insurer must notify the insured of the same and request that such beach be rectified within 30 days. Upon the expiry of such period, the insurer may notify the insured of the intention to cancel the policy.
An insured is generally subject to a positive duty to disclose to the insurer all circumstances material to the risk to be insured, regardless of whether the insurer has specifically asked about those matters. Circumstances are material for these purposes if they would influence the judgement of a prudent insurer in determining the premium or whether to insure the risk at all. Any failure to make such disclosure could provide grounds for the insurer to cancel the policy.
3 Making a claim
3.1 What are the formal and documentary requirements for making a claim?
- A completed and signed claim form;
- Proof of identification;
- Proof of ownership/insurable interest; and
- Proof of loss.
3.2 What are the procedural requirements for making a claim?
In the event of any occurrence which may give rise to a claim under the policy, the insured shall, as soon as possible, give notice by completing the applicable claim form thereof to the insurer with full particulars of the insurable event. Every letter, claim, writ summons and process shall be notified or forwarded to the insurer immediately on receipt.
The insured or any person claiming to be indemnified must have knowledge of any impending prosecution inquest or fatal inquiry in connection with any such occurrence.
In case of theft or other criminal act which may give rise to a claim under the policy, the insured must notify the police and cooperate with the insurer in securing the conviction of the offender. The steps are as follows:
- File a report with the police;
- Contact the insurer;
- Complete the claim form and a give statement or account of the accident;
- Secure estimates (usually two) for the repairs to the property; and
- Cooperate with the insurer to obtain any additional information as necessary.
3.3 On what grounds can the claim be denied? How can the insured challenge the denial of claim?
A claim can be denied if one of the following applies:
- The cause of loss is not a covered peril under the policy;
- There is no coverage in place at the time of loss;
- The premium has not been paid; or
- There is evidence of fraud (ie, involvement of the insured/claimant in the cause of loss).
An insured can challenge the denial of a claim by:
- writing to the insurer asking for a review of the claim, setting out the reasons for such review;
- seeking arbitration (if provided for under the policy);
- referring the matter to the regulators; or
- filing a lawsuit against the insurer.
3.4 How can third parties make a claim?
In writing to the insurer, providing details of the date, time and nature of the event from which the claim would have arisen, and the involved parties, including the insured.
4 Form and structure of insurers
4.1 What types of insurance companies are typically found in your jurisdiction?
The Turks and Caicos Islands (TCI) market includes insurers and reinsurers of domestic and non-domestic risk. The TCI is a global leader in the producer-owned reinsurance company (PORC) insurance industry, marketing this niche insurance product offering to mainly North American clients. Pockets of captive insurance businesses are also undertaken in the TCI. It is estimated that there are 7,000-plus PORCs and approximately 70 captives licensed in the TCI.
4.2 How are these insurance companies typically structured and funded?
Domestic insurers must maintain within the TCI:
- cash, short-term securities or other realisable investments approved by the Financial Services Commission (FSC);
- sufficient funds to match current liabilities;
- life insurance funds; and
- annuity funds.
- submit annual financial statements to the FSC; and
- deposit an undertaking satisfactory to the FSC that the company will not engage in business other than the reinsurance of risks covered by an insurer acceptable to the FSC.
They are typically structured as a domestic, private company limited by shares.
4.3 Are there any restrictions on foreign ownership of insurance companies?
There are no restrictions on foreign ownership of insurance companies in the TCI.
5.1 What authorisations are required to provide insurance services in your jurisdiction? What activities do they cover?
In order to provide insurance services in the Turks and Caicos Islands (TCI), the provider of the services must make an application to the Financial Services Commission (FSC) in the prescribed form. The Insurance Ordinance provides for six types of insurance licences, as follows:
- Insurer's licence: This allows the insurer to carry on long-term or short-term insurance business in or from within the TCI.
- Insurance agent's licence: This allows the agent to solicit - directly or through representatives, advertising or other means - domestic business on behalf of not more than one insurer.
- Insurance broker's licence: This allows the broker to negotiate - directly or through representatives or other means - contracts of insurance or reinsurance on behalf of more than one insurer. A broker's licence also allows the broker to place or arrange insurance business with insurers' agents or sub-agents on behalf of prospective policy holders that advise policy holders on insurance business or that assist policy holders in the settlement of claims.
- Insurance manager's licence: This allows a company to operate in or from within the TCI providing insurance expertise to or for insurers.
- Principal insurance representative licence: This allows a person to operate in or from within the TCI that, on its own account and not as an employee of any other person, maintains for an insurer full and proper records of the business activities of that insurer.
- Insurance sub-agent's licence: The holder of an insurance sub-agent licence can solicit, directly or through advertising or other means, domestic business on behalf of an insurance agent or on behalf of an insurance broker.
5.2 What requirements must be satisfied to obtain authorisation?
An application must be made to the FSC in the prescribed form together with the prescribed fees to obtain authorisation. The application fee varies depending on the type of licence being sought. The application must be accompanied by a business plan. The applicant must provide evidence of adequate capital and funding (see question 6 for further detail on these requirements).
5.3 What is the procedure for obtaining authorisation? How long does this typically take?
Once the applicant has completed the application form, the applicant must lodge the application form, the additional documents and the prescribed fee with the FSC. There is no set timeframe on how long the process for obtaining the authorisation is; however, if all of the required documents are submitted and are in order, and subject to any further requirements of the Insurance Department's licensing committee, the process typically takes between three and six weeks.
6 Regulatory capital and liquidity
6.1 What minimum capital requirements apply to insurance companies in your jurisdiction?
Companies engaged in reinsurance and general (domestic or international) business should expect to have minimum paid-up capital of $100,000. For life companies, this minimum paid-up capital figure is $180,000. The Financial Services Commission's (FSC) policy is for such restricted amounts to be held to the FSC's order in a locally licensed bank.
6.2 What liquidity requirements apply to insurance companies in your jurisdiction?
As a guideline, the minimum net worth requirement is calculated as follows:
- General business:
- Net annual premium income: up to $5 million;
- Net worth: 20% of net annual premiums.
- Long-term business
- Net annual premium income: over $5 million;
- Net worth: $1 million plus 10% of net annual premiums in excess of $5 million.
- Long-term and general business:
- Net annual premium income: up to $5 million;
- Net worth: 20% of net annual premiums plus $180,000;
- Net annual premium income: over $5 million; and
- Net worth: $1 million plus $180,000, plus 10% of annual premiums in excess of $5 million.
'Net worth' is the excess of assets (including any contingent or reserve fund) over liabilities other than liabilities to partners or shareholders. The assets readily available must be sufficient to meet liabilities at all times and therefore the net worth must comprise assets which are acceptable to the FSC. The range of permitted assets is broad and depends on the type of business to be written.
7 Supervision of insurance groups
7.1 What requirements apply with regard to the supervision of insurance groups in your jurisdiction?
Insurance groups in the Turks and Caicos Islands (TCI) must submit annual returns to the Insurance Department on or before 31 March of each year. For a licensed insurer, the annual return must contain the following information, among other things:
- confirmation from an auditor that the annual accounts have been prepared and of whether the certificate is unqualified;
- a financial statement certified by an independent auditor if the insurer carries on general insurance business;
- a certified actuarial valuation of the assets and liabilities. If the insurer conducts long-term business, this document must be provided every three years; and producer-owned reinsurance companies are not required to provide this document;
- information on any investment of premium income received if the insurer is or has carried on long-term insurance business; and
- a list of agent and brokers that have the insurer's authority to effect business on its behalf.
Licensed insurers must also submit quarterly returns on an unaudited basis, covering domestic (TCI) insurance business only and including the following, among other things:
- an income statement;
- a statement of retained earnings;
- liabilities, capital and reserves;
- an assessment confirming that the insurer maintains within the TCI:
- cash, short-term securities or other realisable investments approved by the Financial Services Commission (FSC);
- sufficient funds to match current liabilities;
- life insurance funds; and
- annuity funds; and
- a solvency assessment.
Additionally, if there are any changes to the directors or shareholders (direct or indirect, including beneficial owners) of the insurer, the insurer must seek prior written approval from the FSC before any such changes are made. The Insurance Department also carries out on-site inspections of insurers.
8 Reporting, governance and risk management
8.1 What key disclosure requirements apply to insurance companies in your jurisdiction?
The Financial Services Commission (FSC) may, at its discretion, require that a former auditor disclose the circumstances responsible for the change of auditor of a licensed insurer. Prior to making the appointment of any director, senior officer or auditor (licensed to practise in the Turks and Caicos Islands (TCI)) of the licensed insurer, unless expressly exempted from so doing by the FSC, an insurer must obtain the written approval of the FSC.
Any change in the directors, senior officers or auditor of a licensed insurer must be notified to the FSC within 14 days of such change and details of the newly appointed directors, senior officers or auditor (with, in the case of an auditor, the auditor's written consent to act) must be given with such notification. A personal declaration questionnaire must be completed by any new proposed director or senior officer.
8.2 What key reporting requirements apply to insurance companies in your jurisdiction?
Annual and quarterly returns must be delivered to the FSC. See question 7.1 for further detail in this regard.
8.3 What key governance requirements apply to insurance companies in your jurisdiction?
An insurer should appoint a board of directors comprised of a mixed selection of members in order to ensure that there is an adequate level of skill, knowledge and expertise at board level. Board members should review the insurer's performance at least annually to ensure that they are effectively carrying out their roles and responsibilities.
Insurers must appoint an insurance manager that operates in or from within the TCI, providing insurance experience and expertise capable of managing the affairs of the insurer. Insurance managers must:
- maintain full and proper records of their business activities;
- carry on insurance and reinsurance business; and
- maintain professional indemnity insurance, placed with an insurer and for an indemnity of not less than $100,000 for any one loss.
8.4 What key risk management requirements apply to insurance companies in your jurisdiction?
The risk management framework of an insurer should document and include a strategy setting out an appropriate risk tolerance level or risk limit for material sources of risk. The risk management framework should be capable of promptly identifying, measuring, assessing, reporting and controlling all sources of risk that could materially impact on the insurer. Key risk management requirements include:
- internal controls systems;
- compliance functions;
- internal audit function; and
- actuarial function.
9 Senior management
9.1 What requirements apply with regard to the management structure of insurance companies in your jurisdiction?
The Financial Services Commission (FSC) requires insurers to establish and implement a corporate governance framework which:
- provides for sound and prudent management and oversight of the licensed insurer's business; and
- adequately recognises and protects the interests of policyholders.
9.2 How are directors and senior executives appointed and removed? What selection criteria apply in this regard?
A licensed insurer must obtain the written approval of the FSC prior to appointing any director or senior officer of the licensed insurer, unless expressly exempted from so doing by the FSC. A personal declaration questionnaire must be completed by any new proposed director or senior officer.
Where the FSC is of the opinion that a director or officer or auditor of a licensee is no longer a fit and proper person to be a director, officer or auditor of the licensee, it may request the licensee to replace the director, officer or auditor with a person approved by FSC as a fit and proper person.
9.3 What are the legal duties of directors and senior executives of insurance companies?
The duties of a director are to:
- act in good faith, honestly and reasonably;
- exercise due care and diligence;
- act in the best interests of the insurer and policyholders, putting those interests of the company and policyholders ahead of his or her own interests;
- exercise independent judgement and objectivity in his or her decision making, taking due account of the interests of the insurer and policyholders; and
- not use his or her position to gain undue personal advantage or cause and detriment to the insurer.
In addition to the above duties, the directors have ultimate responsibility to set and oversee the implementation of the insurer's business objective and strategies for achieving those objectives, as well as to provide oversight of senior executives. It is the duty of the directors to ensure that the insurer has in place effective systems and functions to address the key risks it faces, and the legal and regulatory obligations with which the insurer must comply.
The duties of senior executives are to:
- carry out the day-to-day operations of the insurer effectively and in accordance with the company's strategies, policies and procedures;
- promote a culture of sound risk management, compliance and fair treatment of customers;
- provide the directors with adequate and timely information to enable the directors to carry out their duties and functions; and
- provide to the relevant stakeholders and the FSC the information required to satisfy the legal and other obligations applicable to the insurer.
9.4 How is executive compensation regulated in your jurisdiction?
There is no regulated compensation of executives in the Turks and Caicos Islands.
10 Change of control and transfers of insurance companies
10.1 How are the assets and liabilities of insurance companies typically transferred in your jurisdiction?
An insurer may not transfer its insurance operations (in whole or in part) or accept the transfer of the same (in whole or in part) without the prior approval of the Financial Services Commission (FSC).
10.2 What requirements must be met in the event of a change of control?
Any change in the shareholdings (direct or indirect, including beneficial ownership) in an insurer, or in the members or persons who are beneficial but not registered owners of the shares, must be notified to the FSC within 30 days of such change, together with details of the new shareholdings, members or persons (as the case may be). However, in practice, approval is sought from the FSC prior to any such change in ownership taking effect and completing, or such a change in ownership is typically made conditional on FSC approval.
11 Consumer protection
11.1 What requirements must insurance companies comply with to protect consumers in your jurisdiction?
As mentioned in question 7.1, insurers must file an annual returns and other financial information with the Financial Services Commission (FSC) for the FSC to review and monitor the state of affairs of the insurer. Consumers are also protected as a result of the minimum capital and solvency requirements set by the FSC, as mentioned in question 6.
11.2 What other measures has the state implemented to protect consumers in the insurance sector?
Where a consumer has a complaint, the consumer must first file the complaint with the insurer. If the consumer obtains a written position on the complaint from the insurer and the matter remains unresolved, the consumer can lodge a written complaint with the Insurance Department at the FSC.
12 Data security and cybersecurity
12.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have for insurance companies?
There are no data protection laws currently in force in the Turks and Caicos Islands (TCI).
12.2 What is the applicable cybersecurity regime in your jurisdiction and what specific implications does this have for insurance companies?
There are no cybersecurity laws currently in force in the TCI.
13 Financial crime
13.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction and what specific implications do these have for insurance companies?
Money laundering and other forms of financial crimes are governed by the Proceeds of Crime Ordinance CAP 3.15 and regulated by the Financial Services Commission (FSC). An insurer will be classified as a 'financial business' only where it carries on long-term insurance business or any form of life insurance business or investment-related insurance business that may be classified as general insurance business. The FSC ensures that insurers have carried out their 'customer due diligence measures' and 'ongoing monitoring' when providing their services. There are measures in place for identifying each beneficiary under any long-term or investment-linked policy issued or to be issued by the financial business and verifying the identity of each beneficiary.
There are simplified due diligence requirements which mean that financial businesses such as insurers are not required to apply customer due diligence measures before establishing a business relationship or carrying out an occasional transaction. These apply where:
- the product is a life insurance contract;
- the annual premium is no more than $500; or
- a single premium of no more than $2,000 is paid.
14.1 What specific challenges or concerns does the insurance sector present from a competition perspective? Are there any pro-competition measures that are targeted specifically at insurance companies?
The domestic insurance market is very competitive and all indications are that it will remain so for the foreseeable future. While there is little choice of insurers due to the size of the market, the market remains open to new entrants from within the country and outside. Insurance premiums in the sector are relatively high and there is little commercial competition, as pricing and products are largely dominated by two major insurers.
15 Restructuring and insolvency
15.1 What provisions govern insolvency in your jurisdiction and what specific implications do these have for insurance companies?
The principal statute governing restructurings, reorganisations and voluntary liquidation proceedings is the Companies Ordinance 2017 and the accompanying Companies Regulations. Insolvency proceedings are described in:
- the Insolvency Ordinance 2017 and the accompanying Insolvency Rules 2019;
- the Insolvency Practitioners Regulations 2019;
- the Insolvency Practitioners Code 2019; and
- the Insolvency (Transitional Provisions) Regulations 2019.
The Turks and Caicos Islands (TCI) insolvency regime is largely based on equivalent and successful insolvency legislation of the British Virgin Islands.
The insolvency regime also provides for a compulsory licensing regime for insolvency practitioners. The Financial Services Commission (FSC) has approved licensing of insolvency practitioners based and practising in the TCI, and the authors anticipate more licences being issued in the near future.
Although there are no statutory restructuring and insolvency regimes which are applicable to a specific type of entity or business, an entity operating in the TCI financial services industry - and thus a 'regulated person' or 'licensee' such as an insurer - is closely supervised and regulated by the FSC.
The prior written consent of the FSC is required for a regulated person/licensee to be placed into voluntary liquidation or to enter into a company arrangement. In an insolvent liquidation, the FSC must be notified by the members of a regulated person/licensee prior to the appointment of a liquidator. Further, the FSC may apply to court for the grant of an administration order or for a liquidator to be appointed under the Insolvency Ordinance.
The FSC also has wide-ranging powers in relation to the appointment and removal from office of an insolvency practitioner.
16 Trends and predictions
16.1 How would you describe the current insurance landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
The current landscape is that of an agency market in which the majority of business is placed through brokers and with regional insurers that dominate the general and long-term market.
The Turks and Caicos Islands (TCI) regulatory framework is rapidly developing to meet the expectations of market participants. Recent developments in, and overhaul of, the companies and insolvency legislative regimes (which essentially now mirror the legislation in the British Virgin Islands), together with economic substance, brought about by the introduction of new legislation are live examples of the efforts made within the jurisdiction to streamline the processes and provide for greater stability, certainty and comprehensive protection of the rights and interests of various parties, including shareholders, creditors and other stakeholders operating in and from the TCI. A proposed new domestic insurance ordinance and accompanying insurance regulations are being reviewed by the government which would materially change the landscape and legal framework of the insurance sector. However, the new ordinance and regulations have not yet come into effect and developments are awaited in the next 12 months.
17 Tips and traps
17.1 What are your top tips for insurance companies operating in your jurisdiction and what potential sticking points would you highlight?
Insurers operating in the Turks and Caicos Islands should be aware of market demand. By understanding market demand, insurers will understand which policies to provide and will also ultimately help to increase profits. An insurer should aim to insure good risk in order to limit (or have no) losses.
As the sector and wider industry evolve and change, including globally, so too do the terms of insurance policies. As an example, the COVID-19 pandemic has caused major changes in policy coverage. Coverage such as business interruption cover that would usually be declined is now mandated to be covered.
In light of COVID-19, the Insurance Department is also handling queries relating to insurers, brokers, managers and agents remotely.
Co-Authored by Soreka Brown
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.