Insurance Law EstoniaDr Olavi-Jüri Luik, attorney at law
Home / History of Insurance and Insurance Law in Estonia and Europe / Insurance in Soviet Estonia and the Restoration of 1991–2004

Insurance in Soviet Estonia and the Restoration of 1991–2004

By Dr Olavi-Jüri Luik, attorney at law (WIDEN)

Contents

In brief. From 1940 to 1991 insurance in Estonia was a state monopoly run from Moscow as part of the Soviet state insurance system (Gosstrakh). Compulsory insurance covered citizens' buildings and collective farm property; there was no compulsory motor third-party liability insurance, no competition and no independent supervision. After independence Estonia rebuilt its insurance market from scratch. Private insurers appeared from 1990, the Insurance Act (kindlustusseadus) and the first Motor Insurance Act were adopted in 1992, and the Insurance Inspectorate began work on 1 January 1993. Within a decade insurance contract law moved into the Law of Obligations Act (võlaõigusseadus, VÕS, 2002), supervision was merged into the Financial Supervision Authority (Finantsinspektsioon, 2002) and two Insurance Activities Acts (2000 and 2004) aligned Estonian law with EU directives.

The Soviet state monopoly

Soviet Russia declared insurance a state monopoly in 1918, liquidating private insurers.1 After the occupation of the Baltic states in 1940, private insurers in Estonia, Latvia and Lithuania were nationalised under decrees of 22–23 July 1940.2 A state insurance department was established on 23 August 1940.3 During the German occupation (1941–1944) an Estonian Insurance Board insured buildings and livestock; according to the lecture materials, voluntary hunting liability insurance appeared in Estonia for the first time in this period.4

In Soviet Estonia, state insurance belonged to the all-Union Gosstrakh system and was subordinate to the Ministry of Finance of the Estonian SSR. It concluded contracts, collected premiums, assessed and paid losses, and held a monopoly until the restoration of independence.5 Insurance rules, instructions and short regulations were issued in Moscow and were identical in all Soviet republics.6

Compulsory insurance (määrkindlustus) covered citizens' buildings and, for collective farms, also equipment, vehicles, produce and materials. Covered perils expanded over time: fire, lightning, explosion, flood, earthquake, storm, hail, avalanche and landslide; from the 1960s escape of water from heating and plumbing systems and theft; from 1973 mudflows, sudden rise of groundwater and unusually prolonged rain or snowfall. Damage to radio and electrical equipment from a short circuit was not covered unless a fire followed.7 Motor third-party liability insurance was not compulsory in the Soviet Union.8

The differences from modern insurance are fundamental: no choice of insurer, policy conditions as administrative rules rather than standard terms subject to judicial control (VÕS §§ 35–44), no independent supervision and reserves forming part of state finances.

In the last years of Soviet rule and the first years of independence no licence was needed to act as an insurer and there was no specific insurance regulation. With high inflation, insurance made little sense and most buildings, property and vehicles were uninsured.9 The first private insurers were founded in 1990–1993, several with Finnish participation.10 The state insurer was reorganised into a state company in 1991 and privatised in 1996.11

The Insurance Act of 1992 and the Insurance Inspectorate

The introduction of the Estonian kroon in 1992 stopped hyperinflation. The Insurance Act was adopted by the Riigikogu on 5 November 1992.12 It was a composite statute covering both the insurance contract and the business and supervision of insurers. It introduced the separation of life and non-life business required by the first EC insurance directives and, until 1995, permitted the formation of mutual insurance societies.13 The State Insurance Inspectorate (Kindlustusinspektsioon) began work on 1 January 1993.14

Compulsory motor insurance, introduced in 1993 on the Finnish model, restarted the market: most new insurers began with motor liability and voluntary motor own-damage (casco) insurance and then expanded into other lines.15

Consolidation and new statutes

By the end of 2000 Estonia had 13 insurers, 6 in life and 7 in non-life insurance. Two insurers were declared bankrupt in January 2000, and mergers and portfolio transfers reduced the number of market participants.16 The Insurance Activities Act (kindlustustegevuse seadus) adopted on 6 June 2000 entered into force on 1 August 2000 and separated the public-law regulation of insurance business from insurance contract law. The Estonian Insurance Brokers' Association was founded on 20 June 2000.17

The Law of Obligations Act was adopted on 26 September 2001 and entered into force on 1 July 2002.18 Its chapter on the insurance contract (§§ 422–567) remains the core of Estonian insurance contract law. According to the textbook, the contract law provisions of the 1992 Insurance Act remained in force until the Law of Obligations Act took effect in 2002.19

The Financial Supervision Authority Act entered into force on 1 July 2001. From 1 January 2002 the Financial Supervision Authority replaced the Securities Inspectorate, the Insurance Inspectorate and the banking supervision of the Bank of Estonia.20 The Insurance Activities Act of 8 December 2004 (in force 1 January 2005) completed alignment with the EU single licence and home country control principles after accession.21

Why this matters today

For foreign insurers, the history explains several features of the Estonian market: a short tradition of private insurance case law, which largely dates from the VÕS era; strong reliance on Nordic and German models; a market dominated by groups based elsewhere in the EU; and an active Supreme Court that has developed policyholder protection through interpretation of the VÕS.22

References

  1. J. Lahe, O.-J. Luik. Kindlustusõigus. Tallinn: Juura 2018, pp 29–30. ↩

  2. Ibid, p 30. ↩

  3. If P&C Insurance AS. History. ↩

  4. University of Tartu insurance law lecture materials (O.-J. Luik, 2026). ↩

  5. Eesti NSV Riiklik Kindlustuse Valitsus. ↩

  6. University of Tartu lecture materials (n 4). ↩

  7. J. Lahe, O.-J. Luik (n 1), p 32. ↩

  8. J. Lahe, O.-J. Luik, M. Merila. Liikluskindlustuse seadus. Kommenteeritud väljaanne. 2nd ed. Tallinn: Juura 2026, ch 2.1. ↩

  9. J. Lahe, O.-J. Luik (n 1), p 32. ↩

  10. Kindlustuse Aastaraamat 2000 [Insurance Yearbook 2000]. Tallinn: Insurance Inspectorate 2001, DIGAR. ↩

  11. If P&C Insurance AS (n 3). ↩

  12. University of Tartu lecture materials (n 4). ↩

  13. J. Lahe, O.-J. Luik (n 1), pp 32, 51 and 57. ↩

  14. Kindlustuse Aastaraamat 2000 (n 10), p 12. ↩

  15. J. Lahe, O.-J. Luik (n 1), p 32. ↩

  16. Kindlustuse Aastaraamat 2000 (n 10), pp 10 and 13. ↩

  17. Ibid, p 13. ↩

  18. VÕS (RT I 2001, 81, 487; in force 01.07.2002), Riigi Teataja. ↩

  19. J. Lahe, O.-J. Luik (n 1), p 118. ↩

  20. Kindlustuse Aastaraamat 2000 (n 10), p 12. ↩

  21. KindlTS 2004 (RT I 2004, 90, 616; in force 01.01.2005), Riigi Teataja. ↩

  22. See Supreme Court case law. ↩