Update on the Revision of the Swiss Insurance Oversight Act
The Swiss Insurance Oversight Act has been subject to a partial revision in order to bring the protection of insurance customers in line with international developments and to improve the competitiveness of the Swiss insurance sector. The new provisions include a new insolvency restructuring regime, a customer categorisation making supervisory requirements proportional to the protection required by customers as well as new rules of conduct applicable to insurance undertakings and intermediaries.
On 21 October 2020, the Federal Council adopted the dispatch as accompanying text to the partial revision of the Insurance Oversight Act (IOA). The partial revision considers national and international developments as well as adjustments due to the Financial Services Act (FinSA).
The following amendments and modifications to the existing legislation can be highlighted:
Introduction of a restructuring scheme in case of insolvency
Current insurance supervision law does not yet provide for any specific restructuring provisions that consider the particularities of the insurance business. Moreover, since the applicability of the general debt enforcement and bankruptcy proceedings is explicitly excluded, there is currently no sufficient legal basis for the implementation of a reorganisation procedure for insurance companies. Therefore, the Swiss Financial Market Supervisory Authority (FINMA) is according to current law obliged to order bankruptcy proceedings as soon as an insurance company gets into financial difficulty. This is not necessarily in the interest of the insured customers that rely on a continuation of their insurance policies. To address this issue, a reorganisation system is proposed which is based on the rules on banks reorganisation, considering insurance-specific concerns, including provisions on the conversion of certain credits against the company in share capital (bail-in), the assignment of insurance contracts to another insurance undertaking or the continuation with the same undertaking following a smooth run-off as well as the possibility to create a recovery plan.
Customer categorisation and customer protection-based supervision
The current legislation only distinguishes between insurers in direct insurance business with higher levels of regulation and insurers in reinsurance business with lower levels of regulation and supervision. With the revision, the intensity of regulation and supervision is based on the need for protection of the respective policyholder. For this purpose, a customer categorisation is introduced following a similar concept as used in the FinSA. Insurance companies should be able to benefit from supervisory simplifications if they only serve professional clients (e.g. large companies with no particular need for protection) or the captive business.
Innovative business models
Small insurance undertakings with innovative business models may be wholly or partially exempted from insurance supervision.
Rules of conduct for the offering of insurance-based investment products
In its consultations to the FinSA, the Parliament decided that the FinSA rules of conduct for financial services providers should not be directly applicable to the insurance sector. Instead, these rules had to be subject to a separate consultation procedure within the framework of the revision of the IOA. Therefore, special conduct rules and a duty to provide information are introduced for the distribution of insurance-based investment products (so called qualified life insurance products) with the aim to create a level playing field for investment products. A key information document with clear and understandable information on the product will have to be prepared. Further rules of conduct are established also in general for insurance companies and for insurance intermediaries.
There are already two ombudsman offices in the private insurance sector: The foundation "Ombudsman of Private Insurance and Suva" and the "Health Insurance Ombudsman". The two ombudsman offices cover a large part of the insurance market and have proved their worth in practice. However, in line with the principles that have applied to financial service providers under FinSA since 2020, the provisions of the draft now stipulate the obligation for insurance companies and insurance intermediaries to join an ombudsman's office except in case where they exclusively serve professional clients or conduct reinsurance. The ombudsman offices now also require recognition by the Federal Department of Finance (FDF).
Rules on conflicts of interest and compensation disclosure will apply to independent insurance intermediaries.
SPVs excluded from supervision
Special purpose vehicles where insurance risks are pooled and passed to the capital markets (for instance in the form of cat-bonds) are excluded from insurance supervision.
No supervision of branches of foreign reinsurers
In contrast to the consultation draft which established the supervision of branches of foreign reinsurers, the new draft discards this insertion and simply grants the Federal Council a competence to deviate if required by international standards.
No previous approval required for outsourcing and change of management
The previous provisions also remain unchanged and only a notification to FINMA with later approval must be filed in these cases.
Judith RaijmakersPartner Attorney at law
Judith Raijmakers, attorney at law, is a partner in our Zurich and Luxembourg offices. She focuses on finance transactions including acquisition financing, asset financing, real estate and transportation financing, debt (re)structuring and debt issuances.T: +41 43 434 67 24 M: +41 79 870 91 03 E: firstname.lastname@example.org
Diana LafitaAssociate Attorney at law
Diana Lafita, attorney at law, is a member of the Banking and Finance practice group in our Zurich office. She focuses on banking, insurance and capital markets regulatory and private matters.T: +41 43 434 67 49 M: +41 79 368 25 59 E: email@example.com