A general introduction to the insurance and reinsurance markets in Austria

All questions

Year in review

The covid-19 crisis had an overwhelming influence on the Austrian insurance and reinsurance market not only in 2020 but also in 2021, affecting some areas of the market more than others. Apart from a rise in all kinds of disputes affecting legal expense insurance, the effects were especially perceptible with regard to business interruption insurance. Although the corresponding products available on the Austrian market vary in scope, at least the vast majority of the wordings do not provide coverage for the effects of the covid-19 pandemic. The scope of coverage under these policies was hotly debated between policyholders, insurers, intermediaries and legal practitioners until February 2021, when the Austrian Supreme Court of Justice handed down a landmark decision. In its decision, the court confirmed that – for the majority of constellations – Austrian dread disease policies did not provide insurance cover for situations where businesses such as hotels and restaurants had been shut down on account of the spread of covid-19. The Supreme Court upheld that ruling in a similar case in March 2021.

Another type of insurance affected, probably even more in terms of the total potential loss, is directors' and officers' insurance (D&O). This is because the devastating economic effects of the pandemic have, in many cases, considerably increased the liability risks for executives and, inter alia, further heightened the importance of the obligation to establish an effective risk management system, assessing all relevant contractual relationships, applying for state aid in due form and time and, in particular, implementing sufficient safety and health precautions. The same applies mutatis mutandis for failing to file for insolvency in due time. Thus, when a large number of entities are facing critical situations at the same time (e.g., because of direct or indirect effects of the covid-19 pandemic), a rise in liability claims in relation to management can be expected (and could in fact be observed in recent months).

For other reasons, e.g. the drastic rise of companies having their staff work from home, the Austrian cyber market was widely affected and saw surging numbers of cyberattacks. The number of attacks doubled from 2019 to 2020 and this trend continued in 2021.

Despite the substantial influence of covid-19 on the economy, the Austrian insurance industry is still remarkably stable. Before the outbreak of the pandemic, the solvency capital requirement (SCR) ratio³¹ stood significantly above 200 per cent. By June 2020, after the first covid-19-related lockdown, the SCR ratio still stood at a median of 199.29 per cent and, by June 2021, had recovered to 221 per cent.

Outlook and conclusions

In terms of regulatory developments, we can expect a strong focus on cyber resilience and a considerable impact in relation to climate protection on the Austrian insurance market in the coming years. The EIOPA guidelines on information and communication technology, which entered into effect on 1 July 2021, aim at harmonising the European Commission's new digital finance strategy and will hopefully help enhance resilience to cyberattacks. Last year, the FMA tested insurance undertakings with a focus on cyber resilience as part of the Cyber Maturity Level Assessment in 2021.

In light of the European Commission's package of measures for sustainable finance, the FMA has also reviewed the way in which environmental, social and governance (ESG) factors are considered by domestic insurers in the individual business processes. This review showed that sustainability risks are monitored and measured in about 36 per cent of Austrian insurance undertakings, while a further 36 per cent have at least started to develop strategies in this area. Further, a total of 48 per cent plan to consider giving greater significance to sustainability risks in the next three years. The numbers show that the importance of ESG factors can be expected to rise considerably in the coming years.

As in many countries around the globe, the Austrian economy was in lockdown for several weeks in 2021. This, like the previous lockdowns in 2020, entailed further uncertainty for many market participants. The relatively low insurance density in Austria, compared with the EU average, and the aforementioned high equity capital suggests that the outlook for the Austrian insurance market as a whole is positive for 2022.