Trends and prospects
What are the current trends in and future prospects for the insurance and reinsurance markets in your jurisdiction?
At present, the Austrian insurance industry is facing rapid technological changes. While the majority of insurance products are still sold either directly through (re)insurers or indirectly through intermediaries, (re)insurers are not immune to digitisation, which has been felt in various fields. Online sales are growing steadily. Further, insurers seem to be reacting to the fact that customers are now used to communicating digitally and thus want to communicate with their insurer in the same way. Surveys indicate that until 2020 79% of customers would prefer to work with their insurers online – from receiving services and information to filing claims. The development of suitable and, at the same time, secure online communication tools (eg, apps) as a complete solution to this issue is a major challenge for insurers.
The development of such up-to-date tools, which is important for the big industry players, should also keep new competitors at bay – in particular, so-called ‘insurtechs’. These competitors are mostly start-ups that have recently entered the rather conservative Austrian (re)insurance market. While these start-ups contribute ideas and drive innovation, they cannot compete with the incumbent providers' experience and know-how. However, these incumbent providers are not particularly innovative. In future, it is expected that both types of company can act together to satisfy customer demands.
With widespread cyber attacks becoming more common, cyber risk has become a subject of greater concern for businesses of all sizes. As a consequence, the cybersecurity insurance market is rapidly growing with businesses looking to cyber insurance to provide additional levels of protection and the Austrian insurance market is no exception to this. There are a number of insurers offering cyber insurance products, but the market is still highly fragmented and characterised by substantial differences in the content of the products. The Austrian Association of Insurance Companies has recently published model cyber insurance terms and conditions, which are, however, not mandatory and can be deviated from.
What is the primary legislation governing the (re)insurance industry in your jurisdiction?
The (re)insurance business in Austria is governed by the Insurance Supervisory Act. Substantive insurance law is primarily governed by the Insurance Contract Act. For certain insurance types (eg, motor liability insurance), special statutes exist. Where the insurance statutes do not provide for special rules, the Civil Code’s general civil law provisions and – where an insurance contract is entered into with a consumer – the Consumer Protection Act applies. Where an insurance contract is concluded exclusively by distance selling (eg, by telephone, email or online), the Remote Financial Services Act also applies.
Reinsurance does not fall within the scope of the Insurance Contract Act and is thus not subject to those restrictions. Reinsurance contracts are governed by the general principles of contract law (ie, the Civil Code and the Business Enterprise Code).
Which government bodies regulate the (re)insurance industry in your jurisdiction and what is the extent of their powers?
The Financial Market Authority (FMA) is the regulatory body for (re)insurers in Austria. Its powers and their extent are regulated by the Insurance Supervisory Act and depend on the type of (re)insurer. Domestic (re)insurers with their registered seat in Austria require a licence from the FMA and are subject without restriction to the Insurance Supervision Act. In the case of foreign (re)insurers conducting (re)insurance business in Austria, the extent of supervision by the FMA depends on whether they have their registered office in the European Economic Area or a third country.
A (re)insurer licenced and based outside Austria but within the European Union or European Economic Area does not require a licence from the FMA but may on notification of the competent supervisory body of the EU or EEA (re)insurer's home member state conduct (re)insurance business on the basis of the freedom of services or the freedom of establishment regime, the latter by opening a local branch. The insurance activities of an EU or EEA (re)insurer are not subject to the FMA’s ongoing supervision, but of the competent supervisory authority of the home country. This applies without restriction to financial supervision, but there are certain exceptions in the area of legal supervision. EEA (re)insurers are therefore subject to the Insurance Supervisory Act only to a limited extent, including the rules regarding portfolio transfers, insurance distribution and the mandatory content of insurance contracts.
Third-country (re)insurers must establish a local branch which requires a licence from the FMA. Insofar as third-country (re)insurers conduct insurance business in Austria, they are subject to FMA supervision in accordance with the Insurance Supervisory Act in full.
Specific rules apply to (re)insurers licensed and based in Switzerland.
Ownership and organisational requirements
Ownership of (re)insurers
Are there any restrictions on ownership of or investment in (re)insurers in your jurisdiction, including any limits on foreign ownership/investment?
General ownership rules apply when:
General ownership rules apply when someone applies for an insurance licence from the Financial Market Authority (FMA). The applicant must, among other things, notify the FMA of the identities of any persons having a ‘qualifying holding’ in the application. A ‘qualifying holding’ means a direct or indirect holding of 10% or more of the capital or voting rights or which otherwise results in the possibility to exercise significant influence over the management of a (re)insurer. The FMA must refuse to issue a licence if persons with a qualifying holding do not meet the requirements to ensure the sound and prudent management of a (re)insurer.
Further, general ownership rules apply when a natural or legal person (or such persons acting in concert) decide to:
- directly or indirectly acquire a qualifying holding in a (re)insurer or further increase, directly or indirectly, such a qualifying holding in a (re)insurer as a result of which the proportion of voting rights or capital held would reach or exceed 20%, 30% or 50% or so that the (re)insurer would become its subsidiary; or
- directly or indirectly dispose of a qualifying holding in a (re)insurer or reduce that person’s qualifying holding so that the proportion of voting rights or capital held would fall below 20%, 30% or 50% or so that the (re)insurer would cease to be a subsidiary of that person.
The acquisition, disposal or reduction of a holding to the extent described above must be notified to the FMA, including by the (re)insurer itself as soon as the (re)insurer becomes aware of it. The FMA may prohibit the acquisition of a holding as described if there are reasonable grounds for doing so.
What regulations, procedures and eligibility criteria govern the transfer of control of/acquisition of a stake in a (re)insurer?
The direct or indirect acquisition of a ‘qualifying holding’ in a (re)insurer or the direct or indirect increase of such a qualifying holding by a natural or legal person or such persons acting together as a result of which the proportion of the voting rights or capital held would reach or exceed 20%, 30% or 50% or so that the (re)insurer would become its subsidiary is governed by the Insurance Supervisory Act and the Regulation on Owner Control and must be notified to the FMA. A qualifying stake means a direct or indirect stake of at least 10% of the share capital or the voting rights of a (re)insurer or which results in another way to significantly influence the management of the (re)insurer.
The FMA may oppose the proposed transaction within an assessment period of 60 working days from the written acknowledgement of receiving the notification and all documents required if there are reasonable grounds for doing so. The relevant criteria for the assessment include the reputation of the proposed acquirer, the reputation and experience of any person who will direct the (re)insurer’s business as a result of the proposed acquisition and the financial soundness of the proposed acquirer.
If the FMA does not oppose the proposed acquisition within the assessment period in writing, it is deemed to be approved.
Must (re)insurers adopt a certain legal structure in order to operate? If no mandatory company organisation applies, what are the common structures used?
(Re)insurers must adopt the following legal forms in order to operate: a joint stock company, a European company or a mutual insurance association.
The most common structure used in Austria is the joint stock company. This requirement does not apply to (re)insurers that are licensed and based in another EU or EEA member state, which may carry out (re)insurance business in any other legal form set out in Annex III to Article 17 of the EU Solvency II Directive (2009/138/EC) provided that they have passported their home member state licence into Austria.
Do any particular corporate governance requirements apply to (re)insurers, including any eligibility criteria for directors and officers?
Corporate governance requirements (Re)insurers must have an effective governance system in place, which:
- provides for sound and prudent management of the business; and
- is proportionate to the nature, scale and complexity of the (re)insurer’s operations.
Such system must, at a minimum, include:
- an adequate and transparent organisational structure with clear allocation and appropriate segregation of responsibilities; and
- an effective system for ensuring the transmission of information within the (re)insurer.
The governance system must also ensure compliance with the requirements regarding:
- governance functions;
- risk management;
- the actuarial function;
- internal control; and
- the fit-and-proper test.
Further, (re)insurers must have written policies regarding:
- risk management;
- internal control;
- internal audit;
- remuneration; and
- outsourcing (where relevant).
In addition, (re)insurers must have specific governance functions in place regarding, at a minimum:
- risk management;
- internal auditing; and
Eligibility criteria for directors and officers (Re)insurers must ensure that the professional qualifications, knowledge and experience of all persons who effectively run the business or are responsible for governance or other key functions are, at all times:
- adequate to enable sound and prudent management (ie, fit); and
- that said persons are of good repute and integrity (ie, proper).
The same applies to members of the supervisory board. The scope of these requirements depends on the person’s specific duties.
The FMA must be notified of any intended appointment of:
- board members or managing directors at least one month before the appointment; and
- any person who effectively runs the (re)insurer or is responsible for governance or any other key functions immediately after the appointment.
In case of the above appointments, the FMA must also be provided with all information needed to assess the personal and fit-and-proper requirements.
In practice, the FMA undertakes fit-and-proper tests and assessments.
Which (re)insurers must obtain authorisation from the regulator before operating on the market and what is the procedure for doing so?
Prior authorisation from the Financial Market Authority (FMA) is required for (re)insurers that have their registered seat in Austria or outside the European Economic Area. The authorisation is granted only on application to the FMA. Along with the application, the company must provide a business plan and sufficient evidence and documentation to prove that all authorisation requirements are met. Depending on the individual facts of the case, the FMA will usually issue an authorisation in writing within four months, provided that the original application was complete. If not, the authorisation process may take longer than four months.
What are the minimum capital and solvency requirements for (re)insurers operating in your jurisdiction?
(Re)insurers must hold eligible basic own funds to cover the minimum capital requirements, which are:
- €2.5 million for non-life insurers, including captive insurers, unless all or some of the risks included in Classes 10 to 15 (listed in Part A of Annex A to the Insurance Supervisory Act) are covered, in which case it is no less than €3.7 million;
- €3.7 million for life insurers, including captive insurers;
- €3.6 million for reinsurers, except in the case of captive reinsurers, in which case the minimum capital requirement is €1.2 million; and
- the sum of the amounts set out in points one and two above for insurers simultaneously pursuing life and non-life insurance activities.
(Re)insurers must also hold eligible own funds covering the solvency capital requirement (SCR). The SCR is calculated either:
- in accordance with a standard formula, as set out in the Insurance Supervisory Act; or
- using a full or partial internal model, as previously approved by the FMA.
Do any other financial requirements apply?
(Re)insurers must establish technical provisions with respect to all of their (re)insurance obligations towards policyholders and beneficiaries.
All persons who are within the management structure or directly involved in (re)insurance distribution must demonstrate the knowledge and ability necessary for the performance of their duties with respect to the relevant insurance products. (Re)insurers must verify that said persons have the necessary knowledge and ability and, if needed, provide them with training and professional development means which correspond to the requirements concerning the products they sell.
In addition, (re)insurers must ensure that all persons who within the management structure or directly involved in (re)insurance distribution complete 15 hours of professional training and development per year corresponding to the tasks that they perform and the relevant market.
(Re)insurers must also ensure that said persons are of good repute.
What rules and requirements govern the business plans of (re)insurers?
(Re)insurers applying for FMA authorisation must provide, among other things, a business plan, which includes particulars or evidence of:
- the nature of the risks or commitments which the (re)insurer proposes to cover and, in the case of reinsurers, the kind of reinsurance arrangements which they propose to make with ceding undertakings;
- the guiding principles regarding reinsurance and retrocession;
- the basic own-fund items that constitute the absolute floor of the minimum capital requirement;
- an estimate of the costs of establishing the administrative services and organisation for securing business;
- the financial resources intended to meet the above costs; and
- the resources at the insurer’s disposal for the provision of the assistance promised if the risks to be covered are classified in Class 18 (in accordance with Annex A to the Insurance Supervisory Act).
For the first three financial years, the business plan must also include:
- a forecast balance sheet;
- an estimate of the future SCR on the basis of the forecast balance sheet and the calculation method used to derive those estimates;
- an estimate of the financial resources intended to cover technical provisions, the minimum capital requirement and the SCR;
- with regard to non-life insurance and reinsurance:
- an estimate of management expenses other than installation costs – in particular, existing general expenses and commissions; and
- an estimate of premiums or contributions and claims; and
- with regard to life insurance, a plan setting out detailed estimates of income and expenditure in respect of direct business and reinsurance acceptances and cessions.
If the (re)insurer applies for an authorisation for the first time, the business plan must also include its articles of incorporation.
What risk management systems and procedures must (re)insurers adopt?
(Re)insurers must have an effective risk management system in place comprising the strategies, processes and reporting procedures necessary to identify, measure, monitor, manage and report – on a continuous basis and at an individual and aggregated level – the risks to which they are and could be exposed and their interdependencies..
The risk management system must be effective and well integrated into the (re)insurer’s organisational structure and decision-making processes, with proper consideration of the individuals who effectively run the undertaking or have other key functions.
The risk management system must cover the risks to be included in the calculation of the SCR and those which are not or are only partially included in this calculation. The risk-management system must cover, at a minimum:
- underwriting and reserving;
- asset liability management;
- investment – in particular, derivatives and similar commitments;
- liquidity and concentration risk management;
- operational risk management; and
- reinsurance and other risk-mitigation techniques.
Further, (re)insurers must provide for a risk management function (see above). The key purpose of this function is to assist the board with and facilitate the implementation of the risk management system.
Reporting and disclosure
What ongoing regulatory reporting and disclosure requirements apply to (re)insurers?
(Re)insurers must publish a solvency and financial condition report (SFCR). They must also make their annual report, including their annex and management report, publicly available at their seat and all of their other business premises. Certain information from the annual report must be published in the Official Journal of the Wiener Zeitung or another nationwide daily newspaper.
Within pre-defined periods, (re)insurers must provide the FMA with:
- an SFCR;
- a regular supervisory report;
- an own risk and solvency assessment supervisory report; and
- quantitative templates specifying in greater detail and supplementing the information presented in the SFCR and regular supervisory report.
In addition, (re)insurers must submit:
- an annual report;
- a management report, including a corporate governance report;
- an auditor's report and proof of the approval of the financial statements;
- certain parts of a group annual report; and
- an inventory of their cover funds.
(Re)insurer groups and individual (re)insurers with more than €12 billion in total assets must also submit reports for financial stability purposes.
Do any other operating requirements apply in your jurisdiction?
A (re)insurer’s operation in Austria is subject to prior authorisation, which the FMA must deny if – among other things:
- the company’s central administration is not in Austria;
- the interests of policyholders and beneficiary third parties, according to the business plan, are insufficiently guaranteed – in particular, if the obligations under the insurance contracts cannot be met in the long term;
- the company does not hold eligible basic own funds to cover the absolute minimum capital requirement;
- the company does not hold eligible own funds to cover the SCR;
- the company has failed to show that it can meet the governance requirements;
- the board does not comprise at least two persons or managing directors or the articles of association do not explicitly exclude any individual power of attorney regarding the entire business process;
- a person with a qualifying holding does not meet the requirements regarding the sound and prudent management of a (re)insurer; or
- due to certain circumstances, the FMA can expect that it will be unable to duly supervise the (re)insurer.
What are the consequences of non-compliance with the operating requirements applicable to (re)insurers?
The Financial Market Authority may impose penalties and orders to remedy a (re)insurer’s non-compliance and may ultimately revoke its authorisation.
What general rules, requirements and procedures govern the conclusion of (re)insurance contracts in your jurisdiction?
According to the general principles on the conclusion of contracts, the conclusion of a (re)insurance contract requires an offer and acceptance. Usually the insured places the offer to enter into an insurance contract via a standard insurance application form, in which case the insured is bound to the offer for a maximum six weeks, unless a longer period has been individually negotiated between the insurer and the insured. The contract is deemed to have been concluded once the insurer's acceptance declaration has reached the insured. This may be an express declaration that the insurer accepts the application or, alternatively, the delivery of the insurance policy to the insured, which the insured can understand only as the insurer's consent to the conclusion of the contract.
There are no formal requirements for the conclusion of a (re)insurance contract. Thus, the contract can be validly concluded orally, in writing or conclusively.
Are (re)insurance contracts subject to any mandatory/prohibited provisions?
Mandatory/prohibited provisions regarding insurance contracts can be found in several laws, including the Insurance Contract Act, the Civil Code, the Consumer Protection Act and the Remote Financial Services Act Act. For example, these provisions deal with the insured's rights to withdraw from the insurance contract; the insured’s obligation to pay the premium, the communication between the insurer and the insured or the maturity of the insurer's performance under the insurance contract. Many of them are only unilaterally mandatory, which means that the parties may deviate from these provisions to the benefit, but not the detriment of the insured.
Reinsurance contracts are always business to business. There are hardly any mandatory or prohibited provisions in this respect. However, a reinsurance contract must not violate good morals or any statutory prohibitions.
Can any terms by implied into (re)insurance contracts (eg, a duty of good faith)?
The good-faith duty is generally implied in all contracts, including (re)insurance contracts. The Supreme Court has based the interpretation of (re)insurance contracts on this general principle.
What standard or common contractual terms are in use?
The Association of Austrian Insurance Undertakings publishes insurance terms and conditions for various insurance products online. They are not mandatory and may be deviated from.
No standard or common contractual terms are in use. All Austrian (re)insurers use terms and conditions which are incorporated into the (re)insurance contract, usually by reference. These vary substantially between not only the different kinds of insurance product, but also the different (re)insurers.
What is the state of development in your jurisdiction with regard to the use of ‘smart’ contracts (ie, blockchain based) for (re)insurance purposes? Are any other types of financial technology commonly used in the conclusion of (re)insurance contracts?
In general, insurance product sales are largely agency and broker driven. The main financial technology used for the conclusion of (re)insurance contracts is the online sale of insurance products, and price comparison websites have gained popularity since entering the market. In any case, there is still capacity for growth in this respect.
(Re)insurers offer various smart products as side products to a (re)insurance contract, such as a storm, bad weather or hail early warning system informing customers via text message about said upcoming weather conditions. Further, the development of wearable technology is affecting the health insurance market. For example, a customer may collect bonus points for certain health protection measures that it has taken (eg, running, climbing stairs or undergoing a regular health examination), all of which is tracked over the Internet. At the end of a certain period, the customer may cash in the accumulated bonus points at selected shops or service providers.
What rules and procedures govern breach of contract (for both (re)insurer and insured)?
This depends on the contract provision that has been violated and can be answered only on a case-by-case basis. For example, if the policyholder has infringed its main contractual obligation (ie to duly pay the premium in full), the Insurance Contract Act provides that the insurer may, under certain circumstances, withdraw from the contract or terminate the contract (in case of failure to pay a subsequent premium). Further, default on payment may result in the insurer being released from its obligation to provide cover for an insured event even though the contract does not end.
Further, the violation of obligations by the policyholder and/or the insured, if different, may, under certain circumstances, release the insurer from its obligation to provide cover but only if the parties have contractually agreed on that. Conversely, if the insurer denies coverage, the policyholder or the insured may challenge this decision by bringing the insurance claim to court.
What consumer protection regulations are in place to safeguard the rights of purchasers of insurance products and services?
There are few regulations that specifically safeguard the rights of purchasers of insurance products and services. Rather, the general consumer protection regulations also apply to insurance contracts and the provision of insurance services.
The main consumer protection regulations are the Civil Code and the Consumer Protection Act. Further, specific insurance product and service-related consumer protection rules can be found in the Remote Financial Services Act. These rules mainly concern consumers' withdrawal rights. The Insurance Contract Act is, in general, applies to both consumer and non-consumer insureds without distinction and contains numerous regulations to protect insureds, including consumer insureds.
Austrian consumer protection law is strict and Austrian courts tend to take a strict approach to protecting consumers.
In case of direct sales of insurance products to customers by insurers, under the Insurance Supervisory Act, prior to the conclusion of an insurance contract, the insurer must provide the customer with status related and product-related information. The insurer also must obtain sufficient information to be able to carry out a demands and needs test and, subsequently, must provide advice to the customer explaining why the insurance contract offered best meets the customer's demands and needs. In case of the sale of insurance-based investment products, the insurer must, in addition, obtain specific information from the customer, assess the suitability of the insurance product based on that information and provide the customer with a suitability statement specifying the advice given and how that advice meets the preferences, objectives and other characteristics of the customer.
What general rules, requirements and procedures govern the filing of insurance claims?
As a general rule, after having become aware of an insured event, the insured must immediately inform the insurer. The insurer may then require information that it deems necessary to assess the insured event or to what extent the insurer must provide coverage. However, these procedures are not mandatory and the insurer and the insured may provide for different regulations in the insurance contract. No formal requirements apply to notification. Insurance contracts often provide that the notification must be in ‘written’ form (eg, an email or a fax). The notification must state that the insured event has occurred and include the claim for coverage.
There are no specific statutory rules for filing reinsurance claims.
What is the time bar for filing claims?
The limitation period for filing claims is three years. If a third party has a claim under an insurance contract, the limitation period starts as soon as the third party becomes aware of its right to make a claim. A long-stop limitation period of 10 years applies even if the third party has not been aware of its right to claim.
Where the insured has made a claim to the insurer, the limitation period will be stayed until the insurer has issued a decision in written form setting out, at a minimum, the facts on which the denial of the claim is based and the relevant statutory or contractual provision. This notification to the insured is without prejudice to the insurer. The insurer may at a later stage, for example in subsequent legal proceedings, provide further reasons and facts for the denial. In any event, a long-stop limitation of 10 years applies.
The insurer may, under certain conditions, shorten the limitation period. To this end, the insurer must reject the insured's alleged claim in the manner described above and at the same time inform the insured that the insurer is released from the obligation to pay benefits if the insured does not assert the claim in court within one year. If the policyholder does not do so within one year, the claim against the insurer expires. Given that this is a significant outcome for the insured, Austrian courts take a strict approach as to whether the requirements for the claim to have expired are met.
Denial of claim
On what grounds can the (re)insurer deny coverage?
The validity of denial of coverage is always subject to a case-by-case analysis. In general, a (re)insurer may validly deny coverage on the grounds that the event for which a claim is filed is not covered or that the insured event has occured outside of the insured time period. Under certain circumstances, the insurer may also argue that the insured has violated a contractual obligation which the parties have agreed would lead to the release of the (re)insurer from its obligations. With respect to insurers (and not reinsurers), the Insurance Contract Act provides for certain grounds under which, in certain circumstances, an insurer may deny coverage, including:
- default on or late payment of a premium;
- the insured increasing the risk covered without notifying the insurer; or
- the insured instigating an insured event in an intentional or grossly negligent manner or violating its obligation to mitigate damage.
What rules and procedures govern the insured’s challenge of the denial of a claim?
There are no specific rules governing an insured's challenge of the denial of a claim. Where a claim is denied, the policyholder may file a claim against insured.
On what grounds can a third party file a claim directly with the (re)insurer?
There are no specific rules governing an insured's challenge of the denial of a claim. Where a claim is denied, the policyholder may file a claim against insured.
Are punitive damages insurable?
Austrian law does not recognise the concept of punitive damages or define an ‘uninsurable interest’. As a basic rule, any insurance contract providing for coverage which is deemed to be contrary to good morals or would cover administrative or penal fines is void.
What regime governs (re)insurers’ subrogation rights?
Where an insured has a damage claim against the injuring party, this claim is, by law, automatically transferred to the insurer if the insurer has covered the insured’s loss. However, if the injuring party is a family member and lives in the same household as the insured party, the claim will not be transferred unless such family member has caused the damage intentionally.
This rule does not apply to reinsurers, as the Insurance Contract Act is not applicable to them.
How are the services of insurance intermediaries regulated in your jurisdiction?
Insurance mediation is a regulated trade and subject to the Austrian Trade Act. Persons carrying out insurance mediation therefore require a licence from the competent municipal authority, which can be granted only if strict professional requirements concerning competence, good repute, professional indemnity cover and financial capacity are met. Insurance intermediaries licensed and based in another EU or EEA member state may carry out insurance mediation activities in Austria under the freedom of services or the freedom of establishment regime. This requires a prior notification by the competent authorities of the home member state in which the EU or EEA insurance intermediary (eg, an Austrian-based insurance intermediary) is registered in the Insurance and Credit Mediation register (GISA register).
Insurance mediation can be carried out, depending on the specific relationship with the (re)insurer, only in the form of an insurance agent or broker. Only one of these two authorisations (agent or broker) may be kept active. In the event that someone holds the authorisation for both commercial activities, one of them must be suspended.
Insurance agents and brokers are subject to a number of obligations towards customers. Among other things, prior to the conclusion of an insurance contract, the insurance intermediary must provide customers with status-related information. Further, an insurance intermediary must provide customers with objective standardised product-related information and, where necessary, subjective product-related information on case-by-case basis (eg, answer specific customer questions and correct any recognisable customer misconceptions about the insurance product.
In addition, an insurance intermediary must provide advice to customers. Hence, an insurance intermediary must carry out a demands and needs test on the basis of information obtained from customers. The insurance intermediary must then make a personal recommendation to customers explaining why a specific insurance contract would best meet their demands and needs. In case of the sale of investment-based insurance products, additional obligations apply.
There are no exceptions for insurance brokers from this obligation to provide advice. Where the contract is sold through an insurance agent, Austrian law in a few specific cases provides for the possibility of the customer waiving their right to receive advice.
What tax liabilities arise in the conduct of (re)insurance business?
Corporate income tax (Re)insurers are subject to corporate income tax. The statutory rate in Austria is 25%. Special rules apply regarding provisions and premium refunds.
Insurance premium tax Premium payments made by policyholders that are resident in Austria are generally subject to insurance premium tax at a rate of 4% or 11%. The policyholder is the tax debtor, but the (re)insurer is liable for payment of the insurance premium tax. Thus, (re)insurers must self-assess and pay the tax.
(Re)insurers are not subject to insurance premium tax.
Ancillary labour costs In case of employees, (re)insurers must pay up to 30% ancillary labour costs (whereby, in case of social security, contribution maximum assessment amounts apply).
What regime governs the insolvency of (re)insurers?
Insurance undertakings The opening of insolvency proceedings against an insurer requires that it be either illiquid or overindebted. In such case, the board, managing directors or liquidators must immediately notify the Financial Markets Authority (FMA) accordingly.
Only the FMA – and, contrary to the general rules of insolvency law, not any creditor or the insurer itself – is entitled to apply for the opening of insolvency proceedings concerning an insurer. The FMA will assess whether the above requirements are met and, if so, must apply for the opening of insolvency proceedings subject to the following rules:
- If the avoidance of the insolvency is in the interest of the policyholders and entitled beneficiaries and compatible with their insurance contracts, the FMA must:
- prohibit payments – in particular, insurance payments, the repurchase of life insurance and payments in advance – to the extent necessary to overcome the payment difficulties; or
- reduce the life insurer’s obligations in accordance with the existing assets.
These measures will continue until the insurer’s financial situation allows the FMA to lift these measures. This does not affect the policyholder’s obligation to pay the premium in full. The focus of the law is on the avoidance of an insurer’s insolvency.
- The FMA must not take these measures if it is unlikely that they will remedy the company's illiquidity or overindebtness. Rather it must initiate insolvency proceedings, in which case the insurer will be wound-up and liquidated. There are no reorganisation proceedings for insurers.
A reinsurer’s representatives must immediately open insolvency proceedings regarding an illiquid or overindebted reinsurer and any creditor may apply for this. These proceedings can be conducted as either reorganisation or bankruptcy proceedings. In the latter case, the reinsurer will be wound-up and liquidated.
Effect on insureds
How does a (re)insurer’s insolvency affect insureds and the (re)insurer’s obligations to insureds?
By law, the opening of insolvency proceedings against an insurer immediately and automatically terminates all life-insurance contracts, including:
- fund and index-linked life insurance products;
- insurance contracts covering risks of birth and marriage; and
- tontine insurance contracts.
Any other insurance contracts automatically end one month after the opening of the insolvency proceedings, unless they end earlier due to expiration. Insurance coverage remains effective until the insurance contract’s termination or expiration.
Policyholders must pay the proportionate premium until the termination or expiration of the insurance contract. Where the policyholder has paid the premium for the entire insurance period before the opening of the insolvency proceedings, it is entitled to a pro rata refund of the premium for the period between the termination of the insurance contract and the end of the insurance period. The policyholder’s claims under the insurance contract – including claims in case of an insured event that occurred before the opening or during the one-month period after the opening of the insolvency proceedings – are privileged insolvency claims, which means that they take priority over other insolvency claims.
However, policyholders are not entitled to enforce any such insurance claims against the insurer. This right is exclusively reserved to a curator, which will be nominated by the competent bankruptcy court. The curator must investigate and determine the insurance claims and file them in the insolvency proceedings. Policyholders may also file their claims in said proceedings.
The situation is different for reinsurers because the relevant provisions do not apply to them. In case of the insolvency of a reinsurer, the reinsurance contract remains in force. The appointed insolvency administrator may choose to uphold the contract and claim performance under the contract from the creditor (ie, the insurer being the policyholder) or withdraw from the reinsurance contract. In the latter case, the insured cannot claim repayment of the premium, but may, under certain circumstances, claim damages as the insolvency creditor.
Are there any compulsory or preferred venues for insurance litigation in your jurisdiction?
There are no preferred venues for insurance litigation in Austria. Compulsory venues are determined first on the basis of the EU Brussels Ia Regulation (1215/2012/EC), which provides for a closed set of rules regarding jurisdiction in matters relating to insurance.
Where said regulation is not applicable or provides only for the international jurisdiction of an Austrian court (and not specifically for the local jurisdiction of a specific court), the venue for the insurance litigation is determined by the Jurisdictional Norm, the Insurance Contract Act and the Insurance Reconstruction Act. The insured can sue the insurer in the responsible court:
- where the insurer has its seat or a branch; or
- in cases where the insurance contract was concluded through an insurance agent, where:
- the insurance agent had a commercial presence when the contract was mediated or concluded; or
- the insurance agent was domiciled when the contract was mediated or concluded, in cases where it had no commercial presence.
The insurer may sue the insured in the courts at the place where the insured:
- is domiciled;
- is a permanent resident; or
- has its seat or commercial premises.
How are insurance disputes with a cross-border element handled in your jurisdiction?
These disputes are treated equally. However, the parties and the court may have to consider additional elements.
In particular, the responsible judge must determine whether the Austrian courts have international jurisdiction over the case. If not, the statement of claim must be rejected without any further proceedings. In the affirmative, it may turn out that the parties have agreed that a particular national law other than Austrian law will govern the insurance contract. In such case, if the choice of law clause’s validity is challenged, the responsible judge must determine whether it is valid. If yes, the judge must apply the foreign law, unless it contravenes the fundamental principles of Austrian law. If the choice of law clause is not valid, the applicable law is subject to the EU Rome I Regulation (593/2008/EC) or, where this regulation does not apply, the International Private Law Act.
What issues are commonly the subject of insurance litigation?
The most common issues in insurance litigation are claims for coverage after the (re)insurer has denied coverage or claims for payment of compensation (for damages).
What is the typical timeframe for insurance litigation?
Insurance litigation is divided into three instances (ie, first instance, Court of Appeals and the Supreme Court). There is no typical timeframe for these proceedings. In general, it may take up to one year for a decision on the merits to be rendered by the first-instance court. Each party may appeal this decision within four weeks from the date on which the decision was served to the respective party. The other party may answer the appeal in writing within another four weeks. The Court of Appeals usually decides within three to six months. This decision may, in certain circumstances, be appealed to the Supreme Court within the same periods. The Supreme Court deals only with questions of law and usually renders a final decision within six months to one year.
What regime governs the arbitrability of insurance disputes?
Provided that the arbitral tribunal’s seat is in Austria, the Civil Procedure Code applies and governs the arbitrability of a dispute. It provides that any pecuniary claim that can be brought before an Austrian court is arbitrable. Thus, insurance disputes are arbitrable under Austrian law.
However, arbitration agreements between a company (business) and a consumer can be effectively concluded only for disputes that have already arisen and must be individually negotiated in writing (ie, arbitration clauses in terms and conditions are not valid). In practice, this leads to the de facto insignificance of arbitration in business-to-consumer areas.