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Trends and prospects
What are the current trends in and future prospects for the insurance and reinsurance markets in your jurisdiction?
Switzerland’s insurance market is among the 20 largest in the world. The country is home to various primary insurers and reinsurers, both small and large, national and international. Some global key players are based in Switzerland.
In 2015 the insurers and reinsurers under the supervision of the Financial Market Supervisory Authority (FINMA) included:
- 20 life insurers;
- 122 non-life insurers;
- 30 reinsurers;
- 29 reinsurance captives; and
- six insurance groups.
The total gross premiums booked by all Swiss market participants amounted to Sfr124 billion.
In recent years, a number of existing reinsurers have moved to Switzerland. While Switzerland offers an attractive environment for reinsurers, it remains to be seen whether this trend will continue.
The Insurance Contracts Act, which is over 100 years old, is being updated. The Federal Council issued a dispatch on the partial revision of the act in June 2017. The revised act could enter into force in 2019.
Digitalisation brings new opportunities and challenges to the insurance and reinsurance markets. InsurTechs are emerging, calling traditional business models into question. Established primary insurers and reinsurers will likely see significant innovation coming their way. Staying ahead of the latest developments is vital, as digital innovation will affect almost every aspect of the insurance and reinsurance business.
What is the primary legislation governing the (re)insurance industry in your jurisdiction?
The (re)insurance industry is primarily regulated by the Insurance Supervision Act, which is complemented by the more detailed and technical Insurance Supervision Ordinance.
The Health Insurance Act regulates compulsory health insurance.
As Switzerland is not an EU or European Economic Area member, the freedom of services regime and the possibility to apply for local passporting rights do not apply. However, an agreement on direct insurance (other than life insurance) opens up certain areas of the insurance market between the European Union and Switzerland.
An agreement between Switzerland and Liechtenstein provides for the freedom of services in insurance matters between these two countries.
The main source to be referred to in the field of private insurance contracts (including supplementary health insurance) is the Insurance Contracts Act, which is being revised. The act governs the relationship between insurers, policyholders and the insured. Where the act contains no provision, the general provisions of the Code of Obligations apply.
The act excludes its applicability to reinsurance contracts. The sources of reinsurance law are mainly found in the reinsurance contract and the customs and practices of the reinsurance industry. The Code of Obligations also applies to reinsurance contracts.
In an international context, the Private International Law Act must be consulted to determine the governing law of a (re)insurance contract.
Which government bodies regulate the (re)insurance industry in your jurisdiction and what is the extent of their powers?
The Financial Market Supervisory Authority (FINMA) is the government body that regulates the financial industry in Switzerland, including the (re)insurance industry.
FINMA is tasked with protecting investors, creditors and policyholders and ensuring that the Swiss financial markets function properly. FINMA's mandate covers:
- stock exchanges;
- securities dealers;
- funds; and
- other financial intermediaries.
FINMA licenses and supervises financial market participants and intervenes when necessary.
Before a (re)insurer can start operations in or from Switzerland, it must obtain a licence from FINMA.
Once a (re)insurance company is licensed, some business processes require FINMA's approval – for example:
- changes to business plans;
- mergers, demergers and conversions; and
- insurance portfolio transfers.
Under certain circumstances, FINMA can place a (re)insurance group or conglomerate under group supervision. Group supervision covers all of the group's companies worldwide.
While a (re)insurer can surrender its licence, the company remains subject to FINMA's supervision during the winding-up phase. FINMA will release the (re)insurer from supervision only after the company has met all of its obligations under supervisory law.
FINMA's supervision does not extend to companies which have their headquarters abroad and are involved only in reinsurance operations in Switzerland, either directly from abroad or via a Swiss branch office. These entities are supervised in the country of their incorporation.
Insurance undertakings offering compulsory health insurance are supervised by the Swiss Federal Office of Public Health. Pension institutions are mainly subject to supervision by the cantons.
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?
While no specific restrictions on foreign ownership of or investment in (re)insurers in Switzerland apply, information regarding persons holding at least 10% of the share capital or voting rights in a (re)insurer must be submitted to the Financial Market Supervisory Authority (FINMA) in the course of the licensing process. FINMA must also be informed if a person may exert a significant influence on the commercial activities of the (re)insurer. FINMA will consider this information for the purpose of evaluating the licence application.
What regulations, procedures and eligibility criteria govern the transfer of control of/acquisition of a stake in a (re)insurer?
Any party which intends to acquire a participation in an existing Swiss (re)insurer must inform FINMA if such participation reaches 10%, 20%, 33% or 50% of the share capital or voting rights. The same notification obligation applies if an existing participation falls below these thresholds. FINMA may prohibit the transaction or impose conditions if the nature or extent of the participation might endanger the (re)insurer or the insureds’ interests.
If a (re)insurer merges, splits or undergoes transformation, FINMA's approval is required. FINMA will examine whether the insured parties remain protected against insolvency risks on the part of the acquiring company. The companies affected must ensure that pre-exiting insurance relationships continue unchanged.
Further disclosure obligations and restrictions may apply under the Stock Exchange Act and the Cartel Act, depending on the circumstances.
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 take the legal form of a company limited by shares or a cooperative society. The predominant legal form in the Swiss (re)insurance market is a company limited by shares.
Do any particular corporate governance requirements apply to (re)insurers, including any eligibility criteria for directors and officers?
(Re)insurers must be organised in a manner that allows them to identify, limit and monitor all main risks. They must implement the following corporate governance principles throughout their organisation:
- clear allocation and documentation of duties, powers, responsibilities and reporting channels;
- clear separation of operational activities and control activities;
- establishment of internal reporting processes to share information with all relevant units or individuals in the company;
- documentation of key decisions (and associated measures);
- establishment of effective company-wide risk management and an effective internal control system, including the control functions (eg, risk management, compliance and internal audit) and periodic reviews of their appropriateness by an independent (internal or external) party;
- definition of principles, processes and structures for compliance with legal, regulatory and internal requirements;
- definition of principles, processes and structures for identifying and dealing with abuses and conflicts of interest;
- definition of principles relating to the conduct expected of employees;
- establishment of processes to ensure that individuals responsible for overall direction, supervision and control, as well as the executive management of the (re)insurer, have and maintain the required standards.
The board of directors as a body must have sufficient knowledge of the (re)insurance business and requisite experience and knowledge of business management, strategic management, risk control, and finance and accounting. The top management, including the actuary, must also meet fit and proper requirements.
The eligibility of directors and officers is assessed in the course of the licencing process and continuously monitored by FINMA.
Which (re)insurers must obtain authorisation from the regulator before operating on the market and what is the procedure for doing so?
As a matter of principle, an insurance contract made with a policyholder located in Switzerland, or covering a risk located in Switzerland, can be written only by a (re)insurer holding a Swiss licence. Accordingly, all (re)insurers falling within the Insurance Supervision Act’s remit must obtain a licence from the Financial Market Supervisory Authority (FINMA) before operating on the Swiss market.
The Insurance Supervision Ordinance allows non-admitted insurance by companies abroad in the following cases:
- cover of risk in connection with shipping on the high seas, aviation and cross-border transportation;
- cover for risks lying abroad; and
- cover for war risks.
Reinsurers domiciled in Switzerland must also be licensed to conduct reinsurance activities, but this rule does not apply to companies registered abroad that offer only reinsurance in Switzerland. Reinsurance captives that are authorised in Switzerland and cover only the risks of their own group require a Swiss licence.
A (re)insurer seeking approval to carry out insurance or reinsurance activities on the Swiss market must submit a formal application to FINMA together with a business plan. The application is usually submitted in draft form for discussion purposes and can be finalised after further information has been exchanged with FINMA.
Once the application has been completed, FINMA can be expected to take between three and six months to grant the licence.
What are the minimum capital and solvency requirements for (re)insurers operating in your jurisdiction?
The minimum capital for (re)insurers operating in Switzerland is between Sfr3 million and Sfr20 million, depending on the sector (ie, life insurance, non-life insurance, health insurance or reinsurance). FINMA determines the actual capital required in each case.
(Re)insurers must also have adequate disposable and unencumbered capital resources to cover the entirety of their activities (ie, they must have an adequate solvency margin). The solvency margin is assessed in accordance with the Swiss Solvency Test (SST). The determination of the required equity capital takes into account the risk to which a (re)insurer is exposed during the following year (target capital) and the available eligible equity capital (risk-bearing capital). The SST involves an analysis providing for a market-consistent valuation of all assets and liabilities. It takes a methodological approach to risk categories (ie, insurance, credit and market risks), subjecting them to scenario stress tests by means of either a standard model or an internal model. The idea is to clarify the risks the balance sheet is exposed to and their effect on the available capital in a worst-case scenario.
The concepts of the SST and Solvency II (the corresponding EU project) are similar. The EU recognises the SST as equivalent to EU law, which simplifies the activity of Swiss (re)insurance groups in the European Union. In particular, reinsurers can now serve their EU clients directly from Switzerland.
Further, (re)insurers operating in Switzerland must maintain an organisational fund that enables them to cover the costs of establishing and developing the business or an extraordinary business expansion. The organisational fund normally amounts to up to 50% of the minimum capital specified above at the start of business operations. Again, FINMA determines the required amount in each individual case.
Do any other financial requirements apply?
In addition to the capital and solvency requirements outlined above, (re)insurers domiciled in Switzerland must establish adequate reserves to cover their entire commercial activities (ie, technical reserves).
Moreover, insurers must secure claims arising from their insurance contracts by means of tied assets. Owing to this rule, insured persons have a liability substrate that ensures that their claims under the insurance contracts will be satisfied before the claims of all other creditors if the insurer becomes insolvent.
The amount of tied assets is equal to the technical reserves plus a reasonable additional amount determined by FINMA.
The provisions concerning tied assets do not apply to reinsurers. Reinsurers have little restrictions regarding the investment of their assets, provided that they comply with general rules on risk diversification.
Are personnel of (re)insurers subject to any professional qualification requirements?
A (re)insurer’s board of directors must have sufficient knowledge of the (re)insurance business and the requisite experience and knowledge of business management, strategic management, risk control and finance and accounting.
All (re)insurers must appoint a responsible actuary. The actuary reports directly to the senior management and is responsible for:
- the correct calculation of the solvency margin;
- compliance with the requirements concerning the tied assets;
- the application of accounting principles; and
- the accumulation of technical reserves.
Accordingly, the actuary must be professionally qualified and in a position to make an accurate assessment of the financial effects of the (re)insurer’s activities.
What rules and requirements govern the business plans of (re)insurers?
As outlined above, a (re)insurer seeking a licence must submit its business plan to FINMA for approval. The Insurance Supervision Act provides for specific information and documents to be included in the business plan. In essence, the applicant must:
- state what type of insurance business it intends to conduct and in which classes it wishes to insure;
- satisfy FINMA that the persons responsible for the management and supervision have a good reputation, as well as sufficient professional knowledge and experience to run the business;
- demonstrate that it can meet the capital, solvency and other financial requirements.
FINMA must be notified about business plan changes.
What risk management systems and procedures must (re)insurers adopt?
(Re)insurers must implement an effective risk management system (ie, they must ensure by appropriate organisational measures that all material risks are detected, limited and monitored). Risk management principles also apply to major outsourcing arrangements and other relationships with third parties.
Reporting and disclosure
What ongoing regulatory reporting and disclosure requirements apply to (re)insurers?
(Re)insurers must produce an annual report including their financial statements as of December 31 each year. (Re)insurers that are part of a group or conglomerate must also produce consolidated financial statements. Listed companies must comply with the reporting and disclosure requirements set out in the Stock Exchange Act.
In addition, (re)insurers must produce an annual supervisory report for FINMA. The supervisory report contains qualitative and quantitative data, which FINMA uses as a basis for its annual report on the insurance market.
FINMA can ask (re)insurers for additional reports throughout the year and define special requirements for the annual report and financial statements.
Do any other operating requirements apply in your jurisdiction?
Specific requirements apply to foreign insurers engaging in the insurance business in Switzerland. They must (without prejudice to differing provisions in international agreements):
- have approval to exercise the insurance activity in their country of registration;
- establish a presence in Switzerland and appoint a general agent who must be of good standing and provide assurance of proper business conduct. The general agent must reside in Switzerland and have authority for and be entrusted with the management of the office for the Swiss business. He or she must have the knowledge necessary to manage the insurance undertaking;
- have a minimum capital and solvency margin in their country of principal registration equal to that specified in the Insurance Supervision Act;
- establish in Switzerland an organisational fund equal to that specified in the act, together with corresponding assets;
- lodge a surety in Switzerland equal to a specified percentage of the solvency margin accruing to the business in Switzerland. FINMA determines this percentage and the method of calculation, as well as the place of deposit and the assets allowable for this purpose. According to the agreement between the European Union and Switzerland on direct insurance other than life insurance, the security deposit requirement does not apply to EU-based insurers.
What are the consequences of non-compliance with the operating requirements applicable to (re)insurers?
FINMA can revoke the licence if a (re)insurer no longer fulfils the requirements for its activity or seriously violates the supervisory provisions. The (re)insurer then loses its right to carry out its business activity.
Depending on the circumstances, FINMA may also apply protective measures or penalties, including:
- a reprimand in a declaratory ruling;
- specific orders to restore compliance with the law; or
- publication of a supervisory ruling.
If FINMA detects a serious violation of supervisory provisions, it may prohibit the person responsible from acting in a management capacity for a (re)insurer. The prohibition from practising a certain profession can be imposed for up to five years.
FINMA may confiscate any profit that a (re)insurer or responsible person in a management position has made through a serious violation of supervisory provisions. FINMA also has the power to confiscate if a loss was prevented through a serious violation of supervisory provisions. Where the extent of the assets to be confiscated requires a disproportionate effort to be ascertained, FINMA may make an estimate. The confiscated assets go to the Swiss Confederation, unless they are paid to the parties suffering loss.
In addition, the insurance supervisory law provides for criminal penalties that are investigated by public prosecutors and sentenced by the criminal courts. In particular, those parties which intentionally conduct insurance business in Switzerland without appropriate authorisation are liable to a custodial sentence of up to three years or a monetary penalty. In case of negligence, a fine of up to Sfr250,000 can be imposed.
A custodial sentence of up to three years or a monetary penalty can also be imposed on parties which:
- conclude or negotiate insurance contracts for an insurer not approved for insurance activities in Switzerland;
- fail to make certain notifications to FINMA;
- remove or encumber tied assets so that the specified sum is no longer secured; or
- act in a way that reduces the security of the tied assets.
Further penalties may apply under the Criminal Code.
What general rules, requirements and procedures govern the conclusion of (re)insurance contracts in your jurisdiction?
Absent a definition in the Insurance Contract Act, the Federal Supreme Court has defined an ‘insurance contract’ as an agreement under which the insurer promises an economic performance to the insured in case of the realisation of a risk in exchange for payment of a premium. The essential elements are the transfer of risk against payment. The conclusion of an insurance contract requires the parties' mutual consent with respect to these elements.
Although insurance contracts are normally concluded in writing, the act provides no particular form requirements. Insurance contracts can be made free of form, including orally or by consenting behaviour.
A potential policyholder usually submits an offer to the insurer. The applicant must answer the insurer's questions truthfully. If the applicant fails to do so, the insurer may refuse payment in case the insured event occurs, provided that causality exists between the undisclosed facts and the loss sustained.
However, the applicant has no duty to disclose on its own motion all material risk factors that might be relevant for the insurer's underwriting decision. The Insurance Contract Act does not provide for a duty of utmost good faith (known in common law countries in connection with the rule that the purchaser of insurance must disclose all material facts on his or her own initiative).
Before conclusion of the insurance contract, the insurer must inform the applicant about the identity of the insurer and the main content of the insurance contract. This includes:
- the insured risks;
- the scope of the insurance coverage;
- the premiums due;
- any other obligations of the policyholder; and
- the handling of personal data.
If the insurer fails to comply with its duty to inform, the policyholder can terminate the insurance contract by written notice.
In contrast to direct insurance contracts, reinsurance contracts are not governed by the Insurance Contract Act. Instead, they are governed by general contract law, including the Code of Obligations.
It is widely accepted that reinsurance contracts are based on a special trust relationship between the parties and that the principle of good faith is crucial. The pre-contractual disclosure obligations are broader than in direct insurance, but the exact extent of such obligations remains unclear. Some authors argue that the utmost good faith principle applies to reinsurance contracts. However, there is no settled case law in Switzerland regarding whether an insurer must disclose on its own motion all material risk factors needed by a reinsurer to make its underwriting decision.
Are (re)insurance contracts subject to any mandatory/prohibited provisions?
The parties to an insurance contract are generally free to agree the terms and conditions that will govern their relationship, but certain Insurance Contract Act provisions are mandatory and cannot be contractually modified. Among other things, these provisions concern:
- the principle that the insurance contract is null and void if, at the time of its conclusion, the risk had already ceased to exist or the insured event had already occurred (including exceptions for fire and transport insurance);
- restrictions regarding the premium payment obligations in the event of early termination of the insurance contract;
- the place of performance;
- the due date of insurance claims;
- the tacit renewal of insurance contracts;
- overinsurance and double insurance;
- the replacement value;
- the assessment of damage;
- the assignment and pledge of personal insurance claims; and
- insurance policies on the life of another person.
Other Insurance Contract Act provisions are partly mandatory in the sense that they cannot be modified to the disadvantage of the policyholder or the insured. These include:
- rules on the conclusion (offer and acceptance) of insurance contracts;
- the insurer's duty to inform the insured and the insured's right to terminate the contract of insurance in the event that the insurer does not comply;
- the insurer's duty to issue a policy to the insured, stating the rights and duties of the parties;
- the consequences of default in the payment of the premiums;
- the aggravation of risks with or without the policyholder's involvement;
- the insurer's liability for its intermediaries;
- rules concerning the substantiation of the insurance claim;
- rules concerning partial damage;
- the statute of limitations; and
- the insurer's right of recourse.
These and other Insurance Contract Act restrictions do not apply to reinsurance contracts. In reinsurance, the freedom of contract principle prevails, as long as the terms and conditions of a reinsurance contract are not impossible, unlawful or immoral within the meaning of general contract law.
Can any terms by implied into (re)insurance contracts (eg, a duty of good faith)?
Terms can be implied into (re)insurance contracts. Whether a term is implied is essentially a matter of interpretation.
In that context, reference is often made to the duty of good faith, which is one of the cornerstones of Swiss contract law. The duty of good faith is particularly important in relation to pre-contractual disclosure duties and parties' obligations after the insured event has occurred.
However, there are no implied exclusions in direct insurance. To be valid, exclusions must be explicitly stated in the insurance contract.
In reinsurance contracts, paramount principles – such as the reinsurer's right to inspect the cedent's file and follow-the-fortune and follow-the-settlement principles – may be considered to be implied and applicable in the absence of a specific clause relating thereto.
What standard or common contractual terms are in use?
Most insurers use their own general terms and conditions (GTCs).
The Swiss Insurance Association has published sample GTCs for certain types of insurance, including third-party liability, motor vehicle, property, technical and transport insurance. While these sample GTCs are non-binding, they give guidance on what standard or common contractual terms one may expect in such types of insurance.
In reinsurance, GTCs have not gained any practical relevance. There are no standard reinsurance contracts. However, many reinsurance contracts include commonly used provisions, such as access to records or right to audit, as well as follow-the-fortune and follow-the-settlement clauses.
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?
While blockchain-based smart contracts and other types of financial technology are not yet commonly used in Switzerland for (re)insurance purposes, they could have an important impact in the future.
Many of the most common insurance contracts can be broken down into ‘if-then’ statements and digitised as smart contracts. Using event-monitoring functions, payments could be automatically triggered based on an objective validation of specified events. Among other benefits, blockchain-based smart contracts may reduce:
- the need for intermediaries;
- voluminous amounts of paperwork; and
- pay-out times.
It is therefore unsurprising that both incumbent (re)insurers and new players are investigating the use of blockchain technology in (re)insurance.
What rules and procedures govern breach of contract (for both (re)insurer and insured)?
As outlined above, under the Insurance Contract Act, the insurer must inform a potential policyholder about the essential content of the insurance contract. If the insurer fails to comply with such obligation, the policyholder can terminate the insurance contract. The termination right expires four weeks after the policyholder learns of the breach of the duty.
In the case of non-disclosure or misrepresentation of a material risk factor on the part of the policyholder in response to a written question of the insurer, the insurer may terminate the insurance contract. The insurer can do so within four weeks of the discovery of the misrepresentation or non-disclosure.
A similar termination right applies in the case of non-disclosure or misrepresentation in reinsurance contracts.
If the insured caused the insured event in a grossly negligent way, the insurer can reduce the indemnification. The insurer may reject liability outright if the insured caused the insured event intentionally.
Under the Insurance Contract Act, if the policyholder fails to pay the premium by the due date, the insurer can set an additional time limit of 14 days for payment of the premium. If the premium is not paid within this time, the policyholder is in default and the insurer’s obligations are suspended.
If the policyholder has been in default for more than two months and the insurer has not commenced legal proceedings to enforce the claim, the Insurance Contract Act presumes that the insurer has waived its right to claim the premium and exercised its right to terminate the insurance contract. Conversely, if the insurer enforces its claim for the premium payment, it remains under the obligation to provide coverage as stated under the insurance contract.
What consumer protection regulations are in place to safeguard the rights of purchasers of insurance products and services?
Most insurers use their own general terms and conditions (GTCs). Such GTCs are subject to scrutiny under the Unfair Competition Act. Pursuant to Article 8 of the act, GTCs are considered abusive if, to the disadvantage of consumers and contrary to the principle of good faith, they provide for a significant and unjustified disparity between contractual rights and obligations. If these requirements are met, the courts may disregard specific provisions of an insurer's GTCs.
However, Article 8 of the Unfair Competition Act applies only to business-to-consumer contracts. It does not protect purchasers of insurance products and services that relate to their professional or commercial activities.
What general rules, requirements and procedures govern the filing of insurance claims?
Unless stated otherwise in the policy, an insured must immediately notify the insurer of the occurrence of the insured event. If the insured fails to do so, the insurer can reduce the indemnification to the extent that the loss could have been avoided if the insured had given timely notice.
The insured has a duty to cooperate with the insurer by providing information about the loss. Upon the insurer's request, the insured must produce all information available to him or her that will help the insurer to establish the circumstances under which the insured event occurred and the amount of damage. If the insured fails to comply, his or her claim under the policy does not become due; the policy may even provide that the insured forfeits coverage.
In reinsurance, the cedent has the right to business management, but the parties often agree on a claims cooperation clause that requires the sharing of information between the cedent and reinsurer. The clause may require the reinsurer's prior approval for any compromise or settlement.
What is the time bar for filing claims?
Claims based on a direct insurance contract are time barred two years from the date of the triggering event that establishes the obligation to indemnify.
The time bar is 10 years for claims based on reinsurance contracts.
Denial of claim
On what grounds can the (re)insurer deny coverage?
The insurer can terminate an insurance contract and deny coverage if the policyholder has failed to inform the insurer truthfully of a significant risk factor that he or she knew about when questioned in writing. Further, the insurer can deny coverage if the insured caused the insured event intentionally.
What rules and procedures govern the insured’s challenge of the denial of a claim?
If the insurer has been provided with all relevant information to establish the insured event and the amount of damage, the indemnification payment is due and payable within four weeks. The insured can bring an action for payment against the insurer. If the court finds that the insurer has denied the claim wrongfully, the insurer must settle the claim plus any damage caused by the delayed payment, as well as the insured's legal expenses.
On what grounds can a third party file a claim directly with the (re)insurer?
Unless such right is provided for in the insurance contract, a third party can file a claim directly with the insurer only if explicitly provided for by law. This is the case in some areas of mandatory liability insurance, including
- motor vehicles;
- dams; and
- power plants.
In reinsurance, entities that are not parties to a reinsurance contract usually cannot enforce any claims under the reinsurance contract. However, a cut-through provision in the reinsurance contract may allow a non-signatory to claim directly against the reinsurer.
Are punitive damages insurable?
While some punitive elements can be found in isolated areas of Swiss law (eg, in cases of unjustified termination of employment or licence fee avoidance), punitive damages as such are not available from the Swiss courts. As a result, the insurability of punitive damages has found little attention in Swiss case law and legal literature.
What regime governs (re)insurers’ subrogation rights?
Where an insured’s claim against a third party is in tort, the insurer subrogates by operation of law into the insured's rights against the third party to the extent that the insurer has indemnified the insured. The main claim for compensation plus all ancillary rights are passed on to the insurer. Because the subrogated insurer 'steps into the shoes' of its insured, the insurer's rights are not greater than those of the insured. As a result, the insurer is subject to the same objections and defences that the third party may have had against the insured.
Where the claim of the insured against a third party is based in contract rather than in tort, the insurer has a generic right of recourse based on the concept of recourse amongst parties that are jointly liable for a loss or damage. If two or more persons are liable for the same loss or damage based on different legal grounds, compensation must be provided:
- in the first instance, by the person who is liable in tort;
- in the second instance, by the person who is liable based on contract; and
- in the third instance, by the person who is liable only as a matter of law.
According to traditional Swiss case law, an insurer is entitled to take recourse against a party in breach of contract only if that party acted in wilful misconduct or gross negligence. This case law is based on the 1954 Supreme Court decision in La Neuchateloise v Gini. Recent judgments suggest that Gini does not apply within the remit of international conventions (such as the UN Convention on the International Sale of Goods, the Montreal Convention on International Carriage by Air and the CMR Convention on International Carriage of Goods by Road).
A recourse against a person who is liable only as a matter of law is impossible.
How are the services of insurance intermediaries regulated in your jurisdiction?
Insurance intermediaries are subject to the Swiss Financial Market Supervisory Authority’s (FINMA’s) supervision.
FINMA keeps a public register of insurance intermediaries. Registration is mandatory for brokers (ie, intermediaries that are not legally or commercially tied to an insurer).
To register, brokers must:
- demonstrate that they hold appropriate professional qualifications;
- meet certain personal requirements (ie, no criminal or debt records); and
- hold professional indemnity insurance or provide an equivalent financial security.
Intermediaries are considered tied intermediaries and exempt from the duty to register if they:
- realise commission payments during a calendar year predominantly from one or two insurers;
- receive remuneration or have a cooperation agreement with an insurer that could impair their independence; or
- hold a participation in an insurer that exceeds 10% or are in the management of an insurer or able to influence the insurer’s business by other means.
The exemption also applies if an insurer:
- holds more than 10% of the share capital in the intermediary; or
- can influence the intermediary’s business by other means.
Intermediaries are subject to a duty to provide information towards their customers. As soon as an intermediary establishes contact with a potential customer, the intermediary must provide:
- its name and address;
- information on whether the insurance offered in a specific class comes from one or several insurers and the identity of the insurers in question;
- information concerning the nature of its contractual relationship with the insurer(s) for which it is acting and the identity of the companies in question;
- the person with liability for negligence, errors or incorrect information relating to its activities as intermediary; and
- information concerning the processing of personal data – in particular, the purpose, extent and recipients of the data and its retention.
What tax liabilities arise in the conduct of (re)insurance business?
In general, the tax authorities levy stamp duties of 5% on insurance premiums, but several exemptions apply (eg, stamp duties are not levied on reinsurance premiums or premiums for health, life, accident and cargo insurance).
Insurance and reinsurance turnovers are exempt from Swiss value added tax.
(Re)insurance companies are subject to the ordinary corporate income and capital tax.
What regime governs the insolvency of (re)insurers?
The following regime applies:
- If a (re)insurer is overindebted or has serious liquidity problems, the Swiss Financial Market Supervisory Authority (FINMA) revokes the licence and initiates bankruptcy proceedings.
- FINMA then appoints and oversees one or several bankruptcy liquidators.
- Upon the liquidators' request, FINMA convenes creditors' meetings and appoints creditors' committees.
- Insurance claims set out in the (re)insurer’s records are deemed to have been submitted in the bankruptcy proceedings.
- Insurance claims are given preferential treatment over those of all other creditors and are the first to be met from tied assets.
- Any remaining proceeds become part of the bankruptcy estate.
Effect on insureds
How does a (re)insurer’s insolvency affect insureds and the (re)insurer’s obligations to insureds?
Insurance claims that can be recognised from the (re)insurer's records are deemed to have been submitted in the bankruptcy proceedings. Insurance claims are given priority over claims from all other creditors and are protected by tied assets. In some cases, transferring insurance portfolios before liquidation can be a way of protecting the interests of the insured persons.
FINMA can adopt protective measures to safeguard the interests of the insured, including the following:
- order the extension of payment terms and the adjournment of due dates;
- assign specific assets to tied assets;
- prohibit the unrestricted disposal of the (re)insurer's assets;
- order the deposit or blocking of assets;
- order the liquidation of tied assets;
- assign, in whole or in part, the responsibilities and authorities of the officers and directors of the (re)insurer to a third person; and
- demand the dismissal of the accountable actuary or any person entrusted with the ultimate direction, supervision, control or management and prohibit them from engaging in any further (re)insurance activities for a maximum of five years.
Are there any compulsory or preferred venues for insurance litigation in your jurisdiction?
Private law disputes between insurers or between an insurer and an insured are normally subject to the civil courts’ jurisdiction. The regular civil courts (at the domicile or registered office of the defendant or at the place where the characteristic performance must be rendered) can hear disputes arising out of insurance contracts.
Some cantons have established commercial courts. In the canton of Zurich, it is often the Zurich Commercial Court that deals with insurance disputes.
How are insurance disputes with a cross-border element handled in your jurisdiction?
In EU cases, the Lugano Convention is relevant to determine whether a forum selection clause in the insurance contract is valid and enforceable and which courts have jurisdiction.
With respect to the conflict of law rules, the Swiss courts apply the Private International Law Act. In principle, choice of applicable law clauses are permissible.
What issues are commonly the subject of insurance litigation?
Typical and recurrent issues arise in directors and officers liability insurance litigation. Such disputes often concern bankrupt companies. Claimants argue that the members of the board of directors and management breached their duties to the disadvantage of the company's creditors. The creditors usually argue that the board members should have filed for bankruptcy earlier, and that failing to do so increased the damage.
What is the typical timeframe for insurance litigation?
Depending on the circumstances, the timeframe for insurance litigation can range from a few months to a few years.
What regime governs the arbitrability of insurance disputes?
In international arbitrations with their seat in Switzerland, any dispute of economic interest, including insurance disputes, can be the subject of an arbitration. While few direct insurance contracts provide for arbitration, reinsurance disputes are typically dealt with by way of arbitration.