Switzerland: Insurance supervision laws revised

The revisions will significantly affect insurance carriers, reinsurers and insurance intermediaries, including banks and asset managers acting as insurance intermediaries.
27 Sept 2022    2 minute read
Topics Insurance
Insurance Insurance Intermediaries Solvency Insurance Linked Securities IDD Financial Services Law Insolvency

In brief

Switzerland is substantially revising and modernizing its insurance supervision laws, i.e., the federal law on the supervision of insurance carriers (Versicherungsaufsichtsgesetz (VAG)) and the respective ordinance (Versicherungsaufsichtsverordnung (AVO)). The new law is expected to come into effect on 1 July 2023 or 1 January 2024. It will introduce a new, risk-based supervision regime that allows for more tailor-made supervision. For insurers with only professional policyholders, for small and new first insurance carriers and for reinsurers and captives, substantial exemptions from supervision will apply or can be requested from the supervisor. On the other hand, insurance intermediaries will be subject to stricter regulation. Solvency provisions will be slightly modernized. New provisions will introduce a restructuring law for insurance companies in financial distress and a new framework for special purpose insurance companies.

Contents

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While the current supervisory regime distinguishes only insurers and reinsurers, the new law will allow a distinction based on the specific risks borne by an insurance carrier, taking into account its business lines, customer base and size. Less strict supervisory rules will apply to small insurers, reinsurers and insurers with only professional policyholders. Therefore, it is recommended that firms review their business with the purpose of applying for the appropriate supervisory regime. Insurance intermediaries, including banks and asset managers that intermediate policies, will have to adjust to new requirements, in particular concerning corporate compliance, legal education and specialization. Untied intermediaries will have to amend their registration with the supervisor. For qualified life insurance policies, new documentation and distribution rules apply, including the requirement for a key information document and the application of appropriateness tests. 

In more detail

The revised law is the last part of the full revision of Swiss financial market laws that started in 2007 with the introduction of the Swiss financial supervisory law. It will provide new opportunities, in particular for new players in the market, for insuretechs and other companies with an innovative business model, for small carriers and for carriers with only professional policyholders. The intermediation of insurance policies accompanying the sale of products or services will be exempt from supervision up to a premium volume of CHF 600 per annum. Insurance carriers will have more flexibility to engage in business related to insurance and their investments.

On the other hand, insurance intermediaries will face new corporate compliance, registration, disclosure and legal education requirements. They will have to focus their business model, in particular by deciding whether they act as a tied or untied intermediary. Special rules, including an appropriateness test requirement, will apply to qualified life insurance contracts, i.e., to life insurance contracts that have a risk component, which applies to most modern life insurance policies. Commission and retrocession payments will be further regulated with the aim of avoiding conflicts of interests. With respect to insurance companies in financial distress, the Swiss supervisor will receive more flexible tools to avoid a potential declaration of bankruptcy, including the right to adjust insurance contracts or to transfer policies to a third party. Special purpose insurance companies, i.e., companies that transfer risks to the capital market by issuing insurance-linked securities, will be newly regulated.

Contact Information
Joachim Frick
Partner
Zurich
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Joachim.Frick@bakermckenzie.com

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