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Details on Site Contribution
Site contribution
Date: March 2016
Prepared by:
Prof. Dr. Moritz Kuhn
Dr. iur. Lucy Gordon
MME Legal | Tax | Compliance
Zollstrasse 62
8005 Zurich
Phone:   +41 44 254 99 66
Fax:   +41 44 254 99 60
E-Mail:   moritz.kuhn@mme.ch
Caution: This summary is an overview only. In particular, Swiss Insurance Law contains a lot of regulatory differences in comparison to US Insurance Law. In case of need to deal with it in greater detail (e.g. complaints, disputes and claims in connection with or arising out of private insurance contracts), it is highly recommended to seek professional advice.
I. Introduction
Swiss Insurance Law includes insurance supervisory law and insurance contract law. This article deals with certain aspects of insurance supervision (section 2) and the swiss insurance contract law in force (section 3). It briefly mentions the proposed revisions of insurance law in Switzerland (section 3.5) as well as certain aspects of insurance regulation in the EU (section 4).
2. Insurance Supervision
The insurance regulator in Switzerland is the Swiss Financial Market Supervisory Authority ("FINMA"). The rules governing insurance supervision are the Insurance Supervisory Act ("ISA") and the Insurance Supervision Ordinance ("ISO").
With regard to health insurance, the Federal Department of Home Affairs ("DHA") supervises the uniform implementation of the social health insurance by health insurers (i.e. the compulsory health care insurance and optional daily allowance insurance in accordance with the Health Insurance Act), and that the latter fulfill certain financial requirements. The DHA also approves health insurance premiums. The supervision of the supplementary health insurance in accordance with the Insurance Contract Act remains the responsibility of FINMA.
Insurance supervision is mandatory for private companies that engage in the business of insurance in Switzerland. An insurance activity in Switzerland exists if the policy holder or one of the insureds is domiciled in Switzerland or if the property insured is located in Switzerland. Certain exemptions apply: Foreign insurance businesses domiciled abroad are not subject to supervision in Switzerland if they provide coverage solely of marine, aviation, cargo or war risks, or coverage for risks located abroad. Foreign insurance institutions (whether or not with a domicile in Switzerland) that conduct only reinsurance business in Switzerland and certain pension funds are also excluded from supervision.
In order to obtain a license from FINMA to conduct insurance business in Switzerland, a Swiss legal entity or a Swiss branch office must be set up. This requires a registration in the local commercial register and takes about two to three weeks. For the license to carry out insurance activities, an application, which consists of various standard forms, along with a business plan must be submitted to FINMA. The application is usually submitted in a draft form for discussion purposes that can be finalized after further information has been exchanged with FINMA. Once a final business plan has been filed, the license is usually issued within a couple of months.
3. Insurance contract law
Insurance contract law is implemented through the Insurance Contract Act (ICA), which contains provisions of Swiss contract law that are derived from the Swiss Code of Obligations. The ICA became effective in 1908 and was the first codification of insurance law in Europe. It therefore had a strong influence on the development of insurance statutes in Germany, Austria, France and Italy. The ICA aims to protect insureds through compulsory provisions that limit the contractual freedom of insurance companies. It is therefore partly a consumer protection law. On the other hand, whilst providing effective protection for the policy holder, the ICA also intends to allow the necessary flexibility for the insurer. The variety of insurance products is not limited by the ICA, so as to avoid hindering develop-ments in the insurance market.
The ICA provides the legal basis for private insurance contracts, including supplementary health insurance as well as daily allowances insurance contracts. It governs the relations between insurers and insured parties. Re-insurance contracts and relationships between insurance companies, which are not covered by FINMA or fall under a simplified supervision of FINMA, are not covered by the ICA. The same applies to the (compulsory) social health insurance.
Currently, the ICA is being reviewed in order to bring it up-to-date, especially with developments in the insurance industry, the relevant legislation in European countries and in the area of consumer protection (see below section 3.5). Even though the Swiss parliament sent the draft of a total revision of the ICA back to the Swiss Federal Council in 2013, it instructed the latter to draft a partial revison of the ICA.
The ICA divides insurance into indemnity insurance and personal insurance. While the general part of the ICA (art. 1 – 47) covers all types of insurance, the 2nd part of the ICA (art. 48 – 72) applies to indemnity insurance (loss and property insurance), the 3rd part of the ICA (art. 73 – 96) applies to personal insurance, and the 4th part of the ICA (art. 97 and 98) sets forth semi-mandatory and mandatory rules.
Pursuant to the case law of the Swiss Federal Court, under an indemnity insurance, the amount of coverage is determined by the loss incurred (it is possible to provide a flat fee for a certain damage in advance in order to simplify the determination of the damage). For example, liability insurance, legal protection insurance, business interruption insurance and the like are types of indemnity insurance. On the other hand, a fixed-benefit insurance provides coverage for the occurrence of an insured event regardless of whether a loss in a legal sense occured and if so, the total amount of the loss.
Benefits from a personal insurance are linked to death, invalidity or old age. A personal insurance may be either a fixed-benefit insurance or an indemnity insurance. Often, the occurrence of the insured event triggers a contractual sum; therefore it is a fixed-benefit insurance. This is the case with regard to whole life insurance, endowment insurance, accident insurance and health insurance.
3.3. Rights and obligations of the policy holder and the insurer when concluding the contract
A potential policy holder must submit an offer to the insurer. In the offer, the applicant has a duty to answer the insurer’s questions and to disclose any matter the applicant knows, or could reasonably be expected to know, that is or might become relevant to the insurer's decision whether to accept the risk and, if so, on what terms. If the policy holder fails to do so, the insurer will be absolved from paying benefits in case an insured event occurs, provided that causality exists between the undisclosed material risk and the loss sustained. The termination right expires four weeks after the insurer has come to know of the violation of the applicant’s obligation to notify.
Insurers are obliged to inform the policy holder about the essential subject matter of the insurance contract before it is concluded. This includes, among others, information on the insured risks, the insured coverage, the premiums due and other obligations of the policy holder. If the insurer violates the duty to inform, the policy holder is entitled to terminate the insurance contract by written notice. The termination right expires four weeks after the policy holder has come to know of the breach of the duty, and, in any case, one year after the breach of duty at the latest.
An insurance contract is concluded when the policy holder‘s offer to conclude an insurance contract is accepted by the insurer. In such case, should the insured event occur, the holder (or any other insured party) will be entitled to certain benefits from the insurer.
Nowadays the ICA is no longer able to fully meet the demands of modern, consumer-friendly legislation. Even though the Swiss parliament sent the draft of a total revision of the ICA back to the Swiss Federal Council in 2013, it instructed the latter to draft a partial revison of the ICA.
The partial revision of the ICA shall, among others, contain the following areas:
  • introduction of a right to withdraw;
  • regulation of the provisional cover;
  • possibility to conclude insurance contracts retroactively;
  • elimination of the consumer-unfriendly assumption of approval;
  • adequate extension of the limitation period;
  • introduction of an ordinary right of termination.
    Pursuant to the ISA, "insurance intermediaries" refers to all persons that offer or conclude insurance contracts on behalf of insurers (agents) or clients (brokers). This extends to agents, brokers, independent insurance advisers as well as sales force members of insurance companies.
    Insurance agents are affiliated with an insurance company legally, financially or in any other capacity. On behalf of the insurance companies, they are authorized to receive applications from prospective policy holders (application agents) or to directly conclude insurance contracts (underwriting agents). Between the insurance company and its agents, agency agreements generally prevail, while employment agreements or mandate agreements also exist.
    The unaffiliated insurance intermediary (insurance broker) represents the interests of the policy holder. The broker essentially provides services such as the assessment of the risk situation, the comparison of offers, the preparation of the submission documentation, the placement of insurance policies, the supervision and management of the insurance portfolio as well as the handling of claims etc. The relationship between the policy holder and the broker is set in an innominate contract, which is not regulated by law.
    Even though brokers receive their remuneration from the insurers and not directly from their clients, from an economic standpoint, the insured pays the broker since a part of the insurance premium owed by the policy holder serves to finance the payment for brokerage services made by the insurer. If the broker's renumeration exceeds the customary amount, the additional compensation has to be surrendered to the insured, unless the latter gives an informed consent to the broker keeping it. In order to avoid conflicts of interest in connection with the compensation of brokers, the self-regulatory Swiss Insurance Brokers Association ("SIBA") has produced best practice rules for its members that contain compulsory provisions regarding compensation. In the course of the revision of the Federal Act on Financial Services ("FIDLEG"), the problem shall be handled by introducing statutory rules on the compensation of insurance brokers.
    Insurance brokers are obliged to register electronically via an intermediary portal. In contrast, insurance agents tied to an insurance undertaking are not required to register, but may elect to be entered in the register. All registered insurance intermediaries have to meet certain personal, technical, and financial requirements.
    Social insurance is to a certain extent mandatory in Switzerland. The main mandatory social insurances are the basic health insurance, old age and invalidity insurance, occupational pension plan, employee accident insurance, maternity insurance, and unemployment insurance.
    A statutory obligation of the insurer to contract exists in connection with compulsory basic health insurance. With regard to supplementary health insurance, insurance providers may deny applications, set premiums according to age, sex, state of health and other criteria or offer collective contracts with lower premiums. Termination possibilities and conditions vary from insurer to insurer.
    For certain professions (such as physicians, lawyers and insurance brokers) and for certain means of transportation (such as motor vehicles, vessels and aircraft), liability insurance is required. Also mandatory is insurance for certain types of infrastructure, such as nuclear power plants or gas pipelines.
    4. Regulatory differences within the European Unio
    In the European Union, the Third Non-Life Directive and the Third Life Directive, both passed in 1992 and effective since 1994, created a single insurance market in Europe and allowed insurance companies to offer insurance anywhere in the EU (after permission from authority in the head office) and allowed insurance consumers to purchase insurance from any insurer in the EU. Since January 1, 2016, all directives are integrated into the Solvency II Directive.
    In insurance contract law and contract law in general, a move towards the harmonization of legislation in Europe has so far been taken in only a few specific instances like the EU directive on consumer distance contracts. An initiative put forward by the European Commission is aimed at more comprehensive harmonization of contract law. The Commission's idea for facilitating and fostering cross-border legal relations in the internal market is to create a Common Frame of Reference ("CFR"). This is intended to include rules covering general points of contract law as well as specific contracts such as insurance contracts. To achieve their goal, the Commission set up a network of experts called the Joint Network on European Private Law ("CoPECL") and instructed them to draw up a proposal. The CoPECL submitted a first draft for the frame of reference in early 2008, which is known as the Draft Common Frame of Reference ("DCFR"). The DCFR will be supplemented by a section on insurance contract law, the "Principles of European Insurance Contract Law" (PEICL). The first part of the PEICL comprises general regulations valid for all insurance contracts (with the exception of reinsurance contracts), while the second and third parts contain regulations for indemnity and fixed-sum insurance. The DCFR and PEICL are academic texts drafted by legal experts. The new Commission's Directorate-General for Justice and Home Affairs is in charge of the process, and it is now up to that body to consider the academic drafts and proceed with the complex project for a European contract law.
    For further information please refer to:
    DCFR: http://ec.europa.eu/justice/policies/civil/docs/dcfr_outline_edition_en.pdf
    PEICL: http://www.restatement.info/
    5. Useful Links
  • Swiss Financial Market Supervisory Authority (FINMA)
    FINMA is tasked with protecting investors, creditors, and policyholders and ensuring that the Swiss
    financial market functions properly.
  • Comparis.ch
    Largest web comparison service in Switzerland regarding insurance policies
  • International Association of Insurance Supervisors (IAIS)
    The IAIS is an international organization that brings together the world's insurance supervisors and
    regulators. The IAIS is based in Basel within the premises of the Bank for International Settlements
    (BIS), which hosts the IAIS Secretariat.
  • Register of Insurance Intermediaries
  • Swiss Insurance Association (SIA)
    The Swiss Insurance Association SIA is an umbrella organization representing the private insurance
    industry in Switzerland. Its members are small and large, national and international primary insurers and
  • Swiss Insurance Brokers Association (SIBA)
    SIBA was formed in 1991 as a private organization based in Zurich. The associa-tion is comprised of major
    insurance brokers who work in Switzerland and meet the requirements of the profession.
  • Swiss National Guarantee Fund (NGF)
    The NGF covers the damages caused in Switzerland by unidentified or uninsured motor vehicles, trailers or
    bicycles. The NGF also intervenes in case of the bank-ruptcy of the competent Swiss MTPL insurer and
    fulfils the tasks of the compensa-tory body.
  • The Swiss Ombudsman of Private Insurance
    The Swiss Ombudsman of Insurance is a Foundation established by the Swiss Insurance Association in 1972.
    The Foundation sponsors Ombudsman offices in Zurich, Lausanne and Lugano.
    Its main functions are to:
  • receive communications from the public regarding complaints, disputes and claims in connection with or arising out of private insurance contracts;
  • provide guidance and advice to insurance customers;
  • facilitate the settlement of claims and the resolution of disputes;
  • help obtain fair and reasonable outcomes.