Key Take-aways
- Untied insurance intermediaries will be subject to prudential
supervision by FINMA and, as regards existing untied
intermediaries, they must submit topup documentation by 30 June
2024 at the latest. - The revised insurance intermediary regulation will prohibit a
dual business model as insurance broker and agent by the same legal
entity, which leads to a reorganization of the affected
intermediaries. - The revised regulation will allow an insurer to expand to
“related” activities without FINMA approval, provided
there is functional connection to the insurance business and the
activity is narrow in scope.
1 Background
The reform of the Swiss Insurance Supervision Act
(ISA) that we discussed in our earlier
Schellenberg Wittmer, Monthly Newsletter of June 2021 was passed by
the Swiss Parliament on 18 March 2022. The implementation of the
reform was subject to implementing provisions in the secondary
legislation, which were adopted by the Swiss Federal Council on 2
June 2023 as an amendment of the Insurance Supervisory Ordinance
(ISO).
The revised rules of the ISA and the ISO will enter into force
with effect from 1 January 2024 except for those
regarding the key information documents for qualified
life-insurance products, i.e. life insurance contracts
incorporating a risk of capital loss, that are scheduled to enter
into force on 1 January 2025. With the references to the ISA and
ISO, we are referring to the versions entering into force on 1
January 2024.
We are addressing a selection of initial action
points resulting from the reform.
2 Insurance Intermediaries
2.1 Identifying Insurance Intermediaries
The scope of Swiss insurance intermediary regulation continues
to apply to persons who advise policyholders with a view to
entering insurance contracts or propose insurance
contracts. Providing only data or
information about the insurance market does not constitute
an activity as insurance intermediary.
The ISO explicitly specifies that the insurance intermediary
regulation also includes operators of internet-based or
other electronic platforms having a commercial
interest in the offer or conclusion of insurance
contracts, provided that either (i) the users may obtain
information about certain insurance contracts on the basis of
individual criteria they specify and they may
select such insurance contracts via that platform or (ii) the
platform provides a ranking of insurance products,
taking into account a comparison of prices and products. This
raises the question how the intermediary regulation should be
applied to internet- or InsurTech-based portals covering insurance
products.
The revised ISO also introduces generally a de minimis
exemption for ancillary intermediation
activities. Such exemption will be available where (1) the
annual premium does not exceed CHF 600, (2) the insurance contract
is ancillary to the relevant product or service and (3) the
intermediation of insurance contracts is not the main business
activity.
2.2 Registration of Insurance Brokers
To the extent an insurance intermediary acts for policy
holders or holds itself out to doing so,
it is classified as an untied intermediary (insurance
broker). By default, all other insurance intermediaries
are tied intermediaries (agents).
While the previous rules defined the status of an untied
intermediary by reference to the absence of being tied to one or
two insurance companies, from a substance point of view, the scope
of activities triggering the regulation for untied intermediaries
remains largely unchanged going forward. However, the revised rules
for untied intermediaries do not specify a
minimum number of insurance companies whose policies an
insurance broker must have “on offer”, but follows a
principles-based approach by requiring that an untied intermediary
shall not enter into any agreements with an insurer that would
limit its options of working with other insurers. This
independence requirement for untied intermediaries
results in a prohibition to have an insurer as a qualified
shareholder or to be a qualified shareholder in an insurer (the
relevant percentage being 10% of capital or voting rights) and to
be part of the management of an insurer or vice versa.
While tied intermediaries, contrary to the practice to date,
cannot be registered as insurance intermediaries with FINMA –
not even on a voluntary basis – untied intermediaries
must register with a registry for untied insurance
intermediaries by filing a request to FINMA containing the
information pursuant to Annex 6 ISO and thereby becoming subject to
prudential supervision by FINMA. This registration requirement will
apply for any new activity as an untied insurance intermediary from
1 January 2024 going forward and must be completed before starting
the activity. For untied intermediaries that are already registered
with FINMA for an existing business by the end of 2023 under the
rules of ISO as in force to date, the ISO specifies a
transition period of six months by when an untied
intermediary must file the relevant top-up documentation to
FINMA.
FINMA clarified in its Guidance 04/2023 published on 21 August
2023 the process it will apply for these purposes. Please also see
our newsflash published on 24 August 2023.
2.3 No Activity as Broker and Agent by the Same Legal
Entity
Contrary to the insurance broker regulation as in place so far,
it will no longer be possible for an insurance broker to act, in
respect of some insurance categories, as broker and, in respect of
others, as agent. The ISA will prohibit a dual business
model as insurance broker and agent by the same legal
entity.
For any intermediaries that were operating with such dual roles,
the entry into effect of the new rules necessarily leads to a
reorganization, including the onboarding of part
of the client base to a new entity, to ensure compliance with the
ISA and the ISO. However, the ISO does not specify a transition
period for the completion of such reorganisation. In the absence of
further guidance by FINMA on this point, the principle of
separating brokerage and agency activities must be adhered to
already from 1 January 2024 for the intermediation of new insurance
contracts.
Moreover, an untied intermediary will already have to be in
compliance as of such date with the conduct
requirements the ISO sets out, which will require, inter
alia, to allocate and document the competences, business
responsibilities and reporting lines.
2.4 Domiciliation Requirements for Insurance
Brokers
According to the ISO, untied insurance
intermediaries acting in their own name must at least have
a branch office or a domicile in Switzerland.
While their employees must be registered with the registry for
untied intermediaries, these employees do not necessarily have to
carry out intermediary activities from Switzerland.
FINMA grants a transition period until 30 June 2024 to comply
with this domiciliation requirement. An exemption may be provided
by FINMA from the domiciliation requirement if the intermediation
only relates to reinsurance business.
2.5 Minimum Standards for Brokers regarding Education
and Continuous Training
As part of the new prudential supervision for untied
intermediaries, FINMA will recognize minimum standards to be set by
the relevant industry associations for insurance brokers as regards
the education and continuous training in the sense
of article 190 and 190a ISO.
For insurance brokers that are already registered with FINMA by
the end of 2023, the ISO provides a transition period of two years
for compliance with such requirements, calculated from the time
FINMA will approve the relevant minimum standards.
2.6 New Reporting Obligations
As regards regulatory reporting obligations, the ISO defines
new reporting requirements for registered untied
insurance intermediaries.
2.7 Inducements
According to the ISA, an untied intermediary may only accept
inducements or other fees in connection with the
intermediation activity from third parties, to the
extent that they have disclosed such fees to their clients. Where
the untied intermediary is remunerated by the client for the
intermediation activities, it must either (1) on-pay such
inducements or fees received from third parties to the
client or (2) obtain a waiver from the client to
the effect that the fees shall be retained by the intermediary. In
order to meet the requirements for a valid waiver, the disclosure
must least include information about the calculation method of the
fees including the percentage brackets that apply to the fees. The
fee arrangements will have to be brought in line with these
requirements by 1 January 2024, where this has not yet
occurred.
3 Insurer Expanding into Related Business Activities
The revised rules of the ISA allow an insurer to expand to
“related” business activities without
triggering FINMA approval requirements. This is a liberalisation
compared to the current rules, which only allow this for
“immediately related” business activities and require an
approval by FINMA.
The ISO further specifies that a permitted “related”
business activity must have a functional connection to the
insurance business and must be narrowly confined
in scope. The insurer must ensure that requirements
regarding minimum capital, documentation, operational risks and
solvency are met. Also, it must include the related business
activities into the calculations under the Swiss Solvency Test
(SST) and all operative and legal risks must be adequately
managed.
The ISO further specifies that FINMA may
approve further business activities that are not
permitted as “related” in the sense as
specified above in case the activity is in the interest of the
insured, the insurer manages the associated risks adequately and
the supervision by FINMA is not unreasonably more difficult.
4 Conflicts of Interest
The revised ISO amends the definition of conflicts of interest
to align it with the definition contained in the Swiss Financial
Services Act of 15 June 2018 (FinSA). According to
the new definition, a conflict of interest exists in particular if
an insurer may gain a financial advantage or avoid a
financial loss at the expense of certain policyholders in
bad faith or has interests contradictory to the interests
of the policyholder (e.g. in the context of a product
remuneration model for its employees or tied intermediaries). In
case conflicts of interests cannot be avoided despite the necessary
organizational safeguards being in place, the occurrence of
conflicts of interests must be adequately
disclosed by describing the specific conflict of interests
to the insureds in standardized and electronic form, provided that
such information is durably accessible.
5 Investment of Assets and Tied Assets
The revised rules of the ISO contain new principles regarding
the insurer’s investment of assets and the requirements
regarding tied assets. In particular, insurers may choose to
request FINMA to approve an expanded list of assets which
may be included in the pool of tied assets further to those
specified in article 79 ISO.
The revised rules of the ISO are expected to result in updates
to the FINMA Circular 2016/5 with the further
requirements on investment rules for direct insurers and the assets
belonging to the tied assets. For instance, the amended rules of
the ISO on how derivatives transactions and collateral assets are
accounted for in the tied assets (according to articles 91, 91a and
91b ISO) and the new FINMA competences in reorganization
proceedings applicable to insurance companies will result in
updates to the relevant Master Agreement for OTC derivatives
transactions.
For the insurance business conducted through foreign branches,
the insurer is no longer permitted to set-aside tied assets in
Switzerland. The insurer must comply with this prohibition by 30
June 2024.
6 Captives and Insurers intending to benefit from Wholesale
Exemption
To the extent its business is limited to intragroup
direct or reinsurance, it may benefit as a captive from
exemptions. To make use of such exemptions, the insurers will have
to notify FINMA accordingly within six months of the entry into
force of the new ISA.
The same applies to an insurer intending to benefit from the
exemptions available for offering policies only to
professional policyholders (wholesale exemption),
which results e.g. in the absence of a requirement to set-aside
tied assets.
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