Insurance law and regulation in Switzerland

1. Introduction

Since Switzerland is not part of the EU or EEA, insurance companies with their domicile in any EU or EEA member state may not conduct business through a branch office or cross-border on the basis of the EU passport principle and home state regulator regime (with exceptions for the Principality of Liechtenstein). Therefore, insurance companies domiciled abroad intending to engage in insurance activities in or from Switzerland require authorisation from the Swiss Financial Market Supervisory Authority (FINMA) to do so.

Swiss insurance law is currently being revised. In particular, the Swiss Insurance Contract Act ("ICA"; Versicherungsvertragsgesetz), which regulates the relationship between insurance companies and policy holders and insured, has been revised. Various changes have entered into force on 1 January 2022. The following presentation reflects that new situation. 

The most important changes concern, among others, (i) the conclusion of the insurance contract (including the introduction of a right of withdrawal), (ii) termination rights, (iii) limitation provisions, and (iv) direct claims rights for third-party liability insurance. The law is also adapted to the requirements of electronic commerce.

The Swiss Parliament is currently also discussing amendments to the Swiss Insurance Supervision Act ("ISA"; Versicherungsaufsichtsgesetz). The partial revision concerns in particular the following amendments: (i) introduction of a restructuring regime, (ii) expanded possibilities for insurers to be fully or partially exempted from supervision if adequate customer protection is ensured, (iii) extension of supervision possibilities, and (iv) amendments of  the provisions on insurance intermediaries.

The Federal Assembly passed the legislative proposal in the final vote on 18 March 2022. The consultation procedure on the implementing provisions ended in September 2022. The revised ISA is expected to enter into force in the 3rd quarter of 2023.

An insurance activity in Switzerland exists, regardless of the type of contract and where it is concluded, if:

  • a natural person or legal entity domiciled in Switzerland is among the policyholders or insured persons or if
  • property located in Switzerland is insured.

A foreign insurer can establish a Swiss branch office if it is licensed to undertake insurance activities in its home country. To qualify for a licence from FINMA, the foreign insurer must meet the respective requirements, including minimum capitalisation, adequate solvency margins and various personal requirements for the staff members. It must further appoint a fully authorised representative who must reside in Switzerland and manage the business of the branch office.

A few narrow exceptions apply to this general rule for insurance companies domiciled abroad with no Swiss branch office: mere reinsurance activities conducted in Switzerland, mere insurance of marine, air transportation, international transports and war risks as well as risks located abroad.

Under another exception, which is in practice hardly relevant, an insurance business which engages in insurance activities in Switzerland which are of little economic importance or which affect only a small group of insureds may, if the specific circumstances justify, be exempted from supervision by FINMA.

2. Effect of misrepresentation and/or non-disclosure

Based on questionnaires presented by the insurer, the insured is obliged to disclose to the insurer all facts of which he or she is aware or ought to be aware and that are material to the assessment of the risk to be insured. Both the questioning and the disclosure shall be in writing or in another form that allows proof by text. All facts which the insurer unambiguously asks for are deemed relevant for the assessment of the risk and are, therefore, subject to disclosure.

If the insured fails to inform the insurer about such material facts, or if the insured makes misrepresentations about such material facts, the insurer may terminate the contract by notice in writing or in any other form which provides proof by text. The right to terminate the insurance contract expires four weeks after the insurer has become aware of the non-disclosure of the insured.

If the insurer terminates the contract, its obligation to indemnify any losses that have already occurred ceases, provided that the non-disclosed material fact caused or increased the loss. If the insurer has already indemnified the insured, it is entitled to claim back the payments made (specific provisions apply to life insurance). In the event of termination, the premium already paid has to be refunded by the insurer on a pro rata temporis basis. 

Where the non-disclosure or misrepresentation only relates to a specific risk or person under an insurance contract covering several risks or persons, the insurance remains effective for the remaining part if it is clear from the circumstances that the insurer would have insured this part alone under the same conditions.

Under certain circumstances (e.g. if the insurer was aware of the non-disclosed facts), the insurer is not entitled to terminate the insurance contract, even though the insured made a material misrepresentation or failed to disclose material facts.

3. Effect of breach of warranty and condition precedent

The concept of warranties (in the UK sense) does not exist under Swiss law; a warranty clause e.g. in an English policy that is governed by Swiss law needs to be interpreted from a Swiss law perspective. According to the Swiss Insurance Contract Act, an insurer may e.g. exclude certain risks from cover. There is, in general, no requirement of negligence or causation for such exclusions. The Insurance Contract Act requires, however, that the exclusion is unambiguous (and any ambiguities will be construed against the insurer).

A condition precedent differs from an exclusion of coverage since it requires a certain behaviour of the insured. If e.g. the insured does not comply with duties/obligations stipulated in the insurance contract, the insurer can only deny coverage or limit its indemnification due under the insurance contract if the insured acted negligently. Further, the insurance contract act specifically requires a causal link between the non-compliance of the insured and the loss/damage in some situations. Therefore, even if a duty of the insured is styled as “condition precedent” (in the UK sense), the policy wording seldom provides a strong defence for insurers.

4. Consequences of late notification

Upon occurrence of the insured event, the insured is, based on the Insurance Contract Act, required to notify the insurer as soon as (i.e. ‘immediately after’) he or she becomes aware of the event.

If the insured negligently breaches such duty to notify the insurer, the insurer is entitled to reduce its indemnification to the hypothetical value of the loss, had the claim been notified on time. As this can be difficult to prove, the law allows the parties to agree in the insurance contract to reverse this burden of proof in the event of a negligent late notification.

Swiss law also allows defining other consequences for negligent breaches of duties of the insured, and in particular notification duties. Provided that the insurance contract is clearly worded and that the respective clause is covered by the parties' consensus, late notification may also result in the loss of the insurance coverage. As previously stated, however, such disadvantage shall have no effect if the violation according to the circumstances is not the result of the insured's negligence or if there is no causal link between the late notification and the damage in the situation at hand.

5. Entitlement to bring a claim against an insurer

The insured has a right to bring a claim under the insurance contract directly against the insurer. 

In addition, the amendment to the ICA introduced for indemnity insurance policies a right of claim for a damaged party or its legal successor against the insurer. Such direct claims are subject to the existence and limitations of the concerned insurance policies, i.e. the insurer can raise all objections and defences that it would have against the policy holder or the insured also against the damaged party that is raising the claim.

6. Entitlement to damages from an insurer for late payment of claim

According to the ICA, the payment of an insurer under the insurance contract is due no later than four weeks after the insurer received the necessary information to investigate and verify the respective claim of the insured. If the insurer disputes its obligation to pay, the person entitled to claim can demand partial payments up to the undisputed amount after expiry of the same four-weeks' period.

In case of a late payment, the insured is entitled to receive interest at 5% of the outstanding payment per year. If the insured can prove that he or she suffered any damages due to the late payment of the insurer, the insured may claim to be compensated for such damages in addition.

7. General rules concerning the limitation period for claims

The statutory limitation period for a claim against the insurer under the insurance contract is two years. The limitation period starts running on the date on which the insured event took place. In practice, the parties often agree on a longer limitation period (e.g. five years) for claims against the insurer under the insurance contract.

8. Policy triggers with respect to third-party liability insurance

The parties are generally free to agree on the trigger in the insurance contract. In particular, the parties are free to agree whether the policy trigger is the occurrence of the event that gives rise to the liability of the insured (occurrence-based policies) or the claim of the third party made against the insured (claims-made policies).

9. Recoverability of defence costs

The ICA does not explicitly address the recoverability of defence costs. Third party liability insurance contracts in Switzerland generally provide cover for defence cost (against covered claims against the insured). The cover for defence costs is usually limited to reasonable and necessary costs and expenses, which are incurred with prior written consent of the insurer.

10. Insurability of penalties and fines

According to the prevailing view in Swiss case law and amongst Swiss scholars, penalties and fines are not insurable. If an insurer provides cover for penalties and fines such cover may, thus, be null and void. Further, the insurer takes a risk that such cover is regarded as a criminal offence (assisting/encouraging offenders).