Business with professional policyholders – regulations from 1 January 2024

In accordance with Article 30a para. 1 of the Insurance Supervision Act (ISA), the insurance company must submit an application to FINMA stating which insurance sectors and categories of professional policyholders the application is being made for. A further application should also be submitted for business plans K (Art. 4 para. 2 let. k and Art. 5 para. 1 ISA) and if applicable D (Art. 4 para. 2 let. d and Art. 5 para. 2 ISA). The technical provisions covering the professional policyholders for whom the exemptions under Article 30 a ISA are being claimed must be created and managed separately. If this means changes are needed to business plan form D or its technical annex, this should be submitted together with the application for exemptions. Otherwise an explanation needs to be given as to why no changes are needed.

An insurer may conduct business with both professional and non-professional policyholders. However, the business must be reported separately and appropriate steps must be taken to ensure the differing statutory requirements are met at all times (cf. Art. 4 para. 2 let. k ISA). The same applies to mandatory insurance in accordance with Article 30a para. 4 ISA. The insurer must disclose information on its compliance with these requirements if requested by FINMA and the auditors at any time.

Insurance companies may not claim any of the exemptions listed in Article 30a para. 1 ISA for professional policyholders in relation to mandatory insurance that could result in contractual or legal claims by non-professional policyholders (Art. 30a para. 4 ISA).

Article 30a para. 2 ISA does not provide a separate definition of who is deemed to be a professional policyholder and instead refers to Article 98a para. 2 lets. b-g of the Insurance Contract Act (ICA), leaving out occupational pension schemes, which are enumerated in letter a of Article 98a. Therefore the criteria for classifying professional policyholders are not in complete agreement in the ISA and ICA.

In accordance with Articles 30b and 30c ISA, insurers are required to establish the status of professional policyholders, and inform customers of this, before concluding a contract. The exemptions under Article 30a para. 1 ISA are therefore by their nature intended for new business. But it is also possible for new contracts to be concluded with existing customers or a new contract to be offered to those who qualify as professional policyholders. The disclosure, classification and documentation obligations for professional policyholders must be met in the course of the offer process, as in accordance with Article 111c para. 2 of the Insurance Supervision Ordinance (ISO), new contracts or significant amendments to a contract are also defined as concluding a contract within the meaning of Article 30b ISA.

The insurer may take account of the fact that customers in the insurance industry may use brokers for certain tasks, for example with regard to the question of whether customers have adequate risk management. In accordance with Article 111c para. 1 ISO, these responsibilities may also be conferred on an external party. In this case the insurance company must investigate and document the role of third parties or brokers to ensure that the responsibilities are allocated properly and the third party is competent to fulfil them. Merely stating that a broker is being used is insufficient.

The insurance company is therefore permitted to use third parties to perform classification, documentation and disclosure obligations. However, the responsibility for correct implementation remains wholly with the insurer. Delegating such obligations may constitute outsourcing in accordance with Article 4 para. 2 let. j and Article 5 para. 2 ISA, which is subject to approval by FINMA.

FINMA expects the insurer to be prepared for changes in status and be able to make the necessary changes quickly to ensure the legal requirements are met. The insurer must take account of this in the contractual agreement with the customer. Therefore the necessary arrangements need to be made at an operating level to achieve this, e.g. to transfer the customer to a portfolio where they can again benefit from coverage by tied assets. If the exemptions for professional policyholders are to be utilised, the insurance company must ensure that the category does not include any contracts that are not qualified for this status (cf. Art. 4 para. 2 let. k ISA and Art. 30a paras. 3 and 4 ISA). The emphasis is on reviewing the status of policyholders at a contract renewal. However, there are also other options that can be implemented relatively easily to monitor customer status effectively. Customer contact beyond the signing of the contract can provide an opportunity to review status, e.g. if policyholders have to provide information periodically on their business activities.

In accordance with Article 111c para. 2 ISO, any significant amendment to the contract is deemed to be concluding a contract within the meaning of Article 30a ISA. This applies particularly to changes in insured risks or benefits and the other elements set out in Article 3 ICA that constitute significant components of the insurance contract. Any change in this area is material and means that the status of the insurance policyholder needs to be reviewed again (cf. Article 30b ISA).

A captive submits an application to FINMA with business plans K (Art. 4 para. 2 let. k and Art. 5 para. 1 ISA) and, if applicable, D (Art. 4 para. 2 let. d and Art. 5 para. 2 ISA) and specifies the lines of business for which exemptions are requested from the supervisory authority. The business plan form K must show how the captive insurance and reinsurance business is segregated from any third-party business in accordance with Article 30d para. 3 ISA and whether the insurance contracts concluded could result in claims by non-professional insurance clients under mandatory insurance in accordance with Article 30d para. 4 ISA. Business plan form D must show how the technical provisions, including segmentation for captive business, for which Article 30d para. 1 ISA applies, are created and managed. Exemptions pursuant to Article 30d ISA can only be applied after a change to the business plan K (and possibly D) has been approved. The clarification, documentation and disclosure obligations vis-à-vis clients pursuant to Articles 30b and 30c ISA do not apply to captive insurance and reinsurance.

A reinsurance company does not need to obtain authorisation from FINMA to benefit from the exemptions under the ISA. These already apply automatically. None of the obligations under Articles 30b and 30c ISA apply to a reinsurance company that solely engages in reinsurance (cf. Art. 35 para. 1 ISA).

A financial intermediary under the Banking Act (BA) in accordance with Article 98a para. 2 let. b ICA or an insurance company under the ISA in accordance with Article 98a para. 2 let. c ICA is treated as a professional policyholder if it is an institution that holds a licence under the relevant financial market legislation and is supervised by FINMA. If an institution is permitted to conduct business in a sandbox without supervisory authorisation, then it is not supervised by FINMA. To qualify as a professional policyholder in such cases, the entity must either have professional risk management or meet the financial size criteria applying to professional policyholders.

In accordance with Article 90a paras. 1 and 2 ISA, an insurer that wishes to utilise the exemptions for business with professional policyholders is required to report this to FINMA within six months of the legislation entering into force. This is considered an administrative (non-binding) deadline under Swiss law. It is designed to quickly create clarity about which of the insurance companies active today want to utilise these exemptions. FINMA will continue to accept applications for exemptions with respect to business with professional policyholders even after expiry of the deadline.