In November 2018 the Federal Council opened consultation for the partial revision of the VAG. Overall, the creation of a differentiated regulatory and supervisory framework aims to improve customer protection and strengthen the competitiveness of the Swiss insurance sector. The partial revision also incorporates the requirements of parliament resulting from deliberations on the Financial Services Act (FIDLEG), which are relevant for the adaptation of the rules of conduct towards policyholders. At this point in time, it is planned that the partially revised VAG will enter into force by end of 2023. It is noteworthy that the VAG revision goes hand-in-hand with the revision of the Insurance Supervision Ordinance (AVO) as well as the Insurance Supervision Ordinance of the Financial Market Supervisory Authority (AVO-FINMA); in addition, certain FINMA circulars will need to be adapted in the aftermath.
Customer segmentation as a basis for differentiated customer protection
The partially revised VAG now provides that the policyholder's need for protection must be decisive when determining the level of supervision and regulation. The bill, therefore, proposes the introduction of customer categorization: For example, insurance companies should benefit from simplified supervisory requirements (e.g. with regard to the required tied assets) if they only serve professional policyholders, such as large companies with their own risk management systems (and, therefore, no special need for protection). In addition, small insurance companies with particularly innovative business models may also be exempted from supervision, while safeguarding the protection of the insured.
The revised regulatory framework presented is unique internationally and, in addition to possible simplifications, it also means that there will be additional cost and effort for Swiss insurance companies: For example, the respective customer categories must be determined and documented on a case-by-case basis, with the result that an assessment of the risk management systems must be carried out for corporate customers. Particularly in the case of insurance companies with retail and professional customers, this is likely to result in considerable additional cost and effort in the area of compliance, since the customer bases must be kept separate permanently.
Comprehensive code of conduct for the life insurance sector
In order to create a "level playing field" for investment products, the partially revised VAG provides for a code of conduct for the sale of qualified life insurance policies that is analogous to the provisions of the Financial Services Act (FIDLEG). Accordingly, the experience and lessons learned from the implementation of FIDLEG can provide guidance for the partial revision of the VAG. The definition of a product as qualified life insurance, which means life insurance with investment risks, capitalization and tontine transactions, is decisive for the applicability of the conduct rules. As a first step, insurance companies must, therefore, check which of their products pose an investment risk to the policyholder.
When offering qualified life insurance, policyholders must now be provided with a key information document (KID) containing information, such as the type and characteristics of the insurance product, the identity of the insurer, the risk and return profile and the costs incurred. The KID shall be prepared by the insurance company itself or, where appropriate, by a qualified third party. However, insurance companies will remain responsible for the completeness and correctness of the content and the obligations associated with the KID. Accordingly, regular inspections and training of employees should be planned in a sensible way in the future.
Before recommending a qualified life insurance policy, the insurance intermediary must check whether it is appropriate with regard to the knowledge and experience of the policyholder. Specifically, insurance intermediaries must assess whether the customer has the knowledge and experience necessary to understand and assess the insurance product and the associated risks. Criteria for assessing the level of experience and knowledge of the policyholder are, for example, their age, education and professional situation. The implementation of this regulatory change is likely to result in a considerable need for action: Insurance companies must provide their intermediaries with information and documents to enable them to ascertain the policyholder's knowledge and experience of the relevant insurance product as required and to prepare the appropriate documentation for the adequacy assessment. In addition, insurance intermediaries must be trained regularly.
The bill provides for comprehensive information obligations vis-à-vis the policyholder and contains specifications for the content, time and form of the information. Firstly, these obligations include general information about the insurance intermediary, such as their name, address, education and training. Secondly, the specifics of the qualified life insurance policy that has been recommended must be outlined. In this regard, possible automated solutions to ensure that the necessary information obligations have been met and to facilitate the establishment of standardized documents should be considered. Advertising for qualified life insurance must be made identifiable as such and refer to the KID for the respective qualified life insurance and to where it can be obtained.