The Federal Office of Private Insurance FOPI monitors the business operations of private insurance companies: life insurance, accident insurance, insurance against damage and re-insurance. It grants approval for business operations, checks and approves the insurance products for life and health insurance, checks annual reports, inspects the companies and deals with complaints, if any. Moreover, FOPI monitors, as a supplement to the control by the Federal Office of Public Health SFOPH, the accredited health insurances in view of the supplementary health insurance. Furthermore, since the beginning of 2006, insurance intermediaries have been subject to supervision by the FOPI. In addition, the FOPI participates in the drafting of legislation and international agreements in the area of private insurance.
I. Private insurance supervision in Switzerland
1. Scope of supervision
Insurance supervision is responsible for companies set up under private law, which engage in the business of insurance in Switzerland, except for foreign insurance institutions that conduct reinsurance business only in Switzerland and certain pension funds.
Concerning health insurance, the following rule has applied since the new Health Insurance Act came into force on 1 January 1996: whilst the Federal Department of Home Affairs DHA grants approval for implementing social health insurance, i.e. compulsory health care insurance and optional daily allowance insurance in accordance with the Health Insurance Act, approval for business operations in private health insurance, i.e. the supplementary insurances in accordance with the Insurance Contract Act, becomes the responsibility of FOPI. The supervision of supplementary insurances is the responsibility of FOPI.
2. FOPI activities
The task of FOPI comprises of granting approval for business operations and of directly monitoring the entire business operations of private insurance facilities subject to state supervision (Old Age and Survivors' Insurance, Swiss National Accident Insurance Fund and Military Insurance, to name a few, are not subject to supervision by FOPI). The business principles have to be examined from the technical, financial and legal viewpoints.
- FOPI checks the business principles of a private insurance company at first when handling the application for approval for business operations. FOPI grants approval if the insurance facility meets all legal requirements and in particular if it offers necessary guarantees relating to solvency, organisation and management.
- A considerable part of FOPI's activities involves the examination of annual reports to be submitted by the insurers. The report must be prepared using official report forms and must provide information about all parts of the business operation. It is the most important document for assessing the business standing of companies (solvency).
- One of FOPI’s tasks for protecting insured parties also involves examining elements of the business plans presented by insurance companies, in particular the basis for calculating the technical provisions and bonus systems, as well as the policy conditions and the premium rates. Policy conditions and premium rates may only apply after approval through the supervisory body: this covers group life insurance, all risks in supplementary health insurance, including invalidity insurance and insurance against damage caused by natural forces.
- A highly labour-intensive job for FOPI is that of monitoring the required legal collateral of the claims from policyholders. FOPI is legally bound to check insurance facilities at least once a year as to whether the nominal amount of the tied assets was calculated correctly and whether the allocated amounts at least correspond to the nominal amount, that they satisfy the investment specifications and that they actually exist. During these annual inspections, FOPI may also check policies and claims dossiers.
- In addition, the solvency margin should be examined. The solvency margin must ensure that the insurance institutions have sufficient free and unencumbered resources.
- Applications made to FOPI from third parties for information about the most diverse issues in the area of private insurance are numerous.
3. Organisation of the Federal Office of Private Insurance FOPI
At the moment the FOPI has approximately 90 members of staff. It monitors over 200 insurance companies, as well as monitoring supplementary health insurance in about 50 health insurance funds. In mid-2004 the Federal Office of Private Insurance FOPI introduced a new organisational structure. Up to that point, the monitoring teams were replaced by organisational units which were set up based on specialist criteria. These are responsible for non-life insurance, intermediary supervision, life insurance, group supervision, health insurance together with reinsurance and are each answerable to one of three sectors headed by members of the Management Board. The supervisory sections are supported by the Supervisory Development, the Legal Department, Accounting and Investments, along with International Affairs and Management Services which carry out Corporate Centre functions.
4. Costs of the insurance supervision
The insurance facilities bear the costs for insurance supervision (budget 2007: CHF 18,2 million) fully covered by taxes for which the office invoices annually.
II. The new system of supervision
1. The new orientation of supervision
The focus of supervision continues to be the protection of insured parties, and therefore on the protection of the interests of client and consumer. At the same time, the legislative power has deliberately pushed for a liberalisation of the insurance market in recent years, which allows insurance companies to stand their own ground also in an increasingly competitive international environment and to prove their attractiveness in global markets. In particular, the ongoing convergence of insurance and capital markets creates new challenges for direct insurers and reinsurers, but also for the development of international supervision.
The new Insurance Supervision Act (ISA) has paid particular attention to these challenges, especially to the supervision of the risks arising from these developments. FOPI has therefore targeted the question of how to tackle new actuarial and financial risks in advance. The goal is to develop a set of tools that pinpoint the risks relevant to the success of insurers early on (early warning system).
2. Quantitative and qualitative examination of the risks
Risk-based supervision takes these requirements into account. The Swiss Solvency Test (SST) constitutes the core of this – a new approach for ascertaining the ability of insurers to handle risks – their "security". In short, the SST determined a target capital that is necessary for an insurer to survive the risks assumed with adequate security. The Swiss Solvency Test primarily pursues two objectives:
- On the one hand, risk management in insurance companies should be promoted because just as important as the target capital is the path to achieve this.
- On the other, the target capital has the function of a warning signal: If the available risk-bearing capital is less than the necessary target capital, this does not entail the insolvency of the enterprise. Rather, either the necessary capital must be built up over a certain period of time, or the risks are to be correspondingly reduced.
In addition to the central questions of reserves and solvency, the new orientation establishes a further dimension of supervision, which has already been incorporated conceptually into the SST: the increased attention of supervision to the qualitative review of the various risks.
The corresponding models complementing SST are therefore deliberately embedded in an overall concept of comprehensive assessment of the general risk of management of the companies. These are dedicated to the organisational processes and primarily supervise the qualitative aspects of the overall organisation of an insurer. These submodels are also intended to motivate the companies to initiate ongoing internal improvement processes.
The key idea behind this model is self-supervision and self-assessment based on relevant requirements of the supervisory authority. The authorities will only intervene if the self-assessment leads to odd or strikingly different results compared with the general benchmark values based on experience. This form of qualitative supervision is especially suited to the processes of risk management, corporate governance, the provision of reserves, and the use of information technologies and can, as needed, also be expanded to other risk-relevant business processes.
3. The revised Insurance Supervision Act (ISA)
The new orientation of insurance supervision characterises the revised Insurance Supervision Act (ISA) which came into force on 1 January 2006. The main goals of the revision were to secure the long-term stability of the insurance companies and to improve the protection of insured parties:
- With the entry into force of the revised ISA, the Swiss Solvency Test (SST) will be introduced as the fundamental model for assessing the ability of insurers to handle risks. Transition periods are provided for the adjustment of the insurance-specific requirements to the results of the SST.
- The new Insurance Supervision Act replaces preventive product monitoring with stricter solvency monitoring. In the socially sensitive areas of occupational pensions and supplementary health insurance, the preventive approval of products will, however, continue unchanged.
- The requirements concerning transparency and the legal quote in the Life Insurance Act, which were adopted in the context of the second revision of the Federal Act on Occupational Old Age Survivors’ and Invalidity Pension Fund (BVG) and entered into force on 1 April 2004, are also part of the new ISA.
- The new ISA now makes insurance intermediaries subject to supervision. The priority goal is to establish a public register. Inclusion in this register is mandatory for all intermediaries who are not bound to an insurer (broker) and imposes various requirements concerning expertise and personal qualifications. The main motive for this change is the protection of consumers.
- The new Insurance Supervision Act creates the explicit legal foundation for specific supervision of conglomerates.
- The revision expands the supervisory responsibilities in the areas of corporate governance, transparency, and consumer protection. In particular, the information obligations of insurers are increased considerably.
- All insurance companies will now be required to designate a responsible actuary. The core responsibility of the actuary is to assess risks of the enterprise, especially with respect to the determination of rates and capital investments.
- Reinsurers will now be subject to the same solvency supervision as direct insurers.
- With an annual premium volume of about CHF 7,000 per capita (direct insurances without social contributions), Switzerland has the highest insurance density in the world.
- The premium volume of Swiss private insurance in 2005 amounted to CHF 122,3 billion overall (supervised companies and subsidiaries).
- The sector employed about 125,000 people in 2006, about 47,000 of whom worked in Switzerland.
- The number of providers has slightly decreased in 2006. As at 31 August 2006, 214 private insurance and reinsurance companies came under federal supervision (compared with 216 in the previous year). This is comprised of 23 Swiss life insurance companies, 4 foreign life insurers, 78 Swiss non-life insurance companies, 40 foreign non-life insurers, as well as 69 reinsurance companies. In addition, FOPI supervised the supplementary health insurance operations of a total of 47 health insurance schemes.