From January 1 1996, the system of standard tariffs for motor vehicle liability insurance has been replaced by the latest revision of the Federal Law on the Supervision of Private Insurance Companies (Insurance Supervisory Law, ISL). This revision abolished a 20 year-old mandatory system of a single standard tariff for all motor vehicle liability insurers in Switzerland. Now, motor vehicle liability insurers are free to fix a tariff, thereby becoming a non-restricted insurance business.
The amendment is based on the Swiss government's aim to make the Swiss direct insurance business more liberal and compatible with the EU. The first major revision of the ISL entered into force on January 1 1994 as a part of the government's so-called Swisslex programme to reform the Swiss economy following the country's decision not to ratify the Treaty on the European Economic Area in December 1992. Based thereon, the requirements for authorization to carry on business as a direct non-life insurer have been liberalized and now correspond to a large extent to the European Coordination Regulations. Even the requirement that the supervisory authority approve tariffs and general policy conditions for mass risks (with the exception of risks such as force majeure and illness) has been repealed.
Direct non-life insurance business is governed by the Federal Law on Direct Insurance Other than Life Assurance (Non-life Insurance Law, NLIL), effective January 1 1993, and the Decree on Direct Insurance Other than Life Assurance (Non-life Insurance Decree, NLID), effective October 1 1993. The Treaty on Direct Insurance Other than Life Assurance concluded between the EU and Switzerland on June 6 1992, effective January 1 1993, allows free establishment of agencies and branches of foreign insurers with head offices in EU member states (EU insurers) in Switzerland and vice versa. Based on that treaty, EU insurers no longer need to pay an initial deposit. Instead, the supervisory authority of the head office country must, among other things, attest to the existence of sufficient financial resources to cover the cost of Swiss agency or branch operations (Article 6, NLIL). Nonetheless, the technical reserves of the Swiss portfolio still have to be covered by so-called tied assets (Article 8, NLIL; Article 13, NLID). All foreign non-life insurers with head offices outside the EU must still pay the initial deposit and may have to meet further authorization requirements (the establishment of a guarantee fund and of an organization fund, establishment of assets equal to the solvency margin, calculated in respect to the Swiss portfolio, coverage of the technical reserves; Article 7, NLIL).
Authorization for a direct non-life insurance company has to be sought from the Federal Department of Justice and Police; thereafter, the insurer's whole business is subject to the permanent supervision of the Federal Office of Private Insurance (FOPI). A separate authorization is obligatory in each class of non-life insurance business (for example accident risk, all damage to or loss of aircraft, credit risk, insurance for legal expenses; Articles 3, 7, and 18, ISL; Article 1, NLID). Insurers are still prohibited from engaging in activities unrelated to insurance: banking, debt collection and fund investment (Article 12, ISL).
The NLIL also contains rules on transnational services of non-life insurers which would allow the insurers to operate in Switzerland without establishing a Swiss branch or agency (Article 7 et seq NLIL). Because the ISL and the NLIL are based on the principle of reciprocity, these rules are applicable only within the framework of an international treaty. Thus, in the absence of a treaty basis, foreign insurers are not allowed to operate direct insurance business in Switzerland from their offices abroad and vice versa. To date, no such treaty has been concluded. Therefore it is still necessary -- even for EU insurers -- to establish an agency or branch in Switzerland and obtain authorization for direct insurance operations in Switzerland.