Switzerland: Sickness Insurance
Lloyd’s underwriters are not authorised to write Class B2 Sickness insurance for risks located in Switzerland, except if it is written on an incidental basis (as defined by FINMA) to certain other non-life classes.
Under the Swiss Insurance Supervisory Ordinance (ISO) 2005, an insurer that is authorised to write a non-life class of insurance is also authorised to transact insurance for non-life classes B1-B13, B16 and B18 as a complementary (incidental) class if the following criteria are met:
- The incidental risk is related to the primary risk or relates to the property that is insured against the primary risk; and,
- The incidental risk is covered by the same contract that covers the primary risk.
On occasions, Lloyd’s has received enquiries regarding how a risk is determined as being incidental, i.e., under what threshold will it be considered as such? Lloyd’s has recently received legal advice on Swiss Sickness business which addresses this question. The advice states that whilst there is no written rule on this point, it is FINMA’s unwritten rule that a premium apportionment of two thirds to the primary risk and one third to the other part of the risk will deem the latter to be incidental. A premium apportionment of slightly more than one third to the other part of risk may deem it to be incidental as well, but only if a close review does not reveal that that part of the risk needs to be given additional weight.
Lloyd’s is aware that, in the Lloyd’s market generally, Sickness cover is often provided to cover loss of the insured’s income in the event of an insured event. The legal advice received by Lloyd’s also addresses this issue. The definition of Sickness cover as listed in Annex 1 of the ISO refers to “one-time benefits, recurring benefits and combined benefits”, i.e., claim payments that are lump sums, regular payments or a combination of the two. This means that where sickness is an insured event on a policy, it will be categorised as Class B2 Sickness business and not as Class B16 Miscellaneous Financial Loss, regardless of the method by which claim payments are made. This business may only be written on an incidental basis as outlined above.
In order to ensure that the Sickness cover provided complies with the above requirements managing agents are advised to review their insurance products where;
- there is an element of Sickness cover, and,
- the policyholder is domiciled or resident in Switzerland or the contract insures a person domiciled or resident in Switzerland.
Such a review should include products underwritten by service companies, by coverholders and via master policies.