On 8 May 2014, KPMG hosted its Spring iCircle event in Zurich. Around 90 guests from the Swiss insurance community heard three speeches and participated in a podium discussion on the regulatory challenges facing the industry.
Swiss Insurance: over-regulated or overwhelmed?
After a short introduction from KPMG’s head of insurance, Hieronymus T. Dormann, Urs Berger, President of the Swiss Insurance Association, opened the proceedings with a speech which asked the provocative question “Swiss Insurance: over-regulated or overwhelmed?”. Mr Berger stressed the importance of insurance to the Swiss economy, employing as it does about 49,000 people. Mr Berger painted a picture of multiple regulatory initiatives from various different agencies, all of which may have a significant impact and all of which are causing strain within insurance companies. Moves to increase consumer protection, to improve the stability of the market and to change the supervisory regime – all of these signal trends that were reiterated during the event, namely:
- the adoption of international standards by Switzerland
- the spill-over-effect of banking law into the insurance domain
- strengthening consumer protection laws
- the threatened nationalization of insurance
Mr Berger argued for an overall regulatory strategy, reflecting the principle that companies should be free to develop their own specific rules within general principles laid down by the regulator and the government. Further he spoke of the need to distinguish between the business models of the banks and the insurers; the cost and benefits of any tightening of the legislation need to be considered, arguing it would be quite wrong to introduce precipitously European style laws into Switzerland.
Challenges for smaller insurance companies
Pascal Forrer, Director of Schweizer Hagel, talked of the impact of this wave of legislation from the perspective of a smaller insurance entity. In particular, he focused on the required increase in documentation, the focus on the rigid application of laws without considering how best these should be tailored to the particular requirements of a company, the need for more controls and the cost of more comprehensive reporting. Having stressed the benefit of having a strong regulator in Switzerland with which open communication is still possible (compared to his experience in some foreign markets), he too warned of the rising costs of complying with increasingly complex regulation.
The impact of international regulation on the Swiss insurance industry
In my presentation, I sought to show how the increasingly international nature of regulation was affecting the Swiss scene: in particular the growing powers of supra-national bodies such as the International Association of Insurance Supervisors. Standards of supervision and insurance risk management are being set at the global level and FINMA will comply with these in order to retain its position as a globally respected supervisor. The wave of consumer protection legislation from the EU provides opportunities but also poses challenges for distribution units, compliance departments, product development, and as such is a subject for urgent Board level consideration.
An interesting panel discussion pulled all of these threads together – once more emphasizing the challenges being faced with many participants concerned about the cost and complications that regulations posed in a market that seemed to have avoided many of the scandals that the banks and European peers had experienced.