This country-specific Q&A gives a pragmatic overview of the law and practice of insurance & reinsurance law in the Sweden.
It addresses topics such as contract regulation, licensing, penalties, policyholder protection, alternative dispute resolution as well as personal insight and opinion as to the future of the insurance market over the next five years.
This Q&A is part of the global guide to Insurance & Reinsurance. For a full list of jurisdictional Insurance & Reinsurance Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/insurance-reinsurance
How is the writing of insurance contracts regulated in the jurisdiction?
Freedom of contract is part of the foundation of Swedish contract and insurance contract law, meaning that two parties are free to enter a contract of their own wording, without interference from the legislator. However, there are numerous exceptions to this rule; especially so within the field of insurance law. Generally speaking, though, exceptions target the parties’ general obligations towards each other, and does not interfere with the insurers’ right to construct insurance products, which follows from the product freedom principle.
As often is the case, the regulation targeting consumer relationships is the most strongly biased towards using mandatory law and control over policy wordings; one notable exception to the freedom of contract principle is the insurers’ duty to accept consumer insurance and personal insurance contracts. Even if freedom of contract is stronger in commercial insurance relationships, numerous exceptions, such as mandatory law requiring the policyholder to provide certain information to the insurer or mandatory law preventing insurers from precluding indemnification except for certain situations, still apply.
Freedom of contract and product freedom aside, insurance contracts are regulated in the Insurance Contracts Act (SFS 2005:104), unless they are deemed null because they, for example, cover a non-insurable interest, such as a criminal act. In contrast, there is no specific law that regulates the content of reinsurance contracts, which instead falls under the more general Contracts Act (SFS 1915:218) and other general principles of Swedish contract law.
Following the product freedom principle, insurers are free to construct insurance products without the legislator’s interference, unless such interference is necessary to protect a special social concern. This means that there are no prohibitions on coverage, except those regarding illegal interests, and that there, for example, are no minimum coverage provisions in the Insurance Contracts Act, though there are specific mandatory insurances that are governed by special legislation, such as patient insurance and motor vehicle liability insurance. However, in practice, insurers usually mirror the wording of the Insurance Contracts Act, since the said act will apply instead of any contractual provisions that are less favourable to the insured than those of the said act.
Are types of insurers regulated differently (i.e. life companies, reinsurers)?
Reinsurers are not specifically regulated in Swedish law, but instead fall under general legislation, such as the Contracts Act and Swedish Sales Act (SFS 1990:931), depending on the particular issue.
Life and non-life insurers’ business is primarily regulated in the Swedish Insurance Business Act (SFS 2010:2043), with separate rules regarding the life and non-life insurance companies’ business pursuits. Rules regarding, for example, the companies’ capital and solvency requirements take the specific needs of the different types of insurance companies and the needs of their respective customers into account, in order to provide the best possible conditions for both insurers and customers.
Are insurance brokers and other types of market intermediary subject to regulation?
All individuals or companies who undertake professional insurance mediation activities in Sweden are subject to regulation, such as the Insurance Mediation Act (SFS 2005:405) and the Insurance Mediation Ordinance (SFS 2005:411). The establishment, operations and supervision of insurance intermediaries' businesses are also governed by several regulations, recommendations and guidelines issued by the Swedish Financial Supervisory Authority (FSA).
Please note that the Directive (EU) 2016/97 (the Insurance Distribution Directive or "IDD") will be implemented through the new Insurance Distribution Act. The new act is proposed to enter into force on 1 October 2018, with the Insurance Mediation Act and Insurance Mediation Ordinance consequently being repealed as of the same date.
Is authorisation or a licence required and if so, how long does it take on average to obtain such permission?
All insurers who carry out insurance activities in Sweden must be authorised by the FSA, except for EEA insurers operating on the basis of authorisations obtained in their country of domicile.
To obtain authorisation, an insurance company’s application must include detailed information about the applicant, its ownership and control, Articles of Association, organisation description, business plan, capital base, its central functions, such as actuary, compliance and risk management, as well as insurance technical guidelines regarding debt coverage, money laundering, executive pay, and investment guidelines.
The FSA deals with authorisation applications within five months of receipt. If requested, the FSA may also give an advance ruling on whether or not the particular business is subject to authorisation. Such advance ruling is binding for the FSA and may be appealed by the applicant to the administrative courts.
All insurance intermediaries, except tied insurance intermediaries, must also be authorised by the FSA. To obtain authorisation, an intermediary’s application must, inter alia, include detailed information about the legal or physical person applying for authorisation as insurance intermediary and, if applicable, its management personnel and employees. The information that shall be provided shall, inter alia, include details about financial strength and appropriateness as well as an assurance that all relevant persons have sufficient experience and knowledge for their respective positions.
With the entering into force of the new Insurance Distribution Act on 1 October 2018, no major changes to the authorisation and license requirements above are proposed. However, under the Insurance Distribution Act, only tied insurance intermediaries distributing non-life insurance products will be exempt from the authorisation requirement.
Are there restrictions over who owns or controls insurers (including restrictions on foreign ownership)?
There are rules governing both how transactions regarding larger shares of capital or voting rights in insurance companies can be conducted, as well as who is allowed to acquire shares over certain sizes. It is therefore required to get the FSA’s approval before:
- directly or indirectly acquiring 10 % or more of the share capital or voting rights of an insurance company, or otherwise acquiring the ability to materially influence an insurance company’s management,
- increasing the shareholdings in an insurance company to more than 20 %, 30 % or 50 % of the company's share capital or voting rights, and,
- turning the insurance company into a subsidiary to another company.,
The FSA will approve the acquisition if the acquiring party is deemed fit and proper and the acquisition is financially sound.
In its assessment, the FSA considers several factors, such as the acquirer's reputation, financial strength, and possible connections to money laundering or terrorist financing. Applications are typically handled within 60 to 80 days of receipt. The FSA can oppose the acquisition or change in control if there are reasonable grounds to do so.
The FSA's approval is not required for acquisitions or increases in control of non-EEA insurers that are active on the Swedish market, although such insurers must notify the FSA of the proposed acquisition or change in control.
There are no restrictions regarding foreign ownership.
Assessment of Ownership’s Management
A company having a qualifying holding in an insurance company under the FSA’s supervision shall notify the FSA, which then will assess the person’s experience and knowledge, when any of the following persons are appointed or changed:
- chairman, member or alternate member of the board, or
- executive director or his/her representative.
If such a person is a foreign citizen, the FSA will contact the relevant competent authority in that country to get necessary additional information. There are, however, no restrictions regarding foreign ownership or management, other than the residence requirement in the Swedish Companies Act (SFS 2005:551), requiring at least half of the board of directors to reside within the EEA.
Is it possible to insure risks without a licence or authorisation? (i.e. on a non-admitted basis)?
The main rule is that an insurer must be authorised by the FSA to be able to insure risks. However, insurers and reinsurers domiciled in other EEA countries, who carry out insurance operations in Sweden through an established branch, agency or on a freedom-of-services basis, are regulated by the regulatory authority of their respective countries of domicile. They do therefore not need to be authorised by the FSA, though they must still notify the FSA of their activities.
What penalty is available for those who operate without appropriate permission?
If an insurer or reinsurer falling under the FSA’s supervision fails to comply with the legal requirements, the FSA may:
- order the insurer/reinsurer to take corrective actions,
- impose limitations on (or prohibit) the disposal of the insurer's/reinsurer's assets in Sweden,
- impose fines up to SEK50 million, or
- revoke the authorisation to carry out insurance business. If the authorisation is revoked, the insurer may also be forced to enter into liquidation.
If an entity carries out insurance business without authorisation, the FSA can order the entity to cease its activities under penalty. Any ‘insurance contracts’ issued by such an entity are also deemed unenforceable, making the entity liable to return any received money as well as compensating any losses suffered by the ‘insureds’.
How rigorous is the supervisory and enforcement environment?
Since the implementation of the Solvency II-directive, insurance companies operating on the Swedish market are operating in an increasingly tougher supervisory and enforcement environment. This is evident in the FSA’s choice to, inter alia, withdraw several insurance companies’ licenses, such as Aspis Liv Försäkrings AB’s in 2009 and E.N. Sak Försäkring i Europa AB’s in 2011.
The FSA has in its latest report also concluded that there generally are deficiencies in insurance companies’ practical management of surplus, as well as articulated that a current area of focus is how life insurance companies handle the current low-rate environment. The FSA is in other words active in its role as supervisory authority, working both proactively, by informing and educating insurance companies and the market alike, and reactively, by sanctioning illegal behaviour.
How is the solvency of insurers (and reinsurers where relevant) supervised?
In addition to the insurers’ own supervision and their self-reporting-obligations, the FSA supervises insurers’ and reinsurers’ solvency through risk assessments based on the state of the financial markets and the financial system as a whole, as well as continuous risk assessments of individual insurance companies. The monitoring of individual companies focuses on governance and risk management, capital situation, products and behaviour toward customers, and is based both on the information that companies are obligated to report to the FSA themselves, as well as carrying out their own investigations by reviewing random sample groups and following up tips about irregularities.
What are the minimum capital requirements?
The minimum capital requirement is the amount of eligible basic own funds below which it is less than an 85 % probability that the insurance company have enough funds to cover its undertakings towards policyholders and beneficiaries in the coming 12-month period. Meeting this capital requirement is an essential requirement for an insurance company to continue its insurance business. If an insurance company fails to meet the minimum capital requirement, the insurance company must immediately notify the FSA of the said failure.
Is there a policyholder protection scheme?
There are no general policyholder protection schemes in Sweden. However, there are, in addition to preventive rules, such as the capital requirements and the management’s experience and knowledge requirements, protective measures available. Two examples of such protective measures are 1), rules stating that a life insurance company that is the subject of insolvency proceedings, is put into liquidation or is otherwise in a state of insolvency, shall try to transfer the insurance portfolio to one or several other insurance companies; and 2), that policyholders’ claims are given special preferential treatment in insurance companies’ assets.
How are groups supervised, if at all?
Swedish group supervision legislation aims to ensure the policyholders’ protection, regardless of an insurance company’s corporate structure. The group supervision rules are a complement to the regular supervision rules, meaning that an insurance company that is part of a group will be subject to both group supervision and individual supervision.
If a group is active in several EU member states a supervisory authority shall, as a general rule, be appointed ‘group supervisor’. It is generally the supervisory authority in the member state where the group head is established or where the group company with the largest balance-sheet total is established, that is appointed group supervisor. The group supervisor’s purpose is to cooperate with the other competent supervisory authorities and coordinate any necessary supervisory measures. The group supervisor’s supervisory measures are generally directed towards the company heading the group, though the financial conditions of the whole group, even companies established outside the EU, are taken into consideration, by requiring the group head to present a consolidated solvency balance sheet.
Do senior managers have to meet fit and proper requirements and/or be approved?
Certain persons in senior management have to meet fit and proper requirements. This means that an insurance company under the FSA’s supervision shall notify the FSA, which then will assess the person’s experience, knowledge and reputation, when any of the following persons are appointed or changed:
- chairman of the board or his/her representative,
- members and alternate members of the board,
- the CEO or his/her representative, and
- the manager responsible for central functions (risk management, compliance, internal audit and the actuarial function).
Are there restrictions on outsourcing parts of the business?
An insurance company may outsource parts of the operations to an external service provider. The board of directors and the CEO are solely responsible for the outsourced activities. The board of directors or the CEO shall, as part of this responsibility, draw up internal guidelines as to which licensed operations, or operations that have a natural connection with such operations or their support functions, may be outsourced, as well as the manner in which such outsourcing operations shall take place. To the board of directors’ help, the ICC has recently presented its new Principles and guidelines for outsourcing in the financial industry, which lays down practical recommendations and advice on how to best plan, negotiate and execute an outsourcing operation.
If an insurance company intends to outsource a significant part of the licensed operations, or activities that have a natural connection with these operations or their support functions, the company should notify such intentions to the FSA in advance.
How are sales of insurance supervised or controlled?
The primary supervision and control is performed by the FSA. However, there is also an indirect supervision and control performed by different ombudsmen and other competent bodies, such as the Consumer Ombudsman and the National Board for Consumer Disputes, as well as several sectoral bodies, such as, but not limited to, the Board for Insurance of Persons, the Board for Bodily Injury Liability Insurance and the Board for Legal Protection Insurance Issues.
Are consumer policies subject to restrictions? If so, briefly describe the range of protections offered to consumer policyholders.
The Insurance Contracts Act provides far-reaching consumer protection as its provisions are mandatory to the benefit of the insured. Even where the term of an insurance contract does not directly violate the Insurance Contracts Act, the courts may at their own discretion set aside any contractual provisions or interpretations of such contractual provisions if the court deems them to be manifestly unreasonable under the general Contracts Act, even if such decisions are rare in insurance cases.
Since the Insurance Contracts Act is very beneficial to the insured, insurers do not tend to provide any additional customer protections in insurance policies. However, in practice, insurers sometimes waive some of their rights or settle the claim in a way that is more beneficial to the insured than what follows from the policy.
Are the courts adept at handling complex commercial claims?
The courts are, generally speaking, adept at handling complex commercial claims. However, the bigger city courts are, quite naturally due to the larger volume of cases being decided and thereby the increased experience gained by the courts, better suited at handling larger complex commercial claims.
Is alternative dispute resolution well established in the jurisdiction?
Both mediation and arbitration are actively used as means of settling disputes between parties.
What are the primary challenges to new market entrants?
Actors wanting to break into the Swedish insurance market will face several challenges, where the two biggest hurdles to a successful market entry probably will be compliance and competition. Insurance regulation is an ever-growing plethora of legislation, and seems to be growing faster now than ever, with both national and EU-wide rules and regulations continuously being implemented. The competition is also very tough, as the Swedish market is saturated with a few, large actors sharing the vast majority of the market.
To what extent is the market being challenged by digital innovation?
Digital innovation forces insurance companies to redefine how to conduct insurance business and what the primary risks are. With the last couple of years’ surge in both amounts of data available and the sophistication of the tools to analyse and exploit the said data available, insurance companies face both new opportunities and new risks. The insurance market is therefore greatly challenged by digital innovation, with Big Data and easy-to-use analytical tools probably being two of the more eagerly anticipated challenges to master at the same time as cyber risks are one of the current top emerging risks, which, together with regulatory challenges, most notably in the form of the General Data Protection Regulation entering into force next year, will probably prove a litmus test for which insurers – old and new – will adapt enough to not only survive, but thrive in this new digital landscape.
It is therefore important that insurance companies look over their willingness to adopt new technology and be open to new ways and ideas. Depending on how far insurers will be pushed to digitalise their business offerings and their models for selling insurance products and indemnifying policyholders, it is also not hard to see how this opens up the field for cyber-based newcomers and other tech-savvy players.
Over the next five years what type of business do you see taking a market lead?
The increased digitalisation as well as the changing environment’s impact on the number of nature-related claims and size of the said claims, two of the strongest businesses for the coming 5 years will most probably be cyber risks and environmental risks. Not only will cyber risks and environmental risks be important areas of business over the next five years, but they are also two areas with the potential to change the very nature of how insurance is sold and consumed in the future.