Insurance and reinsurance in Sweden: overview
A Q&A guide to insurance and reinsurance in Sweden.
The Q&A gives a high level overview of the market trends and regulatory framework in the insurance and reinsurance market; the regulation of insurance and reinsurance contracts; the corporate structure of insurers and reinsurers; and the regulation of insurers and reinsurers, including regulation of the transfer of risk. It also covers: operating restrictions for insurance and reinsurance entities, including authorisation/licensing requirements; reinsurance monitoring and disclosure requirements; content requirements for policies and implied terms; insurance and reinsurance claims; insolvency of insurance and reinsurance providers; taxation; dispute resolution; and proposals for reform. Finally, it provides websites and brief details for the main insurance/reinsurance trade organisations in Sweden.
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This Q&A is part of the PLC multi-jurisdictional guide to insurance and reinsurance. For a full list of jurisdictional Q&As visit www.practicallaw.com/insurance-mjg.
Market trends and regulatory framework
By comparison to international standards, the Swedish insurance market is a fairly small market, dominated by a few very large competing insurance companies. These companies have nationwide coverage and offer almost every kind of insurance available on the Swedish market. Most of the companies offer both personal and property and liability insurance. However, they are may be specialised to a greater or lesser degree. For instance, Folksam, Trygg Hansa and Länsförsäkringar offer mainly property and liability insurance, and Skandia, SEB Trygg Liv and SPP offer only personal insurance.
Following the international economic downturn in 2008 there has been some uncertainty on the Swedish insurance market. Before 2008, the Swedish market was considered a very attractive market for some of the global insurance companies. In the following couple of years, many of these international players chose to concentrate on other, perhaps larger, insurance markets and have been less interested in entering the Swedish market. Therefore, the Swedish insurance market has, during these years, become comparatively more domestic. An example illustrating this is Old Mutual's withdrawal from the Swedish market in 2011 by divesting Skandia which it acquired as late as 2005 by way of US$6.5 billion public offer. (As at 1 January 2012, US$1 was about EUR0.8.)
However, this trend is changing. Despite the very unclear economic situation in the EU, interest in the Swedish insurance market has grown again, with more and more interest from international insurers looking into Swedish business opportunities, perhaps as a result of the strong Swedish financial situation.
The insurance industry in Sweden can be divided into the public, private and labour market sectors. The public sector is by far the largest in volume. Public insurance comprises areas such as health, injury, unemployment, parental and public pension insurance. The main rules governing public insurance are established in the Act on Public Insurance (Socialförsäkringsbalk) (2010:110). These types of insurance are all part of the Swedish social security system and are financed either by taxes or through employers' payment of fees calculated on the employees' salaries.
The public pension system has recently been revised. The pension paid out to retired and other people benefiting from the social welfare system is now based on their individual life income. The change from a pay-as-you-go system was due to the difficulty in calculating the cost of pensions in the future. Under the new system, the cost of pensions is linked to society's economic growth. In addition, the paid-out pension depends on lifetime income instead of, as before, the 15 highest income years. The public pension is divided into three parts, of which the two largest parts are the income pension and the premium pension, which is a part of the life income invested into by either the individual or by a government-appointed authority (Premiepensionsmyndigheten).
Of the private and the labour market sectors, the latter is the smallest. The labour market sector provides supplementary collective insurance to employees, such as group life insurance and illness and injury compensation. These types of insurance are administrated by labour market insurance companies. This chapter concentrates on the private insurance sector, although on some particular issues it refers to public and labour market insurance.
Swedish private insurance law is regulated by the:
Insurance Contract Act (Försäkringsavtalslagen) (2005:1004).
Insurance Business Act (Försäkringsrörelselagen) (1982:713).
The Insurance Contract Act establishes the fundamental principles of insurance contracts and governs:
Consumer insurance (including home, travel, motor vehicle and travel insurance).
Personal insurance (including life and health insurance).
Collective insurance agreements on the labour market are governed.
The Insurance Contract Act is divided into four parts. First, there is a chapter with provisions dealing with applicability, definitions and other general provisions. The second part contains provisions applicable to property and liability insurance, the third part deals with personal insurance and the fourth part deals with collective insurance.
The Insurance Contract Act does not apply to reinsurance, motor vehicle liability insurance or patient insurance.
The provisions in favour of the insured of the current Insurance Contract Act are, in contrast to those of the previous Insurance Contract Act, mainly mandatory. Therefore, a contractual provision which is less favourable for the insured than the corresponding provision in the Consumer Insurance Act will not be upheld by the courts. However, especially with respect to company insurance, it is possible in some cases to apply less favourable provisions than those in the Insurance Contract Act.
The Insurance Business Act contains no substantive insurance law but establishes the administrative rules regarding business, such as the:
Formation of an insurance entity.
Permitted and required investments.
Principles of distribution of profit.
In addition, it contains rules regarding the official supervision of the insurance sector conducted by the Swedish Financial Supervisory Authority (FSA) (Finansinspektionen).
The Act on Insurance Mediation (Lag om försäkringsförmedling) (2005:405) governs requirements for the establishment and registration of an insurance broker, including general rules as to how the broker must conduct his business and the authorities' supervision of brokers.
Special legislation with regard to liability for motor vehicle includes the Act on Damage Caused by Traffic (Trafikskadelagen) (1975:1410), which stipulates compulsory liability insurance for all motor vehicles to cover damage caused by motor traffic.
The official supervision of insurance business in Sweden is conducted by the FSA.
Regulation of insurance and reinsurance contracts
Insurance is a business whereby a party, the insured, enters into a contract with an entity, the insurer, to be indemnified in case of the occurrence of a particular contingent event which would, save for the existence of the insurance, cause an economic loss for the insured. This event, such as the death of a person, damage to a car or the destruction of property by fire, is called the risk. In exchange for the protection, the insurance company receives a premium, the amount being based on the insurer's estimate of the likelihood of the risk.
In insurance, the risk must be contingent, at least with respect to time. Typically, the insurer will not know in advance whether he will in fact have to pay out compensation under a certain insurance policy during the time attached to it. The insurer can be either a limited liability company or a mutual insurance company jointly owned by parties having an interest in protecting themselves from the same or similar risks.
The compensation to be paid when a loss or casualty occurs can in principle be calculated as compensation for the insured's true loss, an assessed insurable policy, or be fixed in advance under a valued policy. An examples of the latter is life insurance, which, on the death of the person on whom the insurance is taken out, results in the payment of a predetermined amount.
There are usually two parties to the insurance contract, the insurer and the insured. However, the insured may often be a third party, such as in life insurance or property insurance, where the creditor of the insured, having a mortgage on the insured property, such as a house, a ship, or an aircraft, requires coverage under the insurance policy in order to grant loans to the debtor/insured. In this chapter, the term "insured" is used both to describe the party entering into the insurance contract and the one receiving the benefits under the policy. Under the Insurance Contract Act, these parties are called the party executing (and usually paying for) the insurance (försäkringstagaren) and the insured party (försäkringshavaren).
There are no particular requirements as to the form of an insurance contract and therefore even an oral agreement would be binding. Invariably, an insurance contract will be evidenced by a policy or a letter issued by the insurance company. If an agreement has been made over the telephone, it is assumed that the agreement is based on the insurer's general conditions for the particular type of insurance, if the circumstances do not indicate otherwise. Should the parties disagree as to the formation of an insurance contract, the general Contracts Act (Avtalslagen) (1915:218) regarding offer and acceptance (among other things) are applicable to determine whether an agreement has been concluded and what the contents therefore are.
Usually, the insurer is not bound to enter into an agreement with a particular customer. However, in the case of consumer insurance, the insurer may not refuse to issue a policy to a particular customer if this insurance is normally offered on the market by the insurer (Chapter 3, Section 1 and Chapter 11, Section 1, Insurance Act).
This duty does not apply if the insurer has special reasons to refuse underwriting the risk, due to the risks involved or the size of the potential loss or damage. Therefore, if a customer, for example, has a particularly bad record of accidents, has been involved in insurance fraud or the risk is excessive, the insurer may be entitled to refuse to underwrite the risk. However, in the case of obligatory motor vehicle insurance, the owner of a car, in order to ensure proper indemnification of third parties, is always entitled to an insurance policy.
If, in connection with the formation of the insurance contract, the insured has provided incorrect information fraudulently, withheld information, or has (without fraud) provided or withheld information under such circumstances that it would be incompatible with honour and good faith to apply the contract, the insurance agreement is void.
All contracts of insurance and reinsurance are regulated, see Question 2.
Insurance business may be operated by limited liability companies (owned by shareholders) or by mutual companies (owned by policyholders) (Insurance Business Act). The main difference between the two kinds of insurance companies is that, in non-life insurance mutual companies, the policyholders can in certain situations, and if explicitly stated in the company's articles of association, be personally liable for the company's obligations to a limited extent.
The shareholders of a limited liability company, which can be either private or public, are not personally liable for the company's obligations. This chapter, uses the term "company" to describe both mutual insurance companies and limited liability insurance companies.
Principle of separation
Insurance activities are divided into two categories, life insurance and non-life insurance activities. In some respects, there are stricter regulations for life insurance activities because of the theoretically larger financial risk they represent, due to their relatively longer duration. According to the principle of separation, direct life insurance activities cannot be combined with direct or indirect non-life insurance activities other than accident or health insurance.
Regulation of insurers and reinsurers
A Swedish insurance company must be authorised by the FSA to conduct professional insurance activities (Insurance Business Act). The Insurance Business Act does not cover insurance activities which come under other statutes, such as activities conducted by provident societies, social insurance offices, or unemployment offices. In addition, there are special regulations applicable to foreign insurers which conduct activities in Sweden without having a head office or a subsidiary in Sweden.
For certain types of insurance and insurance entities, the FSA may grant exemptions from whole or part of the Insurance Business Act's provisions. This is the case for, for example, received reinsurance or for certain non-life insurers. In addition, if an insurance company is conducting business abroad, exemptions may be granted, but only with regard to foreign legislation. A fundamental requirement for insurance activities is that they must be conducted according to good insurance standards. There also are requirements that an insurance company must have a satisfactory stability and provide sufficient information on its insurance conditions.
There are no restrictions on the transfer of risk, but there are detailed regulations on portfolio transfers (in full or in part) from an insurance company to another insurance company. Such transfers must be approved by the FSA and will only be approved if the interests of the insured are protected. The transfer of insurance portfolios does not require the insured's consent. However, transfers of reinsurance portfolios are treated differently and the individual consent of the contracting parties is required.
Authorisation or licensing
All insurers who carry on business in Sweden must be authorised by the FSA to effect or carry out contracts of insurance as a principal in Sweden.
To obtain authorisation, the FSA must be satisfied that the insurer can meet and continue to meet certain conditions, including that:
The applicant is a corporate entity.
The entity's articles of association are consistent with the requirements under the Insurance Business Act.
The applicant's close links do not prevent the FSA's effective supervision.
The planned business activities are in compliance with the requirements under the Insurance Business Act.
Any individual with a qualified ownership interest in the insurance company is fit and proper to do so.
The management and board of directors consist of persons that are fit and proper to conduct insurance business.
An application for authorisation must contain detailed information about the applicant entity, its personnel, systems and controls, proposed activities, business plan, financial resources and compliance arrangements.
The application must also contain details of the entity's proposed controllers. These include anyone who is able to exercise significant influence over the insurer by virtue of the holding of shares or voting power in the insurer or any of its parent undertakings.
When granting authorisation, the FSA can impose certain requirements and/or limitations.
If requested by the insurer, the FSA will give an advance ruling on whether or not an authorisation is required for the planned activities. Such an advance ruling is binding for the FSA. An application for authorisation must be submitted to the FSA together with a scheme of operations. The FSA decides what the scheme should contain.
Authorisation is granted if the planned activities can be considered to fulfil these requirements, and if the articles of association fulfil the statutory requirements. However, in special cases the application is decided by the government.
A person who undertakes (for remuneration and by way of business) any one or more of several insurance mediation activities in Sweden must be authorised by the FSA. The relevant provisions can be found in the Act on Insurance Mediation (Lag om försäkringsförmedling) (2005:405). Insurance mediation activities include:
Arranging or advising in respect of contracts of insurance.
Dealing as agent in contracts of insurance.
Assisting in the administration and performance of a contract of insurance.
Professional insurance intermediaries (such as brokers and underwriting agents) will always undertake one or more of these activities.
The authorisation process for insurance intermediaries is broadly similar to that for insurers but with some variation in the conditions for authorisation (for example, to reflect the fact that authorisation can be granted to an individual as well as to a body corporate).
There are no applicable requirements for insurance-related services that do not qualify as insurance mediation activities.
An insurer or insurance intermediary whose head office is located elsewhere in the EEA and which is authorised to conduct insurance business or insurance mediation activities by its home state regulator (EEA insurer) is entitled to establish a branch in, or provide cross border insurance services into, Sweden (a process known as passporting). An EEA entity exercising passporting rights is treated as an authorised person, but notification must be made to the FSA.
Activities that are not considered to be insurance mediation activities under the Act on Insurance Mediation are therefore exempt from the authorisation requirements, such as:
Referring somebody to an insurer (without conducting any advisory services).
Providing general information about insurances to a person.
Providing information or advice on insurance in connection with other business activities.
Professionally administer or assess losses under an insurance contract.
Restrictions on ownership or control
There are no restrictions on the ownership or control of insurance related entities in Sweden except for notification and approval requirements for acquisition of control (see Question 12).
Acquiring or increasing control of a Swedish insurer requires notification to the FSA and the FSA's approval before making the acquisition. Control for these purposes means being able to exercise significant influence over the management of the insurer by holding shares or voting power in the insurer or any of its parent undertakings.
Increased control is defined as reaching or exceeding levels of 20%, 30% and 50% of shares or voting power.
The FSA must be notified of reductions or cessations in control before they are made, but FSA approval is not required.
FSA approval is not required for acquisitions or increases in control of non-EEA insurers (that is, insurers established and authorised outside the EEA but which have a Swedish branch), although such insurers must inform the FSA of proposed changes in their controllers.
The FSA must act on a notice to acquire or increase control within 60 working days from the date on which it acknowledges receipt of the notice. However, this assessment period can be prolonged if the FSA requests further information.
The FSA can only object to an acquisition or increase in control if the information provided is incomplete or if there are reasonable grounds for doing so under Chapter 15 of the Insurance Business Act.
There are no similar rules that apply to the acquisition of control of insurance mediation firms or firms involved in other insurance-related activities.
Ongoing requirements for the authorised or licensed entity
A fundamental requirement for insurance activities in Sweden is that they must be conducted according to good insurance standards. There also are requirements that an insurance company must have a satisfactory stability and provide sufficient information on its insurance conditions. All material changes in the business plans of the relevant entity must be notified to the FSA.
Licensed insurance intermediaries must report specific changes to information provided to the FSA at the time of licensing.
Penalties for non-compliance with legal and regulatory requirements
It is not permitted to enter into insurance contracts, insurance business or insurance mediation activities in Sweden without being either authorised or exempt. The FSA will demand that an unauthorised entity refrains from all such activities. If the entity does not comply, the FSA can request that the courts decide that the entity is subject to mandatory liquidation. In addition, any contract entered into in relation to insurance business or insurance mediation activity undertaken in Sweden by an unauthorised person who is not exempt will generally be unenforceable, and the other party will generally have the right to recover all sums paid and compensation for any losses sustained.
The FSA's enforcement powers concerning a breach by an authorised firm or approved person of the regulatory regime include the power to:
Impose financial penalties (up to SEK50 million). (As at 1 January 2012, US$1 was about SEK6.8.)
Prohibit an individual from performing specified functions in relation to regulated activities.
Restrictions on persons to whom services can be marketed or sold
There are no restrictions on the persons to whom insurance or reinsurance services and contracts can be marketed or sold. A licensed insurer is free to market or sell to any persons domiciled in Sweden. However, there are general requirements to treat customers fairly which give rise to detailed conduct-of-business requirements.
Marketing and sales activities are also subject to relevant requirements of general law, such as unfair contract terms legislation under the general Contracts Act.
Reinsurance monitoring and disclosure requirements
The extent to which a reinsurance company can monitor the claims, settlements and underwriting of a cedant company depends on the terms of the reinsurance contract. However, such contracts commonly stipulate that the reinsurer has rights to:
Inspect and audit the cedant's books and records.
Be notified of circumstances that may give rise to claims or losses.
Usually, the reinsurer has the obligation to "follow the fortune" or "follow the settlements" of the cedant, which also implies rights for the reinsurer to obtain adequate information about the underlying claims.
There are no statutory requirements and the cedant company's disclosure or notification obligations depend on the applicable reinsurance contract. For instance, the reinsurance contract may include notification provisions which require the cedant to notify claims either as soon as possible, immediately (which, depending on the circumstances, can mean within a matter of days) or within a specified timeframe. In addition, there may be obligations for the cedant company to notify circumstances that may give rise to claims in the future.
Insurance and reinsurance policies
Content requirements and commonly found clauses
Form and content requirements
Insurers usually use their own general insurance terms and conditions.
Commonly found clauses
Insurance policies typically contain the following core clauses:
Identity of the insured and the insurer.
Description of the insured interest or activity, with applicable exclusion clauses.
Limitations of the value insured.
The term of the contract.
Notification requirements in case of covered loss.
The premiums to be paid by the insured party (with due dates for payment).
Any applicable retentions (that is, the amount that is deducted from the claim in case of loss).
Both facultative and treaty reinsurance are common on the Swedish market, even though the number of Swedish reinsurers are limited.
Commonly found clauses
The most common clauses are provisions concerning:
Inspection rights for the reinsurer.
"Follow the fortune" or "follow the settlements" clauses.
Choice of applicable law.
Claims co-operation clauses are also often included even though they are not as common as "follow the fortune" or "follow the settlements" clauses.
Any terms and conditions that are less favourable to the insured than those stipulated under the Insurance Contract Act will not be upheld by the courts. It is therefore necessary to tailor the standard terms and conditions for insurance carefully. The requirements under the Insurance Contract Act vary between various types of insurance cover, and depend on whether it is company or consumer insurance.
The concept of utmost good faith is generally not specifically stipulated in insurance (or reinsurance) contracts, but it is often argued that under Swedish law there is a general duty to act in good faith, which implies that there is an obligation to disclose material information to the counterparty. For reinsurance, it has also been construed to mean that, as a consequence of the "follow the fortunes" concept, the cedant is required to take the reinsurers' interests into consideration and to act as far as possible in the reinsurers' interest when adjusting or settling a claim. However, the concept cannot be considered to be established under Swedish case law.
Customer protections vary greatly between different types of insurance. It is possible for insurers to waive their legal rights under the Insurance Contract Act as long as it is deemed favourable for the insured, and it is not unusual that, especially in relation to consumer insurance, the insurer waives its possibilities to avoid a claim on the grounds of misrepresentation on behalf of the insured.
Standard policies or terms
Insurance Sweden (Svensk Försäkring) is an industry organisation for Swedish insurance companies. The organisation publishes general terms and conditions for many types of insurance types on their website (www.svenskforsakring.se). These terms and conditions serve only as guidance and most insurance companies modify the terms and conditions before launching their insurance products.
Insurance and reinsurance policy claims
Establishing an insurance claim
A loss that falls under the coverage of the insurance triggers the claim, and this varies between different types of insurance contracts. If it is a property insurance, the damage sustained by the insured triggers the claim under the policy. If it is liability insurance, the knowledge that circumstances have occurred that may give rise to a claim usually triggers the obligation to make a claim. The quantification of the claim may, however, depend on the outcome of the liability issue and might be settled at a later stage. For instance, the amount to be paid under the insurance may not be established until there is a judgment or settlement in respect of the underlying liability claim.
Third party insurance claims
The insured must commence legal proceedings against the insurer within three years from the date he received knowledge of his right to claim under the policy and within ten years from the date when a claim could have been made (Insurance Contract Act). Failing this, the right to claim insurance compensation is lost. The insurer may stipulate shorter periods in the policy but to rely on them the insurer must notify the insured of his duty to commence proceedings within six months of receipt of the insurer's notification, including information on the effect of failure (that is, that the claim otherwise will be time-barred).
The insured must to give notice of a loss without delay. If the insured fails to do this, the compensation may be reduced or lost entirely where the failure was of detriment to the insurer. In consumer insurance, the three-year rule is mandatory. In addition, the insured always has a period of six months to commence proceedings from the time the insurer provided its final position to the claim.
The insurer's rights to unpaid premiums in consumer insurance are time-barred six months from the date when the payment should have been made. In non-consumer relations, the ordinary general ten-year limitation period applies.
Claims between a reinsured and a reinsurer fall under the general time bar under Swedish law which is ten years.
In the event of a breach of the insurance policy the main remedies for the insured is cancellation and damages, while for the insurer they are cancellation and mitigation of a claim (in part or in full). Cancellation is the termination of the insurance contract before the ordinary expiration of the insurance term.
The insured has several duties, such as:
Providing proper information before the issuance of the policy.
Adhering to certain restrictions and security requirements in order to avoid casualties.
Informing the insurer of any increase of the risk relevant to the insurance contract.
If the insured has failed to comply with any of these provisions the consequences can be severe, especially in non-consumer insurance. In addition to a possible reduction of the insurance compensation in the event of loss, the insurer will often have a right to cancel the policy in the following situations (Insurance Contract Act):
When the insured has given incorrect information to the insurer, even if in good faith, before the issuance of the policy.
When the insured has failed to pay the premium.
When the risk has increased.
If the insured has failed to adhere to a specific security requirement, and there is reason to believe that the insured would not comply with the rule in the future.
In addition, the insured has the right to cancel the agreement under certain circumstances, such as if the insurer ceases to conduct insurance business in Sweden or if the insurer becomes insolvent. A right to cancel or terminate the insurance contract before expiration also may exist in other circumstances based on general principles of contract law, if a party has committed a substantial breach of his contractual obligations or if it can be objectively assumed that a party will not be able to fulfil his obligations properly.
Punitive damage claims
Punitive damages are not awarded under Swedish law under an insurance contract or under any other type of agreement, the main principle being that the injured party may not be over-compensated. At most, the injured party will be entitled to receive compensation which puts him in the same position as if no breach of contract had occurred.
It is possible to contractually agree that the failure to observe a certain obligation will be punished by liquidated damages. If such liquidated damages in no way correspond to the damage or loss sustained, there is a risk that they may be set aside under the general adjustment rule in the Contracts Act.
Punitive damages are reinsurable in Sweden as reinsurance is not specifically regulated under Swedish law.
Insolvency of insurance and reinsurance providers
Although the insurance companies are under the control and supervision of the FSA, their investments are strictly regulated. No bankruptcy had occurred for decades until three Swedish insurance companies involved in credit insurance were declared bankrupt as a result of the financial crisis in 1992-1993 (the Njord insurance group, International Credit and Svenska Kredit). Recently, the reinsurance company Folksam International was also declared bankrupt. In the event of the insurer's bankruptcy, the insurance is terminated three months after the declaration of bankruptcy, although the insured has the right to terminate the contract before then if he so wishes.
In addition, the insured has a right to terminate the contract if it can be assumed that the insurer, due to insolvency, will not be in a position to meet his obligations. The insured will then be entitled to damages. However, his claim will be unsecured in the bankruptcy and is therefore usually of little or reduced value.
Taxation of insurance and reinsurance providers
Insurance and reinsurance dispute resolution
Most insurers have their own ombudsman that the insured can complain to if it is not content with how the insurer has handled an insurance claim. The ombudsman will review the insurance claim and may recommend that the insurer revises its decision under a claim. However, this is not legally binding. If the insured wants to contest the insurer's handling of a claim or interpretation of the contract, the insured would have to initiate legal proceedings through the courts.
Arbitration is the preferred dispute resolution mechanism in connection with large insurance contracts. In such cases usually reference is made to the arbitration rules of the Stockholm Chamber of Commerce.
Currently, the implementation of Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II Directive) in Sweden (as well as the rest of the EU) is the most important upcoming reform. Otherwise, Sweden has quite recently revised the Insurance Contract Act and the Insurance Business Act and very few amendments are expected in the near future.
Main insurance/reinsurance trade organisation
Sweden Insurance (Svensk Försäkring)
Main activities. Insurance Sweden is the industry organisation for insurance companies. About 40 insurance companies are members of Insurance Sweden and together they account for more than 90% of the Swedish insurance market.
Insurance Sweden is part of the Association of Swedish Insurers, together with the Swedish Insurance Employers' Association, Swedish Motor Insurers and the Patient Insurance Association.
Insurance Sweden is a member of the European Insurance and Reinsurance Federation, CEA, and participates actively in its work on various issues at EU level. It also works directly with different EU institutions, such as the European Commission and the European Parliament.