The Swedish insurance industry comprises approximately 320 companies, investing more than 4,500 billion kronor in the Swedish and global economy. Approximately 220 of these companies are non-life insurance companies.2 The market is dominated by the four largest non-life insurance companies, which together represent more than 80 per cent of the market based on premium income. The life insurance market, however, does not provide for the same concentrated dominance; the four life insurance companies reporting the highest premium income together represent around 50 per cent of the market.3
The reinsurance market can be divided into non-life and life reinsurance. There is currently no Swedish company authorised by the Swedish Financial Supervisory Authority (SFSA) to conduct business as a reinsurance company (i.e., a company licensed to conduct reinsurance activity only). Instead, the reinsurance market in Sweden is dominated by large international reinsurers.
About 50 insurance companies on the Swedish market are members of Insurance Sweden, an industry organisation working to promote good business conditions. Together these insurance companies account for more than 90 per cent of the Swedish insurance market.4
i Applicable regulation
Regulation of insurance and reinsurance companies
Insurance and reinsurance companies are regulated through the Insurance Business Act5 implementing the Solvency II Directive (2009/138/EC) into national law. The Insurance Business Act sets out the framework for:
- operation within another Member State of the European Economic Area (EEA);
- investment and debt coverage;
- capital base;
- solvency capital requirement;
- system of governance;
- portfolio transfers; and
In addition, insurance and reinsurance companies are subject to certain requirements under the Insurance Business Ordinance,6 and the SFSA's regulations and general guidelines.
Regulation of insurance and reinsurance intermediaries
On 1 October 2018, the Swedish Insurance Distribution Act7 entered into force implementing Directive (EU) 2016/97 (the Insurance Distribution Directive (IDD)) into national law. The Insurance Distribution Act changed the market for insurance and reinsurance intermediaries through its extended scope of application, by also including insurance and reinsurance companies' distribution. The Insurance Distribution Act sets out the framework for:
- operation across borders;
- operational requirements;
- information requirement and suitability assessment;
- additional requirements when distributing insurance-based investment products;
- additional requirements when distributing certain pension insurance products; and
In addition, insurance and reinsurance intermediaries are subject to certain requirements under the Insurance Distribution Ordinance,8 and the SFSA's regulations and general guidelines.
ii Regulating body
The SFSA supervises both insurance and reinsurance companies' and insurance intermediaries' compliance with applicable requirements in Sweden. However, it does not supervise insurance business carried out under legislation other than the Insurance Business Act and the Act on Undertakings of Foreign Insurers and Institutions for Occupational Retirement Provision in Sweden, such as state social insurance schemes regulated through the Social Insurance Code.9
The SFSA maintains a register10 covering all companies authorised to conduct insurance and reinsurance, and insurance intermediary activities in Sweden. The register includes the following information related to undertakings that have authorisation:
- name, contact details, corporate ID and identification number at the SFSA;
- date and type of authorisation;
- details of cross-border business; and
- details of employees conducting insurance mediation.
iii Requirement for authorisation
Insurance and reinsurance companies
Insurance and reinsurance business can only be carried out in Sweden with the authorisation of the SFSA. In order for the SFSA to grant authorisation the applicant must satisfy the following requirements under the Insurance Business Act:
- it must be incorporated as an entity that can be authorised (e.g., a limited liability company or a mutual insurance company);
- it must have articles of association or statutes that comply with applicable legislation;
- it must comply with the requirements under the Insurance Business Act and other applicable regulations;
- if it is a limited liability company, its qualified owners must be deemed fit to exercise significant influence on its management;
- its proposed board of directors, chief executive officer, any deputies for these positions and key function holders must be deemed fit and proper to perform their respective duties; and
- it cannot have a close link (i.e., be part of the corporate structure) that prevents the SFSA from exercising effective supervision.
As part of its application the applicant is required to provide a wide range of information to the SFSA, such as its articles of association, business plan, corporate governance policies and, when applicable, internal rules on anti-money laundering.
The SFSA normally reaches a decision within five months of the completed application being submitted. However, the review period may be extended if additional information is required from the applicant during this period.
It is possible under the Insurance Business Act to apply for an advance ruling by the SFSA on whether the intended business requires authorisation.
Insurance intermediary activities generally require authorisation from the SFSA. However, a few exemptions apply. Authorisation can be granted to both individuals and entities. A separate requirement for authorisation applies under the Insurance Distribution Act depending on whether the applicant is an individual or an entity.
An individual must satisfy the following requirements:
- not be underage (i.e., under 18 years old), disqualified to conduct business, bankrupt or in receivership;
- not have a criminal record for financial crime – he or she must have proven good care in financial affairs;
- have suitable knowledge of the intended business;
- comply with requirements on continuous professional training and occupational development;
- possess adequate liability insurance;
- be suitable to conduct insurance intermediary activities; and
- not have a close link that prevents the SFSA from exercising effective supervision.
An entity must satisfy the following requirements:
- not be in bankruptcy or liquidation;
- possess adequate liability insurance;
- not employ as members of the management and any deputies thereof those that have a criminal record for financial crime – they must have proven good care in financial affairs (in addition, they must possess sufficient knowledge and competence to be part of the management in an entity conducting insurance distribution activities and, in general, be considered suitable to conduct such business);
- ensure that employees carrying out insurance and reinsurance distribution activities on its behalf comply with the requirements in points (a) to (d) of the previous list applying to individuals; and
- not have a close link that prevents the SFSA from exercising effective supervision.
The SFSA is required to reach a decision on authorisation within three months of the completed application being submitted. If authorisation is granted, the individual or entity is required to register with the Swedish Companies Registration Office before commencing any insurance intermediation activities.
Insurance and reinsurance companies are not required to seek separate authorisation for the distribution of their insurance products. However, they are required to comply with the applicable requirements under the Insurance Distribution Act.
iv Exemptions from authorisation
Entities domiciled and authorised to conduct insurance and reinsurance business in another EEA Member State are not required to seek authorisation from the SFSA. These entities can conduct insurance and reinsurance business in Sweden through the establishment of a branch or agency, or based on the freedom to provide services.
Entities domiciled and authorised to conduct insurance and reinsurance intermediary activities in another EEA Member State are not required to seek authorisation from the SFSA. These entities can conduct business in Sweden through a branch, other permanent presence or based on the freedom to provide services.
Although exempted from authorisation, both EEA insurers, and insurance and reinsurance intermediaries, are required to complete a notification process before conducting any insurance business or intermediary activities in Sweden. The SFSA supervises business carried out in Sweden by EEA insurers and insurance intermediaries.
v Non-EEA insurance and reinsurance companies and insurance intermediaries
Non-EEA insurers and reinsurers can only conduct insurance business in Sweden through a local branch or agency after obtaining authorisation from the SFSA. The same applies when a non-EEA insurance intermediary wishes to conduct activities in Sweden through a branch or permanent presence.
However, non-EEA insurers and reinsurers may apply for authorisation with the SFSA to conduct marketing activities in Sweden for insurance for which the risk is situated therein, if these activities are conducted through mediation by an insurer authorised in Sweden, and both parties are part of the same group or have entered into a cooperation agreement.
The SFSA will supervise the business carried out in Sweden by a non-EEA insurer or reinsurer, or insurance intermediary.
vi Restrictions on ownership and control
Ownership in insurance and reinsurance companies is subject to restrictions under the Insurance Business Act that may impact the authorisation process and may affect the companies in a merger and acquisition. An acquirer must obtain the approval of the SFSA before:
- acquiring, directly or indirectly, 10 per cent or more of the share capital or voting rights of an insurance or reinsurance company (qualified holding);
- increasing its direct or indirect holdings to, or above, 20 per cent, 30 per cent or 50 per cent of the share capital or voting rights of an insurance or reinsurance company; or
- increasing its holdings in a way in which the insurance or reinsurance company becomes a subsidiary.
The SFSA will approve the acquisition if the acquirer is deemed fit and proper to exercise significant influence over the management of the insurance or reinsurance company, and the acquisition is financially sound.
The SFSA is required to provide its decision on an application for acquisition within 60 business days of the day the application is deemed complete. If the acquirer is required to submit additional information in order for the SFSA to reach a decision, the assessment period can be extended.
Furthermore, a direct or indirect owner is required to notify the SFSA in writing if it decides to dispose of a qualified holding or reduce its holdings below any of the thresholds listed above.
Acquisitions or increases in holdings of non-EEA insurers authorised to conduct business in Sweden are not subject to the SFSA's approval. However, the SFSA must be notified of proposed acquisitions and changes in control of these insurers. See subsection iii for more information about applicable requirements on ownership and control in the authorisation process.
There are no similar restrictions on ownership and control for entities authorised to conduct insurance or reinsurance intermediary activities.
vii Recent changes to the regulatory system
Life insurance companies manage approximately 75 per cent of the total assets on the local occupational pension market. Insurance companies that conduct business covering both occupational pension and life insurance (mixed insurance activities) have been given the possibility to apply a transitional rule to their occupational pension business, through which they can apply a number of pre-Solvency II requirements, until the end of 2022. The time period under which the transitional rule applies is a result of Directive (EU) 2016/2341 on the activities and supervision of institutions for occupational retirement provision (IORP II), which entered into force in Sweden on 15 December 2019.
How the implementation of IORP II will affect the Swedish insurance industry is still somewhat unclear, especially as insurance companies conducting mixed insurance activities have been provided with an opportunity to transform their business into an occupational pension company, which would mean a change in form and applicable regulatory regime.
As mentioned earlier, another recent development has been the implementation of the IDD into Swedish law. One noteworthy aspect of the Swedish implementation of the IDD is that the scope of application for some of the rules in Chapter VI of the IDD (additional requirements in relation to insurance-based investment products) has been expanded to cover certain insurance-based pension products.
III INSURANCE AND REINSURANCE LAW
i Sources of law
The Insurance Contracts Act11 is the main source of law in Sweden when it comes to provisions covering insurance contracts. The provisions of the Insurance Contracts Act are mandatory for the benefit of the policyholder, its assignee and the insured, unless otherwise expressly stated in the Act.
The Insurance Contracts Act includes provisions on both non-life and life insurance contracts as well as special requirements in relation to group insurance contracts. In relation to each type of insurance contract (life and non-life), the Act outlines the main applicable requirements for the insurance contract, such as:
- the insurer's duty to provide information;
- the policyholder's disclosure obligations;
- rights under the insurance contract;
- limitation of the insurer's liability;
- premium payments;
- claims management; and
- statute of limitations.
Specific national legislation applies to contracts covering motor vehicle liability insurance and patient insurance.
In contrast to insurance contracts, reinsurance contracts are not specifically regulated under Swedish law, which means that the contracting parties enjoy a great degree of flexibility when entering into them. Although not specifically regulated, general requirements following from the Contracts Act apply,12 as well as general principles of contract law.
ii Making the contract
The Insurance Contracts Act does not provide any requirements governing how an insurance contract should be concluded with the policyholder. However, generally it is concluded as a result of an insurance seeker applying for insurance cover with an insurer or through an insurance intermediary, and receiving an offer that is subject to acceptance by the insurance seeker.
There is no codified principle of utmost good faith under Swedish insurance law, although the contracting parties have a general duty of loyalty. Although this principle is not codified, it is to some extent reflected in the Insurance Contracts Act through the provisions governing the insured's pre- and post-contractual duty to disclose information to the insurer.
In relation to reinsurance contracts, a duty of utmost good faith can be implied under a 'follow the fortunes' clause, as it involves a unique business partnership between the cedant and the reinsurer.
iii Interpreting the contract
The provisions of the Insurance Contracts Act are mandatory for the benefit of the policyholder, its assignee and the insured, unless otherwise expressly stated in the Act. Consequently, a court will set aside a clause in the insurance contract that is in violation of the mandatory provisions of the Act.
If the wording of an insurance contract does not explicitly contradict the provisions of the Insurance Contracts Act, the court may still at its own discretion set aside any contractual clause that it deems to be manifestly unreasonable. However, such decisions are rare in insurance cases.
The Insurance Contracts Act does not cover any provisions on mandatory clauses to be covered by the insurance contract, only general information regarding its form and content. Although insurance companies are free to set the content of their respective insurance contracts the wording of the Insurance Contracts Act is usually incorporated. Commonly found clauses are:
- applicable definitions;
- policy period;
- insured interests;
- claims trigger;
- geographical scope;
- premium payments;
- dual insurance coverage;
- exclusions and limitations of coverage (e.g., for increase in risk, acting with gross negligence and breach of applicable safety requirements);
- statute of limitations; and
- terms and conditions.
As described in subsection i, reinsurance contracts are not regulated under Swedish law, which means that how these contracts should be concluded between the cedant and the reinsurer is also not regulated. According to accepted market practice, the following clauses are generally found in reinsurance contracts:
- disclosure requirements (e.g., regarding the cedant's underwriting activities);
- right of the reinsurer to inspect the records of the cedant company;
- 'follow the fortunes' and 'follow the settlement' clauses;
- claims cooperation or claims control clauses;
- premium levels and premium payments;
- profit commission;
- provisions on portfolio transfers;
- statute of limitations; and
- choice of law and dispute resolution mechanisms.
iv Intermediaries and the role of the broker
As described in Section II, insurance intermediary activities in Sweden can be conducted by an entity or an individual authorised by the SFSA, an ancillary insurance intermediary or a tied insurance intermediary. It is quite common in Sweden for insurance companies to use tied insurance intermediaries (e.g., banks), for which they are liable for any damage inflicted as a result of the intermediary activities.
Insurance intermediaries are required to act in accordance with conduct rules as stipulated in the Insurance Distribution Act. Generally, insurance intermediaries are required to conduct their business in accordance with good insurance distribution practice and with due consideration of the customer's interests. Furthermore, an insurance distributor must act honestly, fairly and professionally. If an insurance intermediary is part of the Swedish Insurance Intermediaries Association (SFM) and InsureSec – an organisation established by SFM and the larger Swedish life insurance companies using intermediaries for insurance distribution – additional industry regulations apply with the purpose of facilitating adequate advice on insurance coverage.13 InsureSec also established a disciplinary forum for its registered members in the event of violations of industry regulations.
On the Swedish market, insurance products are distributed by the insurance companies themselves and through different types of insurance intermediaries. In practice, it is common for insurance seekers to ask insurance intermediaries for advice on suitable insurance cover and on which insurance company provides an insurance contract that matches its needs.
A claim of insurance coverage under an insurance contract can be made as a result of an insured event. The definition of an insured event as well as information about how to make a claim are usually covered by the conditions of the insurance contract. An insurance contract can also provide for a time period under which a claim must be notified to the insurance company. The remedy for a late notice is a reduction of indemnification, which is proportionate to any loss incurred by the insurer as a result of the late notice.
The ultimate deadline to notify a claim to the insurer is regulated by the statute of limitations under the Insurance Contracts Act. The statute of limitations for an insured to bring legal proceedings against the insurer is within 10 years of the date when the claim was triggered, according to the insurance contract. If a claim has been notified within that time, the insured has at least six months to bring legal proceedings from the date of receipt of the insurer's final decision.
The insured bears the burden to prove that an insured event has occurred under the insurance contract and the insurer generally has the burden to prove whether, for example, an exclusion applies or whether the indemnification should be reduced as a result of the insured's breach of the insurance contract. The burden of proof is lower for consumers claiming indemnification.
With regard to non-consumer (business) insurance, the insurer is allowed to include a clause in its insurance policy stipulating that it is entitled to deny a claim if the insured has failed to notify the insurer within one year of the occurrence of the insured event.
An insurer furthermore has the right of subrogation to the insured's claim for damages resulting from loss, if the claim is covered by the insurance contract and has been indemnified by the insurer.
Insurance companies usually have internal procedures for the management of disputes relating to insurance claims (e.g., a review committee). If a dispute cannot be resolved by the insurer, different dispute resolution forums are available. Information about applicable dispute resolution forums is generally covered by the insurance contract and may differ depending on the type of insurance and whether the insured person is a natural or legal person.
IV DISPUTE RESOLUTION
i Jurisdiction, choice of law and arbitration clauses
Clauses regarding choice of jurisdiction, competent court and applicable law are normally both recognised and enforceable. Nevertheless, these clauses must comply with Regulation (EC) No. 593/2008 on the law applicable to contract obligations and Regulation (EU) No. 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.
Arbitration clauses in insurance and reinsurance contracts are both common and enforceable, with the exception of consumer insurance (save for certain types of group insurance).
There is no specific litigation procedure for insurance disputes. Accordingly, insurance disputes are litigated in the same way as any other commercial dispute, namely in general courts, governed by the Swedish Code of Judicial Procedure. The general courts are organised in a three-tier system: district courts, courts of appeal and the Supreme Court.
Swedish litigation proceedings can be summarised as follows in non-complex matters. Upon filing a summons application and a statement of defence, the parties will typically file one additional submission with the court. The parties will be summoned to a preliminary hearing, usually held within three to five months after the statement of defence has been submitted to the court. The purpose of the preliminary hearing is to resolve any ambiguities as regards, for instance, what the disputed facts of the case are. Subsequent to the preliminary hearing, the parties will be required to submit a complete list of evidence and respond to any issues raised during the hearing. The main hearing will usually be held six months after the preliminary hearing. Conclusively, it normally takes at least one year from the submission of the summons application until the award is rendered.
In complex matters, involving additional written submissions by the parties and sometimes further preliminary hearings, the length of the proceedings is considerably longer – usually two to three years.
A review permit is required in order to appeal a decision reached by a district court or a court of appeal. Generally, the deadline to appeal a decision is three weeks from when the decision has been rendered or, where applicable, when it has been served. A leave to appeal will only be granted if any of the following conditions apply:
- there is reason to believe that the district court has come to an erroneous conclusion;
- it is not possible to assess the correctness of the district court's decision;
- it is important to establish an award that may provide guidance to Swedish courts; or
- any other extraordinary reason.
However, a court of appeal's decision is only appealable in the event of points (c) and (d), above. Consequently, the Supreme Court rarely grants leave to appeal.
The principle of oral proceedings is most frequently applied in litigation proceedings in Sweden, in contrast to depositions, which are rare.
There is no discovery or disclosure of documents phase in Swedish litigation. Accordingly, there is no general obligation to disclose documents. Nevertheless, a party is able to request the court to order a counterparty or a third party to disclose specific documents if certain criteria are met.
The law applies a loser-pays principle (with exceptions), therefore the winning party is entitled to full compensation from the losing party for reasonable litigation costs (costs for counsel, experts, witnesses and the party's own costs, etc.). By default, the successful party is also entitled to interest.
Arbitral proceedings are governed by the Swedish Arbitration Act. The UNCITRAL Model Law on International Commercial Arbitration has, to a large extent, influenced this Act. Similarly to litigation proceedings, there are no specific arbitral proceedings for insurance arbitrations. Arbitral proceedings in Sweden are commonly governed by the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), available on its website.14
Generally, arbitration is more expedient than litigation. For instance, in 2018 more than 50 per cent of the awards under the SCC Arbitration Rules were rendered within 12 months of the time of registration of the case.
Another important difference between arbitration and litigation is that the former allows for greater flexibility as regards evidence. As mentioned in subsection ii, there is no discovery phase in litigation and depositions are rarely used. However, the parties in an arbitration are free to implement a discovery phase, as well as depositions.
The cost of arbitration consists of arbitrators' fees and, under the assumption that the arbitral proceedings are governed by the SCC rules, fees to the institute and possible expenses. The costs can be determined by using a 'calculator' on the SCC website.15
iv Alternative dispute resolution
If a dispute between an insurer and a customer cannot be resolved, the customer can refer the matter to the National Board for Consumer Disputes.16
Furthermore, the following boards deal with specific types of claims:
- the Board for Personal Insurance;
- the Board for Legal Protection Insurance;
- the Board for Counsel Expenses; and
- the Board for Bodily Injury Liability Insurance.
Although a ruling by one of the boards listed above is not legally binding, insurance companies commonly reconsider their decisions in accordance with a ruling.
Finally, disputes can also be handled by the courts or arbitral tribunals, as applicable.
The district courts have a general obligation to attempt to negotiate a settlement between the parties in any commercial dispute, including insurance disputes. These negotiations are always held during the preliminary hearing but also frequently in the main hearing.
V YEAR IN REVIEW
The most significant regulatory change during the past year was the new Occupational Pension Company Act,17 implementing IORP II into national law, which came into effect on 15 December 2019. As part of the introduction of IORP II, insurance companies that conduct business covering both occupational pension and life insurance (mixed insurance activities) have been given the possibility to apply a transitional rule to their occupational pension business, through which they can apply a number of pre-Solvency II requirements, until the end of 2022. After the transitional period, companies conducting mixed insurance activities need to either apply Solvency II requirements to all their insurance activities or streamline their insurance activities to include only occupational pension activities, in which case they will be able to transform the business into an occupational pension company. While some effects on the market of this new regulatory regime were already seen at the end of 2019, we expect to see further effects over the coming year with some companies transforming into occupational pensions companies as well as portfolio transfers that are driven by these regulatory changes.
VI OUTLOOK AND CONCLUSIONS
The Swedish insurance and reinsurance market has, during the past couple of years, been subject to substantial regulatory changes affecting different aspects of the insurance business. Although it is likely that there will be fewer regulatory changes in the year ahead, insurance and reinsurance companies must continue to improve and refine their business in order to ensure compliance with applicable requirements and market practice.
It is expected that both insurers and insurance intermediaries will increase their presence on the web by providing automated advice in the insurance field. The SFSA has already today taken a more active role in this area by investigating pros and cons, risks and legal requirements.
There are also developments in the area of insurtech, although they are not believed to be progressing as quickly as in the fintech sector. In general, the Swedish insurance industry and the products provided are very traditional, which means it will take some time before there are developments mirroring those in the fintech area.
1 Peter Kullgren is a partner, Anna Wahlbom is a senior lawyer and Joonas Myllynen is an associate at Advokatfirmaet Schjødt.
5 SFS 2010:2043.
6 SFS 2011:257.
7 SFS 2018:1219.
8 SFS 2018:1231.
9 SFS 2010:110.
11 SFS 2005:104.
12 SFS 1915:218.
17 SFS 2019:742.