Banks and insurers: unequal siblings of the financial sector

Insurers are often directly referenced in discussions about the stability of the financial sector and Switzerland as a financial centre. This is logical, but wrong. After all, the insurance industry starts from a fundamentally different position to that of the banking sector. 

Different business models 

Insurance contracts are mainly concluded on the basis of specific risk assumption. In other words, in return for the payment of a risk premium, the insurer promises to cover contractually agreed losses in the future. For most insurance companies, damage – such as a car accident – has to occur before a financial claim on the insurer arises. 

Only life insurance policies generally include a savings premium, which means that the insured person’s funds are accumulated and invested year after year. However, these insurance products have long contract terms. Switching to another provider also requires a certain amount of lead time, especially in occupational pensions. While insecure savers at banks can quickly withdraw their deposits and trigger a liquidity shortage, this is virtually inconceivable for insurers. An ‘insurance run’ is therefore not a realistic scenario. 

Hedging system strengthens risk resistance 

The fact that the insurance industry is particularly risk-resistant is not only due to its business model, but also to a special commercial insurance system whereby reinsurers act as insurers of insurers. Their principle is based on a global and thus very broad risk diversification. They protect the balance sheets of the primary insurers, serve as a replacement for capital and mitigate the effects of major loss events. 
 

Risk-adequate regulation 

In the insurance sector, too, the regulatory and supervisory framework was tightened after the 2008 financial crisis. A key element here are the capital requirements according to the Swiss Solvency Test (SST). The aim of the SST is to assess balance sheets in line with the market and to determine the resulting capital requirements in a risk-appropriate manner. With an average SST ratio of 254 per cent (as of 1 January 2024), private insurers exceed the minimum 
requirements significantly. The Swiss Financial Market Supervisory Authority (FINMA) has also issued regulations governing the investment activities of regulated Swiss insurance companies: Unlike other financial market players, many asset classes are specifically regulated. The rules ensure that the assets must be liquid in the short term. As a result, the hands of insurance companies are much more tied when it comes to asset management. 

In addition, any insolvency of an insurance company can be handled in an orderly manner by the regulator. The revised Insurance Supervision Act (ISA) has laid the foundations for this. There’s no such thing as a ‘too big to fail’ rule for insurers – and there’s no need for it. 

Assessment of the planned legislative adjustments 

Swiss insurers undoubtedly play an important role in the global economic system. They take on risks that private individuals and companies cannot bear themselves. However, they do not represent a systemically important risk for the aforementioned reasons. Their long-term business model and solid capital base ensure stability and resilience. So, from a regulatory perspective, there is no need for action on the part of the Swiss private insurance industry.  

On 6 June 2025, the Federal Council set benchmarks for legislative changes to improve the ‘too big to fail’ mechanism following the Credit Suisse crisis. Some of the benchmarks apply to all regulated financial institutions, including insurance companies. It should be noted that, as in 2007/2008 (the collapse of Lehman Brothers), the planned legislative changes were triggered by the fall of a major bank. On neither occasion were these crises triggered by an insurance company. 

The business activities of insurance companies and their products are fundamentally different from those of banks. Accordingly, the insurance sector has its own distinct industry laws, for example. Together with the existing supervisory instruments of the Financial Market Supervision Act (FINMASA), they offer a high level of customer protection in their current version and have proven their worth.  

The SIA therefore resolutely rejects the inclusion of the insurance industry in the planned changes to the law. The Credit Suisse crisis is no reason to tighten up insurance regulation – especially as insurance regulation has only recently been revised and strengthened. On 1 January 2024, a comprehensive revision of the Insurance Supervision Act and the Insurance Supervision Ordinance for Private Insurance Companies (ISO) came into force, supplemented by various revised FINMA insurance regulations that have been in force since 1 September 2024. In addition, a major revision of the ICA became effective on 1 January 2022. As part of this revision, a right to restructuring geared towards the continuation of the company in question was introduced in the ISA as an alternative to bankruptcy proceedings. 

The SIA is particularly critical of the expansion of FINMA’s information activities in the context of enforcement procedures and the pecuniary administrative sanctions.  

Accumulation of competences contradicts tried-and-tested separation of power approach 

The FINMA already has sufficient tools at its disposal to inform the public about its supervisory activities and practices as a whole, as well as about individual proceedings, and to publish legally binding final rulings. There is no apparent acute problem or need for legislative action. In light of this, it remains unclear why, according to the Federal Council’s benchmark figures of 6 June 2025, FINMA’s communication on individual proceedings – which was previously the exception, now possibly the rule in the future – and also on final rulings, which were previously an optional provision, now a mandatory provision, should be extended. The planned expansion of communication on individual procedures is particularly critical: It could have serious consequences both for Switzerland as a financial centre as a whole and for the institutions concerned, without producing any demonstrable benefit. 

FINMA must refrain from imposing financial administrative sanctions for reasons of the rule of law: Administrative pecuniary sanctions expected to amount to several million Swiss francs do not constitute minor sanctions. Such substantial pecuniary sanctions are criminal in nature. It would be problematic if, in addition to its supervisory and regulatory activities, the FINMA also acted as a quasi-criminal justice authority and acquired a dual role as investigator and decision-maker, imposing fines amounting to millions. 

FINMA would become an executive authority with a judicial function. This accumulation of powers contradicts the tried-and-tested separation of powers in Switzerland and thus one of our fundamental principles.  

In all cases, it remains to be seen how all the measures are actually implemented. The SIA will monitor the parliamentary process closely.