FINMA Circular 2010/3 Health Insurance under the Insurance Contract Act (VVG)

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Tel. +41 (0)31 327 9100, Fax +41 (0)31 327 9101 www.finma.ch Circular 2010/3 Health Insurance under the Insurance Contract Act (VVG) Supplementary insurance for social health insurance and special issues of private health insurance Reference: FINMA-Circular 10/3 "Health Insurance under VVG" Issued: 18 March 2010 Entry into force: 1 May 2010 Last amendment: 26 June 2024 [Amendments are marked with * and listed at the end of the document] Legal basis: FINMA Act Art. 7 para. 1 lit. b Insurance Supervision Act (VAG) Art. 4 para. 2 lit. d and r, 5 para. 1, 11 para. 1, 16, 38, 46 Supervisory Ordinance (AVO) Art. 3 para. 1, 54, 69, 117, 123, 155, 157 FINMA Ordinance (AVO-FINMA) Art. 3
Appendix: Glossary

Table of Contents
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I. Purpose Rz 1
II. Scope Rz 2–4
III. Submission Requirement Rz 5–7
IV. Insurance Technology Rz 8–57
A. Range of a legally permissible technical result of a product Rz 8-9 B. Capture of all material risks Rz 10–13 a) Requirements for the tariff Rz 10–11 b) Repealed Rz 12–13
C. Repealed Rz 14–29
D. Design of the tariff structure Rz 30–34
E. Technically justified and unjustified discounts Rz 35–37.5 F. Adjustment of existing tariffs Rz 38–39.3 G. Repealed Rz 40–44 H. Repealed Rz 45–56 I./J. Advertising for products not yet approved Rz 57
V. Collective Daily Indemnity Insurance: Experience Rating and Classification into Tariff Classes (Art. 157 in conjunction with Art. 123 AVO)
Rz 58–62
A. Information of the policyholder Rz 58–59
B. Tariff design Rz 60–62
VI. Repealed Rz 63–73
VII. Entry into force and transitional provisions Rz 74–76

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The terms printed in italics are explained in the Glossary (Appendix).
I. Purpose
This circular is addressed to supervised insurers who operate the insurance branch B2 "Illness" or A5 "Health Insurance". The circular deals with insurance technical questions regarding tariff calculation in a fundamental manner. These are requirements that largely correspond to the current practice of the supervisory authority.
II. Scope
This circular applies to all private insurance companies and health insurers who operate health insurance under the Insurance Contract Act (VVG; SR 221.229.1) according to insurance branches A5 and B2 (cf. Annex 1 of the Supervisory Ordinance [AVO; SR 961.011]). Contracts under VVG for supplementary insurance to social health insurance and individual daily indemnity insurance of branches B2 and A5 are subject to Rz 2 to 57 and 63 to 75 of this circular. The tariffs and general insurance conditions of the aforementioned insurances, which are used in Switzerland, form part of the business plan and must be approved in advance by the Swiss Financial Market Supervisory Authority (FINMA) (Art. 4 para. 2 lit. r of the Insurance Supervision Act [VAG; SR 961.01] in conjunction with Art. 5 para. 1 VAG). Collective daily indemnity insurance is not considered supplementary insurance to social health insurance. Accordingly, they are not subject to preventive control.1 In the circular, only Rz 58 to 62 and 74 are applicable to collective daily indemnity insurance, which in particular regulate the classification into tariff classes (Art. 157 in conjunction with Art. 123 AVO) and the management of the business plan.
III. Submission Requirement
Products containing contractual obligations of supplementary insurance to social health insurance or individual daily indemnity insurance under VVG are subject to the submission requirement. If there are various approved products with comparable risk coverage that a private insurance company or health insurer wishes to combine into one product, this can be done with a corresponding explanation in the business plan, provided that the provisions of this circular are observed. Contractual obligations that have no quantifiable influence on risk reduction and avoidance must not be financed from current premium income. This applies in particular to benefits that are not capable of steering the behavior of insured persons regarding health promotion and prevention. 1 Cf. Federal Administrative Court: Judgment of 25.5.2007 regarding the submission requirement for tariffs and general contract conditions in collective daily indemnity insurance under the Insurance Contract Act (available at www.bundesverwaltungsgericht.ch > Decisions).

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If the expected loss ratio for illness risks is lower than the sum of the expected loss ratios for the other risks contained in the products, then the tariffs and general insurance conditions for covering such accessory illness risks are not subject to the submission requirement.
IV. Insurance Technology
A. Range of a legally permissible technical result of a product The expected technical result results from the tariff calculation. It does not exceed a share of 10% of premium income based on the contract premium, neither for new contracts nor for the existing portfolio. For tariffs that are applied exclusively to new contracts, the expected technical result is basically at least zero. If the technical result averages at least 15% of premium income based on the contract premium over the last three years, the tariff must be reduced. The insurance company is obliged to submit a tariff adjustment application at the next possible contractual date, so that a technical result according to Rz 8 is achieved in the medium term. FINMA may take materiality thresholds into account. B. Capture of all material risks a) Requirements for the tariff To justify the tariff for a new product or a revision of the tariff for an existing product, the private insurance company or health insurer evaluates the currently foreseeable insurance technical risks. Excluded is the exogenous inflation that cannot be calculated in advance. Suitable technical foundations must be developed for an adequate evaluation and quantification of the relevant risks. It must be demonstrated how financial coverage is to be provided. From the contractual obligations, the expected nominal expense for the claim cases covered during a business year must be determined actuarially, taking into account statistical deviations. Repealed 12*–29* D. Design of the tariff structure A significant unequal treatment not justified by insurance technology according to Art. 117 para. 2 AVO exists if significantly different premiums are demanded for a comparably high risk or if significantly different risks are covered for the same premium. In particular, it must be avoided that part of the insured persons pay too low premiums to the detriment of other insured persons. If unequal treatment according to Art. 117 para. 2 AVO serves to favor children, young adults, and families, Rz 30 and 37–37.5 do not apply. The tariff must have sufficient tariff features with differentiating expressions (tariff classes) to prevent anti-selection risk in particular. The age classes and the effects of an age class change on the premium must be listed in the general insurance conditions (AVB). If significant redistribution components arise, the risk premiums according to the relevant tariff classes must be presented in a suitable manner to assess their extent. The determination of these premiums must be convincingly demonstrated based on meaningful statistics or, in the case of product development, based on suitable and justified calculation assumptions. The derivation of risk surcharges must also be explained. Redistribution components for the formation of solidarities (excluding aging risk, cf. Art. 52 AVO-FINMA) are permissible, provided that the anti-selection risk is duly taken into account. Repealed 34* E. Technically
justified and unjustified discounts Discounts form part of the tariffs and are subject to submission and approval requirements before their application (Art. 4 para. 2 lit. r in conjunction with Art. 5 para. 1 VAG). Discounts for which there is a technical justification must be distinguished from those that cannot be technically justified. A technical justification exists insofar as lower acquisition/administration costs can be proven according to recognized actuarial or business administration methods or a lower expected loss ratio according to recognized actuarial methods. Significant unequal treatment within the meaning of Art. 117 para. 2 AVO (in conjunction with Rz 30) is considered to exist in particular if individual or multiple cumulative, technically unjustified discounts:

• lead to the contract premium falling below the reference premium minus any technically justified discounts by more than 10%;
  37.1*
• do not move within a small range across all insurance contracts of the affected product; or
  37.2*
• lead to a negative technical result on the product or on the favored part of the portfolio in collective and framework contracts. The prerequisites must be met initially. If they are no longer met sustainably, the discounts must be corrected.
  37.3*
  The insurance company ensures compliance with the prerequisites mentioned in Rz 37 ff.
  37.4*
  The insurance company formulates its insurance contracts in such a way that it can cancel or reduce the discounts at the latest by the due date of the next annual premium if the prerequisites according to Rz 37 ff. are no longer met. 37.5* F. Adjustment of existing tariffs An existing tariff may be adjusted within the framework of a business plan amendment according to Art. 5 para. 1 VAG, provided this is permissible under civil law.

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A tariff may, subject to Rz 39.3, be increased by at most the extent of the exogenous inflation not yet taken into account. If increased lapses cannot be excluded and solvency is sufficient, the increase of the affected tariffs can be ordered in stages. For closed products, where no disadvantage arises for any insured person at the time of tariff adjustment and over the entire contract term due to the right of transition to open portfolios, neither in terms of benefits nor tariffs, the inflation-related increases are not limited to exogenous inflation. Increases must be moderate and limited to the economic disadvantage that arises for the insurance company through the parallel operation of the closed product and the equivalent open product. If the technical result of the last completed business year exceeds the upper limit according to Rz 8 or if the increase leads to an exceedance of the same, the tariff may not be increased. 39.1* FINMA makes corrections if necessary in the case of an inconsistent technical result. This concerns in particular inadequate acquisition and administration costs or inadequate changes in insurance technical provisions. 39.2* A tariff increase exceeding the extent of the exogenous inflation not yet taken into account is permissible as an exception, provided that losses – as negative technical results – are expected for the insurance company that would lead to a solvency threat. 39.3* G. Repealed Repealed 40*-44* H. Repealed Repealed 45*-56* I./J. Advertising for products not yet approved Advertising measures for general insurance conditions and tariffs not yet approved must be provided with a clear and visible reservation of approval by FINMA for the consumer.
V. Collective Daily Indemnity Insurance: Experience Rating and Classification into Tariff Classes (Art. 157 in conjunction with Art. 123 AVO)
A. Information of the policyholder
Before conclusion or modification of the contract, the private insurance company or health insurer informs the policyholder, if applicable, about the application of tariff classes and about systems of profit participation or experience rating. If it is not or only limitedly possible for the private insurance company or health insurer due to the complexity of the applied system to specify the prerequisites for upgrading and downgrading quantitatively, the policyholder must at least be informed of the factors that are decisive for premium determination.

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B. Tariff design
For a specific contract or a specific tariff class, the premium must adequately take into account the individual and collective loss experience. The weighting between individual and collective loss experience must be carried out according to a recognized actuarial procedure. The method must be adapted to the specific situation if necessary. 61 Justified exceptions may be permitted if no individual loss experience is available or if the collective loss experience is not relevant (Full Credibility, atypical risk portfolio, bonus/malus system).
VI. Repealed
Repealed 63*–73*
VII. Entry into force and transitional provisions
This circular enters into force on 1 May 2010. 74 The general insurance conditions of contracts concluded from 1 January 2023 must observe Rz 31. The general insurance conditions of contracts running on 1 June 2021 must be adapted by 1 January 2023 to observe Rz 31, provided this is possible under civil law. The insurance company adjusts existing discounts that deviate from Rz 37.1–37.3 on 1 June 2021, as soon as this is possible under civil law. These discounts are not increased beyond the permissible extent according to Rz 37–37.3.

Appendix
Glossary
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Discounts Discounts are reductions granted on the reference premium. This includes any kind of monetary benefits such as discounts, regardless of whether they are granted for a limited or unlimited period.
Age component The age component is the premium portion that covers the aging risk with an aging provision.
Aging risk The aging risk consists of the financial consequences of a change in the age structure of the insured portfolio.
Aging provisions Aging provisions finance the long-term redistributions of the aging risk in advance.
Anti-selection risk Anti-selection risk is understood as the risk that the composition or behavior of the portfolio for a product leads to a higher expected loss ratio than assumed according to the calculation bases. Exogenous inflation Exogenous inflation is the increase in loss expense per insured person minus the financial effects of occurred portfolio changes. Product An insurance product is formed by the insurance conditions and the associated tariffs. The determination of Rz 5 remains reserved. Reference premium The premium according to the tariff sheet is considered the reference premium. Risk-adequate tariff A tariff is considered risk-adequate if, with a sufficiently differentiated tariff structure, the premiums, minus the profit margin and the component for administration costs, correspond to the respective risk premiums (possibly plus the age component) for each tariff class. Risk characteristic Risk characteristics are characteristics of the insured persons that have an influence on the risk, i.e., criteria that can influence the occurrence and amount of a claim case. Risk premium The risk premium of a given tariff class is defined as the calculated premium that is capable of covering the expected loss expense of the affected tariff class during a business year. The risk premium contains no cost or profit components.

Appendix
Glossary
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Tariff class A tariff class is a specific expression of a tariff feature. In a broader sense, the term tariff class also refers to the insured community of the affected class.
Tariff feature Tariff features are those risk characteristics that are taken into account in tariff design. They can be characterized by the fact that they have a strong effect on claim frequency and/or amount, are easily understandable, do not change arbitrarily during the insurance period, and are well measurable and classifiable. Tariff structure The tariff structure is defined on the one hand by the specification of tariff features and classes, and on the other hand by the description of redistribution and age components by tariff class. Technical result The technical result of a product in a business year is the difference between the premium income on the one hand and the sum of incurred claim payments plus the net changes in insurance technical provisions plus the allocated administration costs on the other hand. Redistribution component The redistribution component is the portion of the premium that serves for the current balancing between tariff classes. It can be positive or negative. In a risk-adequate tariff, it is equal to zero for all tariff classes. Insured portfolio The insured portfolio is the totality of insured persons per product. Contract premium The contract premium corresponds to the reference premium minus the discounts.

List of Amendments
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The circular is amended as follows:
This amendment was decided on 11 December 2015 and enters into force on 1 January 2016 Amended Rz 20 These amendments were decided on 6 May 2021 and enter into force on 1 June 2021 Newly introduced Rz 37.1–37.5, 39.1–39.3, 76 Amended Rz 8, 9, 30, 31, 32, 35, 36, 37, 38, 39, 75 Repealed 34, 40–56, 63–73 Other amendments Title before Rz 35, 38 These amendments were decided on 26 June 2024 and enter into force on 1 September 2024 Amended Rz 1, 33, 39.2 Repealed 12–29 The appendix of the circular is amended as follows:
These amendments were decided on 6 May 2021 and enter into force on 1 June 2021 Amended Glossary (technical result) New Glossary (discounts, reference premium, contract premium) Repealed Glossary (discount) These amendments were decided on 26 June 2024 and enter into force on 1 September 2024 Amended Glossary (risk-adequate tariff) Repealed Glossary (equivalence principle, expense loading method, individual needs coverage method, collective needs coverage method, financing methods (basic types), individual capital funding method, collective capital funding method, claim reserves, security and fluctuation reserves, scenario, temporal redistribution)