Insurance and reinsurance in Austria: overview

A Q&A guide to insurance and reinsurance law in Austria.

The Q&A gives a high level overview of the market trends and regulatory framework in the insurance and reinsurance market; the definitions for a contract of insurance and a contract of reinsurance; the regulation of insurance and reinsurance contracts; the forms of corporate organisation an insurer can take; and the regulation of insurers and reinsurers, including regulation of the transfer of risk. It also covers: operating restrictions for insurance and reinsurance entities; reinsurance monitoring and disclosure requirements; content requirements for policies and implied terms; insurance and reinsurance claims; remedies; 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 Austria.

To compare answers across multiple jurisdictions visit the Insurance and Reinsurance Country Q&A tool.

This Q&A is part of the global guide to insurance and reinsurance. For a full list of jurisdictional Q&As visit www.practicallaw.com/insurance-guide.

Philipp Scheuba and Thomas Boller, BLS Rechtsanwälte Boller Langhammer Schubert KG
Contents

Market trends and regulatory framework

1. What have been the main trends in the insurance and reinsurance markets over the last 12 months?

The insurance industry is strictly regulated in Austria compared with other European countries. As a result, there exists a very reliable fallback system and, for decades, not a single insurance company has been declared insolvent.

There are currently 61 insurance companies and 55 insurance mutuals (Kleine Versicherungsvereine auf Gegenseitigkeit) licensed and domiciled in Austria. 25 insurance companies based in the European Economic Area (EEA) have a licensed Austrian branch.

Premiums

Despite the difficult economic situation, the Austrian insurance business achieved positive results in 2010. According to the Austrian Insurance Association, there was an increase of premiums in 2010 by 2% to EUR16.75 billion (as at 1 January 2012, US$1 was about EUR0.8).

Indemnification payments

There were fewer natural disasters in 2009 compared to 2010 when Austria suffered significant property damage following extreme weather conditions. Consequently, 2009 saw a 1.7% decrease of indemnification payments to EUR12 billion. Total payments of indemnity and accident insurance were about EUR5 billion, the same as in 2008.

State-aided pensions

Life insurance is part of the so-called "Three-Pillar-Model", which encourages individuals to supplement their statutory pension with private insurance payments. Since its introduction in 2003, more than 1.3 million of these additional state-aided pensions have been concluded.

Despite uncertainty brought about by the 2010 financial crisis, there was a 1.9% increase of life insurance premiums to EUR7.6 billion. Payments only increased by 1.2% to EUR5.8 billion. Life insurance is potentially a growth area as the ratio of statutory and private pensions is only 9:10.

 
2. What is the regulatory framework for insurance/reinsurance activities?

Regulatory framework

The Insurance Supervisory Act (Versicherungsaufsichtsgesetz) (VAG) regulates insurance activities and states that the Austrian Financial Market Authority (Österreichische Finanzmarktaufsicht) (FMA) is the competent authority to supervise insurers in Austria. The VAG contains the regulatory regime for insurance companies including, among other things, provisions regarding capital and liquidity requirements, as well as other ongoing requirements for insurers (see Question 13, Insurance/reinsurance providers).

The Insurance Contract Act (Versicherungsvertragsgesetz) (VersVG) is the main piece of legislation governing insurance contracts. It contains general provisions regarding the rights and duties of both the insurer and the insured, as well as specific provisions for different insurance branches.

The Consumer Protection Act (Konsumentenschutzgesetz) (KSchG) must be complied with, particularly in relation to single provisions in the insurance policy.

The Craft, Trade, Service and Industry Act (Gewerbeordnung) (GewO), as well as the Broker Act (Maklergesetz), provide for the marketing of insurance services by brokers.

Regulatory bodies

The FMA ultimately decides on the applicability of the VAG in relation to single enterprises. Only companies subject to the VAG are entitled to offer insurance contracts. Additionally, all other regulatory requirements must be met.

 

Regulation of insurance and reinsurance contracts

3. What is a contract of insurance for the purposes of the law and regulation? How does it differ from a contract of reinsurance?

The terms "contract of insurance" and "contract of reinsurance" have not been specified in either the VersVG or the VAG. However, the following criteria have been established as the main elements of a contract of insurance:

  • Uncertainty.

  • Consideration.

  • Legal entitlement.

  • An independent transaction.

  • Risk-distribution.

Therefore, companies offering contracts meeting these elements are subject to supervisory insurance regulation.

A contract of reinsurance is an insurance contract between an insurer and a reinsurer, in which (part of) a taken risk from the insurer is transferred to the reinsurer. A contract of reinsurance does not establish a contractual relation between the reinsurer and the policyholder of the primary insurer.

 
4. Are all contracts of insurance/reinsurance regulated?

Generally, all types of insurance contracts fall within the scope of the VersVG. Special legal regulations apply for:

  • Casualty insurance.

  • Fire insurance.

  • Hail insurance.

  • Animal insurance.

  • Animal transport insurance.

  • Personal liability insurance.

  • Legal expenses insurance.

  • Life insurance.

  • Private health insurance.

  • Personal accident insurance.

Insurance contracts must contain a certain element of risk. If the assumed risk is comparatively low, these contracts may not be regarded as insurance contracts but, for example, as financial products by the FMA. In those cases, different provisions apply.

Reinsurance contracts are expressly not regulated by the VersVG (section 186).

 

Corporate structure

5. What form of corporate organisation can insurers take in your jurisdiction?

Domestic insurance companies must be either:

  • A joint-stock company.

  • A European company (Societas Europaea).

  • A mutual insurance association.

The company's headquarters must be located in Austria.

Foreign companies, which promote insurance contracts in Austria, must have a comparable legal structure and establish a branch office in Austria, unless they provide cross-border services under the principle of European freedom of free movement of services (see Question 10, Insurance/reinsurance intermediaries).

 

Regulation of insurers and reinsurers

6. Are all insurers and reinsurers regulated in your jurisdiction? Are they all regulated in the same way?

The VAG regulates both insurance and reinsurance companies. However, with respect to companies exclusively specialising in reinsurance in particular, the following regulations do not apply (paragraphs 2 and 2a, section 2, VAG):

  • Information obligations to the insured (section 9a).

  • Authorisation from the FMA for outsourcing contracts (section 17a).

  • Agents (section 17d).

  • Allocations to reserve for risk (section 73a).

  • Derivative financial instruments (section 74).

  • Supervision by the FMA after loss of licence (paragraph 2, section 99).

  • Special measures by the FMA in case of danger for the insured (section 106).

  • Operations in third countries (section 107a).

The following are specifically regulated for reinsurers:

  • Portfolio transfer (section 13d).

  • Minimum requirement of guarantee fund (paragraph 2 nr3a, section 73f).

  • Coverage of actuarial accrual (section 79c).

The VersVG does not apply to reinsurance contracts.

 
7. Can insurers or reinsurers carry on non-insurance business? Are there any restrictions on their business activities?

Companies with a valid licence to offer insurance contracts are not restricted from practising non-insurance business. It may be necessary to comply with certain other regulations such as the GewO (see Question 2, Regulatory framework).

There are also restrictions within the field of insurance activities and certain classes of insurance must not be operated together. Insurance companies offering life insurance are only authorised to additionally provide private health insurance, personal accident insurance and reinsurance. To offer different products, another entity must be established.

 
8. Are there any statutory limits or other restrictions on, or requirements relating to, the transfer of risk by insurance or reinsurance companies?

An insurance company that transfers risk to a reinsurance company must comply with its own obligations and those of the reinsurer. In addition, it must employ appropriate risk distribution. The insurer can ensure that it complies with its own obligations by choosing a suitable reinsurer. The insurance company must undertake credit assessment on the reinsurer. The reinsurer must be able to limit the insurance company's risk.

An inappropriately high percentage of risk transfer can interfere with the interests of the insured because the insurer's profitability can be unnecessarily damaged as a result. A full transfer of all risks is only acceptable under special circumstances.

 

Operating restrictions

Authorisation or licensing

9. Does the entity or person have to be authorised or licensed in your jurisdiction?

Insurance/reinsurance providers

Only licensed entities are permitted to perform contracts of insurance. The FMA grants the licence.

One of the main prerequisites is the company's legal form (see Question 5).

A business plan must be attached to the application for a licence and must cover:

  • The type of risks the insurance company intends to cover.

  • The type of reinsurance contracts that can be made.

  • The general outline of the reinsurance policy.

  • The composition of the equity capital.

  • The estimated expenditures accounted for the development of the administration and marketing, and proof of sufficient funds.

During the first three years, the business plan must also contain:

  • The expected expenditures for commission and the ongoing insurance business.

  • The expected premium income and expected indemnification payments.

  • The budgeted balance sheet and profit and loss statement.

  • Expected financial funds required to cover the obligations and requirements for equity capital.

If the company has not yet been granted a licence, the articles of association must form part of the business plan.

Foreign companies' articles of association do not form part of the business plan unless they have not already obtained a licence. In this case the following must be disclosed to the FMA:

  • The business plan.

  • The articles of association.

  • The names of the members of the executive and supervisory board.

Together with the business plan, a foreign company must present a certificate of its competent supervisory authority stating which types of insurance services it is licensed to provide and which it actually performs. If the company has not yet obtained a licence, it must attach the balance sheets, and the profit and loss statements of the last three business years.

In addition, insurance companies must establish a guarantee fund.

Insurance/reinsurance intermediaries

Austrian law does not distinguish between marketing and broking insurance services, both of which can only be provided by authorised entities.

Insurance companies must use qualified employees to promote the contracts or self-employed brokers.

Besides insurance companies, only entities authorised under GewO are permitted to market and promote insurance contracts.

Insurance broking includes (section 137, GewO):

  • Offering, proposing and undertaking preparatory operations to conclude an insurance contract.

  • Concluding the insurance contract.

  • Contributing to the administration or performance of insurance contracts.

Self-employed brokers must comply with the GewO and must be registered in a special index for insurance brokers. Investment advisers can also promote life insurances and personal accident insurances but must comply with the provisions of the GewO for brokers.

Regulations for insurance brokers. To obtain a licence, proof of professional qualification must be established. The GewO provides for detailed provisions on the educational and professional requirements for insurance broking.

Employees of insurance brokers must provide completion confirmation of an internal tutorial regarding the insurance services they promote.

Sole entrepreneurs and members of the company's executive board must prove good character.

Insurance brokers also require adequate professional liability insurance or an unrestricted declaration of liability of the insurance company if the broker only acts for one company.

Other providers of insurance/reinsurance-related activities

The marketing, broking and promoting of insurance services requires authorisation (see above, Insurance/reinsurance intermediaries).

 
10. What are the main exemptions or exclusions from authorisation or licensing that are available?

Insurance/reinsurance providers

Under the EEA's single licence principle, insurance companies based in an EEA member state can carry on their business by having a branch office or by providing cross-border services in any other member state without needing an additional specific licence.

A branch office is regarded as being established as soon as an independent but permanently entrusted person is working in Austria.

Mutual agreement procedure when establishing a branch office. Branch offices of insurance companies based in EEA member states do not require a licence if the FMA has received from the competent supervisory authority of the member state both (section 7, VAG):

  • The statement of the insurance company on the branch office, for example, the:

    • designated member state;

    • business plan for the branch office;

    • mailing address in the designated state; and

    • name of the primary authorised representative.

  • Proof that the insurance company is equipped with the required equity capital.

The activities can be started two months after the FMA receives the above documents, unless the FMA has earlier informed the foreign competent supervisory board on the applicable provisions of Austrian law regarding contracts of insurance.

Mutual agreement procedure when providing cross-border services. If an insurance company based in a member state wishes to conclude insurance contracts in Austria without having a branch office in Austria, the member state's competent supervisory authority must provide the FMA with a certificate stating:

  • That the insurance company is equipped with the required equity capital.

  • The information on the types of insurances and risks the insurance company is authorised to cover and intends to perform in Austria.

When the member state's competent supervisory authority has sent this information to the FMA, the services can be provided in Austria.

Insurance/reinsurance intermediaries

Insurance companies. As soon as a foreign company promotes insurance contracts in Austria, an insurance business in Austria is established, which requires licensing (see Question 9). There are exemptions for insurance companies based in an EEA member state (see above, Insurance/reinsurance providers).

Brokers from EEA member states. Insurance brokers registered in another EEA member state can work in Austria claiming freedom of services or establishment. For this purpose, the member state's competent supervisory authority must inform the responsible Austrian authority.

If a branch office is founded in Austria, a prerequisite for registration in the index for insurance brokers is registration in the member state and proof of professional liability insurance.

Exemption from authorisation. A licence does not have to be obtained if the promoted insurance only constitutes a value-added service on a delivery of goods or services and only covers the loss or damage of such a delivery or the risks in connection with a journey.

Other providers of insurance/reinsurance-related activities

The above provisions also apply to other providers of insurance/reinsurance-related services (see above, Insurance/reinsurance intermediaries).

 

Restrictions on ownership or control

11. Are there any restrictions on the ownership or control of insurance-related entities?

Insurance/reinsurance providers

The executive board of an insurance company must consist of at least two members. Managing directors must be reliable and qualified to fulfil their function.

A managing director is not regarded as reliable if he has been convicted of a particular criminal or fiscal offence, or involved in an insolvency case. A managing director is generally deemed to possess the professional qualifications and skills necessary after performing a managing job in an insurance company for three years.

A managing director must not:

  • Accept another regular job in a field other than insurance or banking.

  • Undertake any other activities which could interfere with the management of the insurance company.

At least two managing directors of a foreign insurance company must reside in Austria. At least one director of a domestic company must be proficient in the German language.

Insurance/reinsurance intermediaries

Insurance brokers must fulfil the requirements for obtaining a licence under the GewO. In addition to the requirements of qualification and good character (see Question 9), the candidate must be over 18 years of age and either:

  • A citizen of an EEA member state.

  • Have the right of residence in Austria.

Other providers of insurance/reinsurance-related activities

This is the same as for marketing insurance services (see above, Insurance/reinsurance intermediaries).

 
12. Must owners or controllers be pre-approved by or notified to the relevant authorities before taking, increasing or reducing their control or ownership of the entity?

Insurance/reinsurance providers

A buyer must inform the FMA if its intended purchase exceeds 10% of the nominal share capital or voting rights of an insurance company. This also applies if the levels of 20%, 33% or 50% are exceeded or substantial influence has been obtained on the managing board. The FMA can veto the purchase of 10% or more of shares or voting rights if a risk exists that the shareholder's influence could damage solid and careful leadership of the insurance company.

There are also reporting requirements if an interest falls below the above levels.

Insurance/reinsurance intermediaries

There are no comparable regulations stipulated in the GewO in relation to the change of ownership in companies only performing insurance broking. The applicable regulations for the operation of these companies must be observed.

Other providers of insurance/reinsurance-related activities

This is the same as for marketing insurance services (see above, Insurance/reinsurance intermediaries).

 

Ongoing requirements for the authorised or licensed entity

13. What are the key ongoing requirements with which the authorised or licensed entity must comply?

Insurance/reinsurance providers

Modification of business plan. The FMA must approve amendments to a domestic company's articles of association. Changes to the articles of association of a company based in a third country with a branch office in Austria must be reported to the FMA.

Changes relating to the following must be reported to the FMA:

  • The type of risk the insurance company intends to cover.

  • The type of reinsurance contracts that have already been concluded.

  • The general outline of the reinsurance policy.

Reporting to the FMA. The insurance company must report to the FMA any change of the members of the executive board and the supervisory board of a domestic joint stock company or mutual insurance association, in order to ensure effective supervision by the FMA. On a motion by the FMA, the competent court may declare void the result of the election of the chairman of the supervisory board.

For information regarding reporting requirements triggered by a change of shares (see Question 12).

Duty of information. The insurance company must inform the insured in writing of the following, before entering into an insurance contract:

  • The name, address and legal form of the insurance company.

  • The applicable law.

  • The competent supervisory authority.

  • The duration of the insurance contract.

  • The kind and period of premium payment.

  • The circumstances allowing revocation or rescission of the insurance contract.

Significant transactions between affiliates from the same holding company group must be notified to the FMA at the latest by the end of the calendar year, in order to ensure effective supervision by the FMA. This applies especially to:

  • Credits.

  • Guarantees.

  • Balance sheet transactions.

  • Reinsurance business.

  • Assessments.

The FMA can release a bye-law to specify transactions requiring notification, but has not yet done so.

Insurance/reinsurance intermediaries

The requirements to obtain a licence must be continuously met and this is regularly checked by the responsible authority (see Question 9, Insurance/reinsurance intermediaries).

Other providers of insurance/reinsurance-related activities

This is the same as for marketing insurance services (see above, Insurance/reinsurance intermediaries).

 

Penalties for non-compliance with legal and regulatory requirements

14. What are the possible consequences of an entity failing to comply with applicable legal and regulatory requirements? What recourse do policyholders have if they have done business with a non-approved entity?

Insurance/reinsurance providers

The following specific acts are subject to prosecution:

  • Performing an insurance business without a licence.

  • Establishing a branch office or performing cross-border services without the required permission.

  • Brokering insurance contracts of a company that is not licensed.

  • Knowingly providing the FMA with false information to obtain a licence.

Revocation of the licence. The FMA must revoke the licence if either:

  • The requirements for granting a licence are no longer fulfilled and other special measures are ineffective (see below, Special supervisory measures).

  • The insurance company did not carry out the measures stipulated in the solvency or financing plan.

  • The insurance company seriously violated legal obligations, the business plan, or orders of the FMA.

  • The insurance company becomes bankrupt or is liquidated by other means.

Special supervisory measures. The FMA can entirely or partially prohibit an insurance company's business. As a consequence, no further insurance contracts can be concluded and existing contracts must be terminated early.

In case of insolvency, special measures can be ordered by the FMA (see Question 29).

Violation of other duties. Certain other violations can be punished with a fine of up to EUR50,000, such as:

  • False declarations to the FMA on the coverage requirement.

  • The actuary issuing incorrect confirmations.

  • Disregarding the duty to report facts that could endanger continuous compliance with the obligations of the insurance contracts.

If a policyholder has done business with a non-approved entity then generally, under civil law, the insurance contract is valid and must be fulfilled by the insurer even if he is not licensed. If the policyholder was deceived by the insurer about the licence he could leave the contract, and the unlicensed insurer may be liable for damages.

Insurance/reinsurance intermediaries

The FMA can revoke the licence if the entity fails to comply with applicable requirements.

Other providers of insurance/reinsurance-related activities

This is the same as for marketing insurance/reinsurance services (see above, Insurance/reinsurance intermediaries).

 

Restrictions on persons to whom services can be marketed or sold

15. Are there any restrictions on the persons to whom insurance/reinsurance services and contracts can be marketed or sold?

There are no specific restrictions on the persons to whom insurance contracts or services can be sold or marketed. However, the general rules on legal capacity and limited capacity to contract must be observed. Children under the age of seven years are totally incapable of entering into a contract. Minors between the ages of 14 to 18 cannot undertake duties without the authorisation of their legal representative.

 

Reinsurance monitoring and disclosure requirements

16. To what extent can/must a reinsurance company monitor the claims, settlements and underwriting of the cedant company?

There are no specific regulatory provisions in the VAG under which companies acting in the reinsurance business must monitor the cedant insurance companies.

 
17. What disclosure/notification obligations does the cedant company have to the reinsurance company?

Subject to the specific contract, the cedant company must inform the reinsurance company of all essential circumstances. Failure to do so can result in legal claims by the reinsurance company. Requirements to notify the FMA must be observed.

 

Insurance and reinsurance policies

Content requirements and commonly found clauses

18. What are the main general form and content requirements for insurance policies? What are the most commonly found clauses?

Form and content requirements

The general form for insurance policies can vary.

Commonly found clauses

The following provisions are the most commonly found in Austrian insurance contracts.

Handing over a signed policy. The insurer must hand over a signed policy to the insured. A replication of the signature is sufficient.

Deviations from the application. If the content of the policy differs from the application, the deviation is deemed to be approved if the insured does not contradict it within one month after receipt of the policy, provided the insured has been informed of the deviation and the consequence of the deemed approval. Each deviation must be separately indicated. If the insurer does not comply with these regulations the content of the application is deemed to be agreed.

The insurer cannot exclude the right of the insured to contest the insurance contract due to misapprehension.

Binding force of application and period of insurance cover. If the insured files an application on a form provided by the insurer (which is common), the following rules apply:

  • The provision that the application is binding for a specific period is ineffective if it exceeds six weeks. This clause is only effective if it has specifically been agreed.

  • The insured must be informed that the insurance contract is concluded at the moment the insured receives the policy or a specific declaration of acceptance, and also of the lack of coverage prior to this. If the insurer cannot prove compliance with these duties, coverage must be granted from the moment the application has been received by the insurance company or its agent.

The insurance can be effected for a time starting before the conclusion of the insurance contract. If the insurer is aware that the occurrence of the insured event is impossible, it cannot claim the premium. However, if the insured is already aware that the insured event has occurred, the insurer is free of any obligations.

The coverage generally starts and ends at noon.

Right of withdrawal. The insured can withdraw from the contract within two weeks if he does not receive:

  • A copy of the contract, if he files the application in front of an agent.

  • The insurance terms and conditions before filing the application, including the provisions on the premium and designated adjustment of the premium.

  • The information according to section 9a of the VAG (see Question 13).

The time period to withdraw does not begin to run before the insurance company:

  • Fulfils the information requirements under section 9a of the VAG.

  • Hands over the policy and the insurance terms and conditions.

  • Informs the insured of his right to withdraw.

The burden of proof in relation to the fulfilment of these obligations is on the insurer. The right to withdraw is not effective if the contract term is shorter than six months.

Breach of obligations. A provision stipulating that the insurer does not have to perform if the insured breaches an obligation before the insured event has occurred is only effective if the infringement occurred due to the insured's fault.

If an obligation relating to the time after the insured event has occurred, the legal consequence only occurs if the infringement occurred intentionally or grossly negligently. The insurer must perform if the violation did not affect the insured event and the obligation to provide indemnification, unless the violation occurred intentionally.

A provision which provides that the insurer can withdraw from the contract if an obligation is not fulfilled is void.

Termination. A provision under which the insurance contract is deemed extended if not terminated earlier is only valid if the extended term is no longer than one year. An insurance contract entered into for an indefinite period of time can be terminated by both parties at the end of the current insurance term. The notice period for the termination must be identical for both parties and cannot be less than one month or more than three months. The parties can mutually waive the right of termination for two years.

If the insured is a consumer, he can terminate an insurance contract with a term of more than three years, at the end of the third year or every following year with a notice period of one month in writing. However, the insured may have to compensate the insurer for benefits received, such as discounts on premiums which were granted due to the contract term.

Applicable jurisdiction. An agreement on the jurisdiction is only effective in relation to disputes which have already occurred.

Forfeiture of claim for indemnification. A provision under which the insurer is free not to perform if the insured has not fulfilled his obligation to immediately notify the insurance company of the occurrence of the insured event is only valid if the insurer has not gained knowledge of the insured event by other means.

 
19. Is facultative or treaty reinsurance more common? What are the most commonly found clauses in reinsurance policies?

Facultative/treaty reinsurance

Treaty reinsurance is more common in Austria, although facultative reinsurance is also chosen, particularly to cover risks which are not included in treaty reinsurance.

Commonly found clauses

There are no specific regulations for reinsurance contracts. Therefore, general provisions of civil law apply and the parties are free to conclude individual contractual agreements. Common clauses (such as follow the form and follow the fortune) can be found in reinsurance contracts, as well as provisions on information and inspection rights, and risk transfer to the reinsurer. Where an Austrian entity and a foreign insurance company conclude a reinsurance contract, the Austrian entity will usually try to choose Austrian law.

 

Implied terms

20. Are there any terms that are implied by law or regulation (even if not included in the insurance or reinsurance contract)?

As a general rule implied in all insurance contracts, the insured must declare any facts or circumstances which are significant for the coverage of the specific risk. A fact is considered significant if it was specifically asked for in writing. If the insured culpably breaches this obligation, the insurer can withdraw from the contract and become free of its performance obligations.

In addition, contract terms cannot breach public policy. The duty of utmost good faith is generally implied in all insurance contracts (see Question 27, Damages). The Austrian Consumer Protection Act (KSchG) prohibits unreasonable or discriminating provisions in consumer contracts, including provisions which:

  • Afford an insurance company an unreasonably long period in which to accept or reject a claim.

  • Assume certain conduct by the consumer to be a contractual statement, unless the consumer has been expressly informed about the meaning of his conduct and is given an appropriate period in which to file an express declaration.

  • Contain a presumption of receipt in respect of legal notices if the insurer can prove they were delivered to the policyholder's address. (However, these clauses are effective if the consumer has not informed the insurance company about a change of address despite an express obligation to do so. In these circumstances, the insurer has a burden to prove the notice was delivered to the consumer's last known address.)

  • Stipulate the jurisdiction in which a consumer must file their lawsuit. See Question 35.

There are no known implied terms for reinsurance contract because:

  • There are only a few Supreme Court decisions concerning reinsurance matters.

  • Neither the VersVG nor the KSchG apply to reinsurance contracts.

 

Customer protections

21. What customer protections are generally included in insurance policies to supplement relief available under general law?

Insurance policies generally do not include customer protections that the law does not already provide. This is due to the number and intensity of provisions protecting consumers in the Austrian Consumer Protection Act and the VAG.

 

Standard policies or terms

22. What are the main standard policies or terms produced by trade associations or relevant authorities?

The Austrian Insurance Association has developed a number of non-binding model contracts, for example:

  • The General Conditions for the Life Insurance (Versicherungsbedingungen der Er- und Ablebensversicherung 2008).

  • The General Conditions for the Property Insurance (Allgemeine Bedingungen für die Sachversicherung, ABS 2007).

  • The General Conditions for the Personal Accident Insurance (Allgemeine Bedingungen für die Unfallversicherung, AUVB 2008).

  • The General Conditions for the Automobile Third Party Insurance (Kraftfahrzeughaftpflicht-Versicherung − Allgemeine Bedingungen, Kfz AKHG 2007/2).

  • The General Conditions for the Fire Insurance (Allgemeine Bedingungen für die Feuerversicherung, AFB 2001).

These standard policies can be easily obtained from the Austrian Insurance Association's website, www.vvo.at.

 

Insurance and reinsurance policy claims

Establishing an insurance claim

23. What must be established to trigger a claim under an insurance policy?

The insured must notify the insurer of the occurrence of an insured event immediately after having received knowledge of it. Typically, the individual insurance contract provides a procedure following an insured event. The insured can forfeit its claim if it violates certain contract terms.

A clause stating the insurance company does not have to cover losses if notice of the claim was received late, will not be enforceable if the company received notice other than from the insured in due time. Coverage cannot be refused if the delay of a notice delivery has not had any influence on the finding or the extent of the claim.

 

Third party insurance claims

24. What are the circumstances in which third parties can claim under an insurance policy?

Generally, only the insured can claim an indemnification payment under the insurance policy, unless the insured has declared a third party as being the beneficiary (for example, life insurance).

Special provisions can also provide for a direct claim by third parties (injured persons) against the insurer, such as section 26 of the Automobile Third Party Insurance Act (Kraftfahrzeug-Haftpflichtversicherungsgesetz 1994). Under section 26, the injured party can raise its claim against the insurer of the insured person that is liable for damages.

 

Time limits

25. Is there a time limit outside of which the insured/reinsured is barred from making a claim?

Claims become time-barred after three years. If a third party is entitled to the claim, the period of limitation only begins on knowledge of the claim against the insurer. However, if the third party has not gained knowledge of the claim, its claim becomes time-barred after ten years.

When the insurer has been notified of a claim, the lapse of time is stopped until the insurer has informed the insured of its decision in writing. However, a claim becomes time-barred after ten years.

A claim must be enforced by the insured before the court within one year on proper notification of the insurer's rejection.

 

Enforcement

26. Can the original policyholder or other third party enforce the reinsurance contract against a reinsurer?

There is no privity of contract between an insured and his insurer's reinsurer. Contracts between the insurance company and the reinsurer generally do not equip single insurers with rights. Therefore, policyholders cannot enforce their contract with the insurance company against the reinsurance company. However, there may be cases where the insurance company and the reinsurer have agreed differently (for example, using a cut-through provision) or the reinsurer acted as though a contract between the insurant and itself existed.

Austria generally does not warrant claims under single insurance policies (see Question 29).

There is currently no policyholder compensation scheme in the event of insurance company insolvency.

 

Remedies

27. What remedies are available for breach of an insurance policy?

Early termination

A party can terminate the insurance contract before its term if the other party is in breach of contract.

Damages

A breach of contract can give rise to a claim for damages.

Common law or tort-based actions alleging insurance coverage bad faith are not recognised under Austrian law. If an insurance company acts in bad faith, this is treated as a breach of contract and the consumer is entitled to claim for contractual damages.

Punitive damages are not awarded by Austrian courts. As a general rule, damages awarded correspond to the loss actually suffered. However, damages in insurance cases involving bad faith are not limited to the original face value of the policy.

 

Punitive damage claims

28. Are punitive damages insurable in your jurisdiction? Can punitive damages be reinsured if they are covered by an underlying policy?

Punitive damages are not recognised under Austrian law. However, damages in insurance cases involving bad faith are not limited to the original face value of the policy.

 

Insolvency of insurance and reinsurance providers

29. What is the regulatory framework for dealing with distressed or insolvent insurance or reinsurance companies, or other persons or entities providing insurance or reinsurance related services? What regulatory and/or other protections exist for policyholders if the insurance company is insolvent?

The board of directors must report to the FMA if an insurance company meets the following requirements for opening bankruptcy proceedings according to sections 66 and 67 of the Bankruptcy Act (Konkursordnung):

  • Inability to pay.

  • Over-indebtedness.

The application to start the bankruptcy proceedings can only be filed by the FMA. At first, the FMA can take other measures if the avoidance of the bankruptcy will benefit the insurants, including:

  • The temporary prohibition of payments to the insured such as indemnification payments, cash surrenders or prepayments on life insurance policies.

  • Payments under life insurance policies proportionate to the remaining funds of the insurance company.

Arrangements in bankruptcy are not possible. If the special measures installed by the FMA fail to restore the solvency of the insurance company the FMA must start bankruptcy proceedings. Insurance contracts are terminated one month after opening bankruptcy proceedings. Insurance claims (as defined in section 88 of the VAG) are privileged. The premium reserve fund constitutes a special legal body in the bankruptcy. Claims stemming from insurance contracts secured by a premium reserve fund are privileged.

 
30. Can excess coverage "drop down" to provide coverage at levels concerning which the existing coverage is insolvent?

No specific regulations exist concerning the excess coverage where the primary insurance company is insolvent.

 
31. Is a right to set-off mutual debts and credits recognised in an insolvency proceeding involving an insurer or reinsurer?

A right to set-off mutual debts and credits is recognised in an insolvency proceeding involving an insurer or reinsurer. This right is also generally recognised if the counterpart is insolvent, as long as both:

  • The claim could have been set-off before the counterpart became insolvent.

  • There was no subrogation.

There are no specific regulations governing this area of Austrian law.

 

Taxation of insurance and reinsurance providers

32. What is the tax treatment for insurers, reinsurers, and other persons or entities providing insurance and reinsurance-related services?

Corporate income tax

Generally, insurance and reinsurance companies and other persons or entities providing insurance and reinsurance-related services are subject to ordinary taxation in Austria.

The taxable income of an insurance company for corporate income tax purposes is determined on the basis of the results shown in the annual financial statements with adjustments made under specific Austrian tax rules. The corporate income tax rate is a flat rate of 25%. There is no expiry date for loss carry-forwards of insurance companies. Losses, however, can only be set off against 75% of the annual profit, which means that 25% of the annual taxable profit will always be taxed. No loss carry-backs are allowed.

Generally, allocations to provisions and reserves required by the Austrian Insurance Supervisory Act and the Commercial Law (Unternehmensgesetzbuch) (UGB) are tax deductible. In the case of long-term reserves of more than 12 months, however, only 80% is tax deductible. This general rule does not apply to provisions for severance payments, pensions and anniversary payments as for these provisions special tax rules apply. Lump-sum accruals are not tax deductible.

There are specific tax rules concerning certain technical provisions of insurance companies:

  • 94% of the provision for outstanding claims is tax deductible. This is a result of:

    • 70%, which is fully deductible; and

    • 30%, which is considered to be a long-term provision, only 80% of which is tax deductible.

  • Only 50% of the equalisation provision (that is, a provision set up to reduce varying claim rates) is tax deductible.

  • The provision for premium refunds to the policyholders is, under special conditions, tax deductible.

  • The transfer to the obligatory risk reserve is not tax deductible.

Generally, insurance companies must pay taxes on at least 20% of its taxable income before deducting premium refunds and the allocations to the reserve for premium refunds.

Insurance premium tax (IPT)

The payment of insurance premiums is generally subject to IPT. The IPT rate varies depending on the kind of insurance contract:

  • 4% or 11% for life insurance. The applicable tax rate depends on the kind of insurance contract (for example, cash value life insurance, annuity insurance, and so on), the duration of the insurance contract (15 years or less) and when the premium payments are paid (single versus regular premium payments).

  • 1% for health insurance.

  • A general rate of 11% for most other insurance contracts.

Premiums under a reinsurance contract are not subject to IPT. An additional fire brigade tax at a rate of 8% is imposed on premium payments that cover fire risk.

Value added tax (VAT)

The standard VAT rate in Austria is 20%. Most insurance services and services of insurance agents are exempt from VAT.

 

Insurance and reinsurance dispute resolution

33. Are there special procedures or venues for dealing with insurance or reinsurance complaints or disputes?

It is possible to determine that a dispute between the insurer and the insurant must be settled by arbitration. However, an arbitration clause is only valid if the expert is chosen by a neutral third party.

The expert can only judge the facts and not questions of law. Legal issues must be decided by the court. The expert's findings are void if they obviously differ from real circumstances. In such a case, or if the expert delays or cannot determine the findings, the matter is referred to the court.

 
34. Are arbitration clauses in insurance and reinsurance agreements enforceable?

Arbitration clauses in insurance and reinsurance agreements are enforceable. However, the onus is on the insurance company to prove the clause was included in the agreement.

 
35. Are choice of forum, venue and applicable law clauses in an insurance or reinsurance contract recognised and enforced in your jurisdiction?

A choice-of-forum clause is void if it stipulates a venue for lawsuits against consumers that is outside the jurisdiction in which the consumer is resident or employed.

A choice of law clause is recognised if the consumer is resident or the risk of the insurance is located in Austria or another EU member state where a free choice of law is granted. However, mandatory provisions of Austrian law cannot be excluded by agreement.

 

Reform

36. What proposals are there for reform of the law, regulation or rules in your jurisdiction relating to the provision of insurance or reinsurance services?

There are currently no official proposals for major reform of law except the long-term implementation of EU regulations, especially Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II Directive).

 

Main insurance/reinsurance trade organisations

Austrian Insurance Association (Verband der Versicherungsunternehmen Österreichs) (VVO)

Main activities. According to its website, the VVO represents the interests of private insurance companies operating in Austria and supports its 142 members in legal, fiscal and economic matters. The VVO is responsible for the tasks of the Trade Association of Insurance Companies at the level of the Austrian Chamber of Commerce (Wirtschaftskammer Österreich) (WKO) and represents Austrian interests in EU and other international entities.

W www.vvo.at

Association of Austrian Insurance Brokers (Verband Österreichischer Versicherungsmakler)

Main activities. The Association of Austrian Insurance Brokers represents its members in evaluation procedures of national and European law proposals, and provides services and educational training for its members.

W www.vovm.at


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