Financial Services Regulation and Compliance - Insurance Dec 2021
Financial Services Regulation and Compliance - Insurance Dec 2021
Health Insurance (Amendment) Bill 2021 published
On 1 December 2021, the Health Insurance (Amendment) Bill 2021 was published. The Bill provides a mechanism for on-going sustainability of the private health insurance market, while also maintaining health insurance policies at an affordable price for all citizens.
The Bill provides for a reduction in stamp duty levies on advanced health insurance contracts and on non-advanced health insurance contracts. It also provides for an additional type of credit which will subsidise high claims costs which health insurers incur through providing cover for customers with complex healthcare needs. This improvement is expected to increase the effectiveness of the Risk Equalisation Scheme.
The Bill is expected to be enacted by the Oireachtas before the end of this year.
Central Bank of Ireland publishes opening statement at Joint Oireachtas Committee on Finance, Public Expenditure and Reform
On 8 December 2021, the CBI published the opening statement delivered by Gerry Cross, Director of Financial Regulation, Policy and Risk (the Director) at the Joint Oireachtas Committee on Finance, Public Expenditure and Reform. The Director's statement was focused on insurance matters and, in particular, the areas of differential pricing, the cost of insurance premiums and business interruption insurance.
On differential pricing, the Director referred to the CBI's consultation on differential pricing, the proposals to:
ban 'price walking'
introduce new customer consent and disclosure requirements to ensure automatic renewal processes are more transparent
maintain new customer discounts in specified circumstances
It was noted that the consultation period for the CBI's proposals closed on 22 October 2021 and that the CBI is currently analysing the submissions it received.
The Director discussed the cost of insurance and noted that the CBI is acutely aware of the difficulties faced by policyholders in relation to increases in insurance premiums. It was noted that the CBI has a limited role in relation to the pricing of insurance products but seeks to ensure that insurers are not treating customers unfairly and that the pricing and underwriting practices of firms underpin a sound and sustainable business.
Finally, the Director commented on business interruption insurance in light of the COVID-19 pandemic and noted the proactive approach taken by the CBI to ensure that firms fulfil their obligation to prioritise the interests of their customers.
EIOPA announces its sustainable finance activities for 2022 - 2024
On 7 December 2021, the European Insurance and Occupational Pensions (EIOPA) announced a three year plan to integrate sustainable finance across its activities. EIOPA highlighted its key areas of activity for 2022 - 2024, including:
1) integrating sustainability risks in the prudential framework of insurers by developing proposals for supervisory reporting of climate risks in Solvency II, analysing prudential treatment under Solvency II of assets and/or activities associated with environmental and/or social objectives
2) reporting on underwriting practices and prudential treatment of the integration of climate change-related adaptation measures in non-life insurance products
3) consolidation of the macro/micro-prudential risk assessment of sustainability risks in tools and methodologies by conducting analysis on physical risk following earlier analysis on transition risk, and developing methodological principles of climate change insurance stress testing
4) promotion of sustainability disclosures and a sustainable conduct of business framework by providing guidance on disclosures under the Sustainable Finance Disclosure Regulation and the Taxonomy Regulation
EIOPA noted that sustainable finance remains a top priority and their work will continue to help insurers strengthen their roles in mitigating risks posed by climate change.
EIOPA launches pilot exercise on climate change adaptation in non-life underwriting and pricing
On 7 December 2021, EIOPA launched a voluntary pilot exercise on climate change adaptation in non-life underwriting and pricing and invited insurers to participate.
The aim of the exercise is to understand how insurers integrate climate-related adaptation measures in non-life insurance products and to assess the appropriateness of the prudential treatment of climate relate adaption measures in the technical provisions and solvency capital requirements for non-life underwriting risks under Solvency II.
The types of insurance products included in the pilot include those that cover climate related hazards, products which set incentives for policyholders to take up adaptation measures and products that integrate adaptions measures lowering the physical risk exposure to climate-related hazards. EIOPA confirmed that the questionnaire will remain open until February 2022 with interviews being held thereafter in March 2022.
EIOPA sets out its digital transformation strategy
On 10 December 2021 EIOPA published its digital transformation strategy. The strategy aims to support the systematic, balanced and holistic approach to the technological transformation of the European insurance and pensions markets and their supervision. EIOPA has identified five key long term priorities, which are as follows:
1) leveraging on the development of a sound European data ecosystem
3) ensuring a forward looking approach to financial stability and resilience
4) realising the benefits of the European single market
5) enhancing the supervisory capabilities of EIOPA and national competent authorities
The digital transformation strategy also aims to support national competent authorities and the insurance and pensions sector in facing the digital transformation through a technologically-neutral, future-proof, ethical and secure approach to financial innovation and digitalisation.
EIOPA launched a consultation on the application guidance on climate change risk scenarios in the own risk and solvency assessment
On 10 December 2021 EIOPA launched a consultation on the application guidance on running climate change materiality assessment and using climate change scenarios in the own risk and solvency assessment (ORSA). The application guidance provides a basis on how to implement sustainable finance ambitions in practice. EIOPA’s consultation discusses the ORSA and notes where undertakings could address climate change risks.
Insurers wishing to contribute to the consultation process should respond by 10 February 2022. EIOPA’s final application guidance is expected for June 2022, once the feedback is incorporated following the consultation period.
EIOPA identifies key risks for the insurance and pension sectors
On 13 December 2021, EIOPA published its Financial Stability Report (the report) which examined key macroeconomic developments and key risks for the insurance and pension sectors. The key risks highlighted in the report are:
that the COVID-19 pandemic continues to pose a challenge across European economies with supply chain disruptions and other COVID-19 related uncertainties impacting growth outlook
that the low interest rate environment puts pressure on life insurers and pension funds while continuing elevated inflation could prove to be a significant source of risk for non-life insurers
that environmental risks are the top risk in terms of the highest expected increase in materiality for the insurance and pension sectors due to extreme weather events, although the insurance industry could also experience increased demand for new services and protection
that cyber risk is one of the most important risks for the European insurance sector, yet the understanding of cyber risks remains limited, pointing to necessary improvements in data collection and cyber risk modelling. However, similar to environmental risks, the cyber sphere could also open up opportunities for insurers given that the demand for cyber insurance is likely to increase
EIOPA publishes the results of the 2021 insurance stress test
On 16 December 2021, EIOPA published the results of its 2021 insurance stress test in which it assessed the industry’s resilience to a prolonged coronavirus scenario in a lower for longer interest rate environment. The test found that despite the economic and financial implications of the coronavirus pandemic, the European insurance industry entered the stress test exercise with a strong level of capitalisation, allowing participants absorb the shock of the adverse scenario.
The results also showed that the insurance industry demonstrated it has tools to cope with adverse market or economic effects and that long-term guarantees measures helped absorb part of the shocks, limiting the drop in participants’ solvency ratio. EIOPA cautioned however that the stress test also revealed that a section of the market still heavily relies on transitional measures, which, unlike long-term guarantees, are to be phased out by 2032.
EIOPA publishes annual report on sanctions under the Insurance Distribution Directive in 2020
On 21 December 2021, EIOPA published its second annual report on administrative sanctions and other measures imposed by national competent authorities (NCAs) in 2020 under the Insurance Distribution Directive (IDD).
NCAs imposed 1,942 sanctions in 17 Member States, in 2020. The vast majority (80%) of these sanctions related to breaches of the professional and organisational requirements in Article 10, IDD. Article 10, IDD covers both basic formalities for accessing and maintaining access to the profession, and ongoing requirements such as continuous professional development.
Administrative pecuniary sanctions were the most frequently used sanctioning measure (50%) followed by withdrawal of registration of the intermediary (25%). In the case of the latter, this sanction was only applied for breaches of Articles 3 and 10, IDD.
Finally, EIOPA notes that the 2020 report's figures represent the transitional phase between the Insurance Mediation Directive and the IDD, and expects a higher number of NCAs will impose sanctions each year in future.
EIOPA publishes annual report on the use of limitations and exemptions from reporting under Solvency II
On 21 December 2021, EIOPA published its annual report on the use of limitations and exemptions Solvency II reporting by national competent authorities (NCAs) during 2020 and the first quarter of 2021 (Q1 2021).
In 2020, three NCAs granted limitations and exemptions from reporting item-by-item templates to 113 solo undertakings, while 11 NCAs granted limitations to 669 solo undertakings during Q1 2021.
Two NCAs granted limitations and exemptions from annual reporting to seven groups during 2020 and two NCAs granted exemptions to 27 groups for the quarterly reporting for Q1 2021.
In Q1 2021, large undertakings completed approximately ten templates on average. An average of five templates were submitted by smaller undertakings. The ten largest undertakings by total assets completed on average almost 37 templates, while the ten smallest undertakings completed only 28 templates.
EIOPA commented that the report indicates that reporting requirements adhere to proportionality principles, reflecting the nature, scale and complexity of the risks inherent to the business. Template submissions differs considerably in respect of small, medium-sized or large insurance undertakings indicating that proportionality embedded in the design of reporting requirements delivers a good result.