Financial Services Regulation and Compliance - Insurance December 2022

Domestic

CBI publishes research on insurance engagement and switching

On 1 December 2022, the CBI published a letter detailing the results of its research into consumer engagement and switching patterns for car and home insurance. Key findings include that 25% of consumers switch provider on renewal (with 80% engaging within their provider upon renewal). Interestingly, the research also found that roughly 20% of consumers find it difficult to search for and purchase financial products (including insurance) online. The CBI expects firms to take the factors mentioned in the letter into account, with a view to helping consumers in making informed decisions.

CBI publishes the Insurance Quarterly Newsletter for Q4 2022

The CBI published its Insurance Quarterly Newsletter on 14 December 2022. The newsletter addresses a range of issues. These include inflation and its potential impact on (re)insurers, highlighting the need for more monitoring and analysis by firms of inflation risks in reaction to the changing landscape and the various factors that are influencing inflation. It also included information on the outcome of the CBI's thematic review of (re)insurance recovery plans.

Also captured was CBI commentary on key sectoral risks for (re)insurers in Ireland. Among other matters this included:

  • operational risks
  • digitalisation and technology
  • regulatory and legislative changes
  • climate change
  • macroeconomic and financial risks

The CBI expects (re)insurers to evaluate the risks outlined in the newsletter as part of their risk management framework. Notably the CBI calls out its expectations for firms to protect consumers during data migrations.

Health Insurance (Amendment) Act 2022

On 21 December 2022, the Health Insurance (Amendment) Act 2022 (the 2022 Act) was signed into law. The 2022 Act amends the Health Insurance Act 1994 to stipulate the amount of premium to be paid from the Risk Equalisation Fund with regard to various categories of insured persons from 1 April 2023. Other amendments include provisions relating to the appointment and powers of authorised officers by the Health Insurance Authority; and a consequential change to the Stamp Duties Consolidation Act 1999. The majority of the 2022 Act came into operation on 1 January 2023 with sections 2, 3 and 6 coming into force on 1 April 2023.

Personal Injuries Resolution Board Act 2022

The Personal Injuries Resolution Board Act 2022 (the PIRB Act) was signed into law on the 13 December 2022 but is still to be commenced. The PIRB Act results in the Personal Injuries Assessment Board's name being changed to the Personal Injuries Resolution Board (the Board). Additionally, the Board's powers are expanded under the PIRB Act and now include the ability to:

  • offer mediation
  • provide for additional time to evaluate claims where an injury is yet to settle instead of proceeding to litigation
  • request proof of identity upon application and disclose this information to An Garda Síochána to reduce fraud

European

EIOPA seeks feedback – Discussion paper on the prudential treatment of sustainability risks

On 5 December 2022, EIOPA published a discussion paper on the prudential treatment of sustainability risks (the Discussion Paper). EIOPA is seeking comments from stakeholders via the European Commission's EU Survey Tool, by 5 March 2023. The discussion paper outlines EIOPA's approach to assessing whether, under Solvency II, a dedicated prudential treatment of assets and activities associated with environmental or social objectives would be needed. EIOPA specifically analyses three areas in the Discussion Paper:

  1. Assets and transition risk exposures – i.e. how the risks that stem from transition to a more sustainable economy could affect prudential risks related to assets (e.g. stocks, bonds and real estate).
  2. Underwriting risk and climate change adaptation – i.e. focusing on the non-life insurance sector and analysing the potential for investment in climate-related adaptation measures to reduce loss exposure and underwriting risk.
  3. Social risks and objectives – i.e. how social risks/harms (e.g. violations of labour or human rights) could translate into prudential risks and financial/reputational losses for (re)insurers.

EIOPA publishes annual report on sanctions under the Insurance Distribution Directive in 2021

EIOPA published its third annual report on administrative sanctions and other measures imposed by national competent authorities (NCAs) during 2021 under the Insurance Distribution Directive (IDD) on 20 December 2022. In 2021, NCAs imposed 1,621 sanctions in 18 Member States. This is down from 1,942 sanctions in 17 Member States in 2020. Over 70% of these sanctions related to breaches of the professional and organisational requirements set out in Article 10 of IDD. Administrative pecuniary sanctions were the most frequently used sanctioning measure followed by withdrawal of registration of the intermediary. In explaining its expectation that a higher number of NCAs will impose sanctions each year in future, EIOPA noted that seven Member States had not imposed any sanctions under the IDD by the end of 2021.

EIOPA publishes report on Solvency II reporting

EIOPA published its annual report on the use of limitations and exemptions from Solvency II reporting granted by NCAs during 2021 (and the first quarter of 2022).

In 2021, three NCAs granted limitations/exemptions from reporting item-by-item templates to 111 solo undertakings. This was broadly comparable with the statistics reported in 2020. In Q1 2022, 11 NCAs granted limitations/exemptions to 671 solo undertakings. For groups (as distinct from solo undertakings), two NCAs granted limitations/exemptions from annual reporting to eight groups during 2021. In Q1 2022, four NCAs granted exemptions/limitations to 41 groups for the quarterly reporting at group level. In the report, EIOPA confirms that in March 2022, it submitted to the European Commission draft amendments to the Solvency II Technical Standards on Reporting and Disclosure.

December 2022 Financial Stability Report published by EIOPA

EIOPA has published its December 2022 Financial Stability Report. The report analyses key risks and developments in Europe for the insurance and occupational pensions sectors. It identifies four topical focuses including:

  • how insurers' financial positions are effected by rising inflation and interest rates
  • physical climate change exposure faced by non-life insurers’ when underwriting
  • the use of derivatives by insurers and related liquidity needs
  • the increasing importance of life portfolio transfers

EIOPA notes that insurers and pension funds have so far withstood a challenging environment and exceptional shocks. However, EIOPA highlights that risks remain (claims inflation, corporate and sovereign spreads, macroeconomic outlook, liquidity management) and require monitoring.

EIOPA's AI governance event – comments by chairperson

On 15 December 2022, EIOPA's chairperson Petra Hielkema spoke at EIOPA's AI governance event. She reiterated EIOPA's commitment to cooperation with stakeholders on the incorporation of AI into the (re)insurance sector in an ethical and trustworthy manner (taking into account its benefits, but also its challenges and risks). She stressed EIOPA's commitment to collaborate with stakeholders in providing guidance on the use of AI and to ensure that there is a better understanding of its use.

EIOPA publishes dashboard on insurance protection gap for natural catastrophes

EIOPA released a data dashboard illustrating the gap in insurance protection available for natural catastrophes throughout Europe on 5 December 2022. The data contained in the dashboard reflects the current and historical information presenting a jurisdiction by jurisdiction view. The goal of the dashboard is to assist with identifying steps/actions to help reduce losses for society when natural catastrophes occur. The data collated will support evidence-based decision making in this regard.

EIOPA publishes its work programme for 2023-2025

In mid-December, EIOPA published details of its work programme for 2023-2025. The paper outlines six areas EIOPA will focus on to further fulfil its joint mandates of ensuring financial stability and protection of consumers within the European insurance sector. They are:

  • Sustainable Finance: integration of sustainable finance considerations across all areas of EIOPA's work.
  • Digital Transformation: using digital transformation to support the supervisory community and market.
  • Supervision: strengthening the effectiveness and enhancing the quality of supervision.
  • Policy: ensuring technically sound prudential and conduct of business policy.
  • Risks to financial stability: identifying, assessing, monitoring and reporting on risks to conduct of business, financial stability and promoting preventative policies and mitigating actions.
  • Governance: ensuring agile organisation, good governance, cost-effective resource management and a sound corporate culture.

EIOPA publishes supervisory statement on inflation

EIOPA has outlined its expectations of (re)insurers on inflation-related issues via a supervisory statement on the topic published towards the end of December 2022. The statement focuses on the impact of inflation on investments, technical provisions, and solvency capital requirements. It notes that methodologies do not often explicitly take into account inflation because of the low-inflation environment which persisted over the last two decades.

Accordingly, estimates based only on historical data may result in an underestimation of technical provisions. EIOPA advises (re)insurance undertakings to re-examine whether their inflation expectations remain realistic, as well as considering the effect of inflation on other aspects of (re)insurance business, such as solvency capital requirements, valuation methods and risk management systems. EIOPA also outlines that it expects national competent authorities to monitor (re)insurance undertakings' assessment of the impact of inflation on their business.

EIOPA publishes speech delivered at the EIOPA Sustainable Finance Conference

On 7 December, EIOPA's chairperson Petra Hielkema gave a speech at EIOPA's Sustainable Finance Conference. The chair's speech focused on the importance of adaption to climate change on the part of the financial, insurance and pension sectors. She noted that though climate change mitigation and repairing damage caused by climate disasters is essential, it alone is not sufficient. Ms Hielkema highlighted that regulators and supervisors, financial institutions and consumers each have a role in building the resilience needed in this regard. Finally, she emphasised the power of technology and its role in facilitating the transition to a more sustainable and inclusive society.

EIOPA publishes monthly technical information and updated representative portfolios

EIOPA published its monthly technical information on 5 December 2022 regarding the relevant risk free interest rate term structures with reference to the end of November. This technical information is used for the calculation of technical provisions for (re)insurance obligations.

It also published technical information on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of November 2022.

Finally, it published updated representative portfolios on 13 December 2022. From the end of March 2023 these portfolios will be used to calculate volatility adjustments to the relevant risk-free interest rate term structures for Solvency II. 

For more information on these topics please contact any member of A&L Goodbody's Insurance & Reinsurance team.

Date published: 12 January 2023