Financial Services Regulation and Compliance - Insurance July 2019
Financial Services Regulation and Compliance - Insurance July 2019
Health Insurance (Amendment) Act 2018 (Commencement) Order 2019
On 27 June 2019, the Minister for Health signed the Commencement Order bringing Section 3 of the Health Insurance (Amendment) Act 2018 into operation.
Section 3 provides for the expansion of:
(i) the Health Insurance Authority's (HIA) membership from 5 to 7 members and
(ii) the quorum from 3 to 4 members.
The aim of Section 3 is to provide the HIA with additional expertise in carrying out its functions as an advisory body for the Minister for Health in relation to private health insurance matters.
Feedback Statement – Consultation on New Levy Calculation Methodology for Insurers
On 10 July 2019, the Central Bank of Ireland (CBI) published a Feedback Statement to its consultation on New Levy Calculation Methodology for Insurers (CP129). The industry responses welcomed (i) the CBI's objective to achieve cost stabilisation, (ii) the aim of the proposed methodology to address "cliff edge" levy structures and (iii) the differentiation between unit-linked and other business models within the pricing proposal. However, the industry expressed reservations concerning the timing of the change in methodology and raised observations regarding aspects of the methodology. The CBI confirmed that in light of its internal review of the PRISM impact framework insurance, entities will remain on the PRISM impact-derived pricing in the next levy cycle and will move to new methodologies as alternatives are developed.
Cost of Insurance Working Group publishes its Ninth Progress Update
On 19 July 2019, the Cost of Insurance Working Group (GIWG) published its Ninth Progress Report (the Report). This latest update reports on progress in implementing the recommendations contained in both the Report on the Cost of Motor Insurance and the Report on the Cost of Employer and Public Liability Insurance.
The Report highlights the latest key developments, including:
(i) the establishment of the National Claims Database and the collection of data by the CBI
(ii) the commencement of the Personal Injuries Assessment Board (Amendment) Act 2019 and
(iii) the introduction of new legislation amending the Civil Liability and Courts Act 2004.
Although the majority of recommendations on employer/public liability insurance due by Q2 2019 are completed or ongoing, the cost of insurance remains an issue for small business and voluntary groups.
Judicial Council Act 2019
On 23 July 2019, the Judicial Council Act 2019 was signed into law. The Act provides for the establishment of a Personal Injuries Guidelines Committee (the Committee). The Committee will be responsible for the development and review of guidelines for assessing damages for personal injuries. The creation of the Committee was one of the key recommendations of the Cost of Insurance Working Group.
Consumer Insurance Contracts Bill 2017 Feedback Statement
The Department of Finance has issued a feedback statement following public consultation on the Consumer Insurance Contracts Bill (the Bill). Submissions were received from both the insurance industry and representative groups. Feedback received from the insurance industry highlighted its concerns in relation to the Bill. Feedback included (among other matters) the belief that the enactment of the Bill will replace long-standing principles of insurance leading to increasing costs for insurers and ultimately premiums increases. Generally, representative groups expressed their support for the Bill stating that it should be enacted without further delay in order to address the imbalance between insurers and the insured. Representative groups submitted that the Bill has correctly identified main areas of concern such as non-disclosure, misrepresentation, warranties and claim payments. However, they suggested that the Bill could go further, for example, by applying the EU definition for small and medium enterprises, increasing the length of time for renewals and introducing an insurance watchdog.
European Commission publishes report on group supervision under Solvency II
On 27 June 2019, the EU Commission published a report assessing the benefit of enhancing group supervision and capital management provisions within a group or (re)insurance undertakings, as required under Article 242(2) of the Solvency II Directive (Solvency II).
The report analysed, among other matters:
supervisory practices and challenges relating to the determination of the scope and the exercise of supervisory powers over groups; and
challenges and legal uncertainties relating to group solvency calculation, group governance and group reporting.
The EU Commission concluded that while group supervision is a robust framework, there are areas which do not ensure a harmonised implementation of the rules by groups and National Supervisory Authorities. On this basis, the EU Commission deemed it appropriate to include group supervision within the scope of the 2020 Review of Solvency II.
EIOPA consults on cloud service provider outsourcing guidelines
On 1 July 2019, EIOPA published a consultation paper on guidelines regarding outsourcing to cloud service providers. The guidelines aim to provide clarification and transparency to the application of Solvency II rules on outsourcing and encourage supervisory convergence regarding the expectations and processes applicable in relation to cloud outsourcing.
The guidelines cover areas including:
Criteria to distinguish whether cloud services should be considered within the scope of outsourcing
Principles and elements of governance of cloud outsourcing
Pre-outsourcing analysis, including materiality assessment, risk assessment and due diligence on the service providers
Management of access and audit rights, security of data and systems, sub-outsourcing, monitoring and oversight of cloud outsourcing and exit strategies; and
Principle-based instructions for national supervisory authorities on the supervision of cloud outsourcing arrangements including, where applicable, at group level.
EIOPA proposes that from 1 July 2020 the guidelines will apply to all cloud outsourcing arrangements entered into, or amended on or after, this date. Feedback is invited until 30 September 2019.
EIOPA publishes June 2019 Financial Stability Report
On 1 July 2019, EIOPA published the June 2019 Financial Stability Report.
The key takeaways include:
insurance sector profitability is under increased pressure in the current low yield environment
risk of a prolonged low yield environment remains a key challenge for European insurers and pension funds
valuations remain stretched across financial markets and a sudden reassessment of risk premia cannot be ruled out
interconnections with banks and home-bias in investments remain high; and
European insurers are exposed to emerging cyber and climate-related risks.
EIOPA calls for candidates to join Consultative Expert Group on Digital Ethics in Insurance
On 4 July 2019, EIOPA issued a call for candidates to join a Consultative Expert Group (CEG) on digital ethics in insurance. EIOPA recently published a thematic review on the use of big data in motor and health insurance (included in our May Bulletin) which concluded that there are opportunities for digitalisation in the insurance industry and for consumers. EIOPA is of the view that these conclusions justify the establishment of a CEG to support EIOPA in developing a set of principles for digital responsibility in insurance.
Regulation 2019/1150 promoting fairness and transparency for business users of online intermediation services published in the Official Journal
On 11 July 2019, Regulation (EU) 2019/1150 on promoting fairness and transparency for business users of online intermediation services (the Regulation) was published in the Official Journal. Online platforms covered by the Regulation include: online market places; online software application stores; social media sites and online search engines, regardless of their place of establishment. The objective of the Regulation is to establish a legal framework that ensures transparency for business users of online platforms within the EU market. The Regulation will apply from 12 July 2020.
Solvency II 2020 Review: EIOPA publishes Consultation Paper on the Harmonisation of National Insurance Guarantee Schemes
On 12 July 2019, EIOPA published a consultation paper seeking feedback on draft technical advice to the European Commission on the establishment of national Insurance Guarantee Schemes (Guarantee Schemes). EIOPA's view is that all EU Member States should have a Guarantee Scheme to protect policyholders where an insurance failure occurs.
EIOPA recommends harmonised features for Guarantee Schemes in respect of:
The deadline for responses is 18 October 2019. EIOPA's advice will be included in its opinion on the 2020 Solvency II review, due in Q4 2019.
Solvency II 2020 Review: EIOPA consults on proposals for supervisory reporting and public disclosure
On 12 July 2019, EIOPA published an overview of a package of consultations on supervisory reporting and public disclosure in the context of proposals for the Solvency II 2020 review.
EIOPA also published consultation papers relating to draft technical advice to the European Commission on the following areas:
general issues on supervisory reporting and public disclosure
individual quantitative reporting templates
financial stability reporting; and
the solvency and financial condition report
Submissions are welcomed until 18 October 2019. The final version of EIOPA's advice will be included in its opinion on the 2020 Solvency II review, due in Q4 2019.
EIOPA submits draft Implementing Technical Standards to the Commission
On 16 July 2019, EIOPA published final draft implementing technical standards amending Solvency II reporting and disclosure requirements. EIOPA has now submitted these proposals to the Commission for endorsement. The aim of the amendments is to provide legal certainty, facilitate accurate reporting and streamline the disclosure process for insurance undertakings. Amendments under the proposals have been kept to a minimum and do not reflect a detailed review of the requirements which will form part of the Reporting and Disclosure Review 2020.
EIOPA publishes report on national general good rules under the Insurance Distribution Directive
On 22 July 2019, EIOPA published a report on national general good rules (the General Good) under the Insurance Distribution Directive (IDD). While EIOPA could not fully assess the impact of national General Good provisions (the majority of Member States only transposed the IDD in late 2018) it found that:
(i) there is room for improvement regarding the publication of the General Good by certain NCAs and
(ii) the approach of some NCAs of publishing General Good for registration and organisation was having a negative impact on the functioning of the IDD and the internal market.
To address the issues identified, EIOPA outlined a number of follow-up actions. These actions include issuing recommendations to individual NCAs on how the information on General Good should be published and further analysis of the issue of certain Member States' General Good encroaching on the competence of home NCAs. Stakeholders are invited to complete an online survey on the report by 22 September 2019.
EIOPA publishes Discussion Paper on Methodological Principles of Insurance Stress Testing
On 22 July 2019, EIOPA published a discussion paper on methodological principles of insurance stress testing. EIOPA is required to carry out EU-wide stress testing exercises for the insurance sector. Given the complexity in conducting an EU-wide stress test, EIOPA considers that having a set of common methodological principles and guidelines agreed beforehand will greatly facilitate the stress test process. Comments on the discussion paper can be made until 18 October 2019.
EIOPA publishes consultation paper on draft opinion on the supervision of remuneration principles in the (re)insurance sector
On 25 July 2019, EIOPA published a consultation paper on its draft opinion on the supervision of remuneration principles in the (re)insurance sector. The principles on remuneration set out in the European Commission Delegated Regulation (EU) 2015/35 are high level and leave considerable discretion to insurance undertakings and national competent authorities (NCAs).This has created a divergence in practices across Europe. The draft opinion aims to enhance supervisory convergence in the supervision of remuneration policies by NCAs and provides guidance to NCAs on how to challenge the application of certain remuneration principles. Comments on the draft opinion are sought until 30 September 2019.
EIOPA publishes July 2019 Risk Dashboard based on Q1 2019 Solvency II data
On 26 July 2019, EIOPA published its updated risk dashboard for Q1 2019, summarising the main risks and vulnerabilities in the EU insurance sector.
Key observations include:
risk exposures remained stable during Q1 2019
the low interest rate environment remains a key risk for the insurance sector
profitability and solvency risks increased due to lower return on investments for life insurers observed in year-end 2018 data; SCR ratios are above 100% for most undertakings in the sample even when excluding the impact of the transitional measures; and
no change observed in insurers' external ratings and rating outlooks.
Change of Data Provider for the calculation of Risk-Free Interest Rate Term Structures under Solvency II
On 26 July 2019, EIOPA published the list of Reuters Instrument Codes (RICs) which consists of financial market data used for the calculation of risk-free interest rate term structures under Solvency II. EIOPA invites stakeholders to comment on the specific RICs chosen until Friday, 16 August 2019. Revised RFR Technical Documentation (containing the RICs) is expected to be published by the end of Q3 2019.
For more information on this topic please contact any member of A&L Goodbody's Financial Regulation team.