Financial Services Regulation and Compliance - Insurance Nov 2021

Domestic

Central Bank of Ireland publishes the Private Motor Insurance Report of the National Claims Information Database

On 16 November 2021, the CBI published the third annual Private Motor Insurance Report of the National Claims Information Database (NCID). The annual report provides analysis on the cost of premiums, the cost of claims, the aggregated financial performance of firms proving motor insurance and settlement information. The report captures data for calendar year 2020, including data on the impact of COVID-19.

Some of the reports key findings include:

  • During the period 2009 to 2020, the annual average earned premium increased by 26%.
  • The average claim cost per policy decreased by 20% from 2019 to 2020, reflecting the impact of COVID-19.
  • There was a drop of 26% in the frequency of claims in 2020. However, the average cost per claim increased by 9% from 2019 to 2020.
  • For 94% of injury claimants, the total cost of a claim was less than €100,000.

European

EIOPA commits to support the insurance and pensions sectors’ efforts to tackle climate change

On 3 November 2021, EIOPA published a statement highlighting its commitment to support the insurance and pensions sectors in tackling climate change. EIOPA noted that it will finalise the first European-wide dashboard on the natural catastrophe insurance protection gap in 2022.

EIOPA noted that it expects the insurance and pensions industry to assess climate-related risks.

EIOPA explained that whilst it has already undertaken a number of initiatives since 2018, sustainable finance remains a strategic area of activity for EIOPA. EIOPA will continue to integrate environmental, social and governance (ESG) risks in the prudential framework of insurers and pension funds. It also intends to consolidate the macro and micro-prudential risk assessment of ESG risks and promote sustainability disclosures and a sustainable conduct of business framework.

EIOPA updates representative portfolios to calculate volatility adjustments to the Solvency II risk-free interest rate term structures for 2022

On 3 November 2021, EIOPA published updated representative portfolios that will be used for calculation of the volatility adjustments (VA) to the relevant risk-free interest rate term structures for Solvency II. The updated representative portfolios will be used by EIOPA for the calculation of the VA from the end of March 2022. The VA will be published at the beginning of April 2022.

The portfolios are revised by EIOPA on a yearly basis, and the next update is scheduled for the end of 2022.

Interview with Petra Hielkema, Chair of EIOPA, in relation to climate risk management

On 15 November 2021, EIOPA published an interview with Petra Hielkema, the Chair of EIOPA, on the topic of climate risk management. The questions were varied but the key takeaways include:

  • the important role of the ORSA, noting that it is the best way for an insurer to assess its ESG risks
  • from December 2021 until March 2022, EIOPA will work with volunteering insurers to examine the concept of impact underwriting (the idea that insurers can incentivise policyholders to mitigate and adapt to climate risks)
  • the opportunity to align risk assessment and risk prevention initiatives between the public and private sector
  • it was noted that a market-wide climate-related stress test will not be conducted for the insurance market before 2023 at the earliest
  • the importance of standardising disclosures and the integration of sustainability in product design in preventing greenwashing

EIOPA publishes annual report on the use of capital add-ons during 2020 under Solvency II

On 22 November 2021, EIOPA published its annual report on the use of capital add-ons during 2020. The capital add-on measure aims to ensure that regulatory capital requirements reflect the risk profile of a solo undertaking or of an insurance group. EIOPA highlighted the importance of supervisory convergence in the application of capital add-ons.

In 2020, seven national competent authorities (NCAs) set capital add-ons to nine solo undertakings (six non-life and three life undertakings respectively). For groups, no capital add-ons were set during 2020.

EIOPA noted that, in view of a decreasing number of capital add-ons which were already at a low level, it will continue to monitor the usage of capital add-ons and pay particular attention to the proposals made by NCAs on how to more efficiently use this tool.

EIOPA sets out a framework for delivering better value for money in a consumer-centric way

On 30 November 2021, EIOPA published a supervisory statement setting out the common principles needed so unit-linked products can offer value for money. The statement outlines how supervisory authorities will monitor manufacturers’ and distributors’ product oversight and governance processes. Whilst the statement does not introduce any additional regulatory requirements, it sets out the main principles that EIOPA expects to see in their supervisory approach to product oversight and governance requirements.

EIOPA expects to see a risk-based approach meaning that supervisory priority will be given to products posing the greatest risk of consumer detriment due to poor value for money. The main principles outlined include pricing, complexity, testing, regular review and supervision. EIOPA noted that while supervisory activities should not interfere with pricing, manufacturers should be able to present a structured pricing process. Furthermore it noted that the more complex the products are, the higher the degree of financial literacy consumers and insurance distributors will need.

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

Date published: 14 November 2021