Insurance Regulatory Update – February 2014


Arthur Cox February 2014 Insurance Regulatory Update

  • Central Bank Publishes Enforcement Priorities and Programme of Themed Reviews and Inspections for 2014
  • Interesting Outcomes in FSO Bi-Annual Review 2013
  • Central Bank Publishes New Regulatory Transactions Review
  • Central Bank Publishes Intermediary Times
  • Central Bank Calls for Greater Consistency in Actuarial Reports Supporting the SAO
  • Central Bank Publishes Errata on its Guidelines on Preparing for Solvency II – Submission of Information
  • UK Law Commission Consults on “Initial Clauses” for Insurance Contracts Bill
  • EIOPA Publishes Report on the Implementation of the Test Achats Case
  • EIOPA’s Timeline on Solvency II
  • Insurance Europe Publishes Insurance Figures for 2012
  • EIOPA Updates Q&A on Solvency II Guidelines
  • IMD2 Update


Central Bank Publishes Enforcement Priorities and Programme of Themed Reviews and Inspections for 2014

On 25 February 2014, the Central Bank published its enforcement priorities for 2014. The press release notes that the Central Bank entered into 16 enforcement settlements in 2013, issuing fines totalling €6,348,215. All of the settlements related to matters identified as priorities at the start of the year.

Enforcement priorities for 2014 across all sectors include fitness and probity and anti-money laundering/counter terrorism compliance. For the insurance sector, the Central Bank will once again focus on compliance with prudential requirements, and systems and controls. Consumer protection is also a listed priority for the Central Bank and, in particular, prudential requirements for retail intermediaries and professional indemnity insurance.

On the same date the Central Bank published its programme of planned themed reviews and inspections for 2014. These themed reviews and inspections are carried out as part of the Central Bank’s supervisory framework. The advance publication allows firms to self-assess and raise compliance standards, where necessary, in these key risk areas.

The main themes for 2014 include examinations of compliance with consumer protection and anti-money laundering requirements. The Central Bank plans a review of insurance intermediaries’ compliance with professional indemnity insurance requirements, advertising requirements in specific sectors. Retail intermediaries are also in focus to analyse their compliance with selected conduct of business rules and prudential requirements.

Interesting outcomes in FSO’s Bi-Annual Review 2013

On 26 February 2014, the Financial Services Ombudsman (the FSO) published his office’s Bi-Annual Review (July to December 2013). The Review summarises the complaints reviewed by the FSO in the second half of 2013 by industry sector. It outlines the findings and awards made by the FSO. Helpfully, the Review includes a number of case studies to highlight the main issues that the FSO encountered.

The second half of 2013 saw a decrease of 35% in the number of complaints made to the FSO compared to the first half of the year. 78% of complaints made in the second half of 2013 were not upheld. Interestingly, this is the first significant decrease in the number of complaints made to the FSO since 2007. However, the number of complaints requiring formal investigation by the FSO increased by 8% on the 2012 figures. The overall decrease may be due to the new powers of the FSO to publish the complaint records of individual financial institutions. Notably the mis-selling of payment protection insurance made up 45% of all insurance complaints in 2013 and continues to be a concern.

Central Bank Publishes New Regulatory Transactions Review

The Central Bank has published the 8th issue of its Regulatory Transactions Review. The Review covers publication of the Central Bank’s Fitness and Probity Service Standards (reported in last month’s edition of the Arthur Cox Insurance Bulletin), and provides information to assist firms that did not complete their In Situ Submission of PCF roles by 31 March 2012 to complete the PCF Annual Confirmation Return. The Review highlights the importance of the role of System Administrator in firms for online reporting purposes.

Central Bank Publishes Intermediary Times

The first 2014 edition of the Central Bank’s Intermediary Times was published recently. This newsletter summarises the issues identified by the Central Bank through on-site themed inspections of intermediaries’ selling and advising consumers in relation to pension policies. While the feedback was generally positive, the Central Bank was concerned with poor levels of documentation held to demonstrate compliance with certain provisions of the Consumer Protection Code.

The Central Bank has introduced a new Acquiring Transaction Notification Form specifically for firms authorised under the Investment Intermediaries Act 1995 (as amended). Future notifications of changes in shareholding will only be accepted by the Central Bank in this form, which is available on its website. The newsletter also reports that the Investor Compensation Company Limited is requesting firms to pay their annual levy by direct debit as opposed to paying by cheque.

Central Bank Calls for Greater Consistency in Actuarial Reports Supporting the SAO

On 7 February 2014, the Central Bank published a letter sent to High Impact Non-Life Firms and selected Medium-High Impact Non-Life Firms requesting additional items to be addressed in the Reports supporting the Statement of Actuarial Opinion (the SAO). In 2013, the Central Bank contacted all High Impact firms and indicated that certain amendments should be made to the actuarial reports which accompany the SAO. 

This year, the Central Bank has identified a number of areas where it believes greater consistency in the methodologies and approaches adopted by Firms would be useful. In the letter, the Central Bank requests Firms to provide additional details in respect of 9 items in the 2013 year end actuarial reports (including documenting their reasoning and rationale to underpin these items). The Central Bank notes that there are currently a variety of practices in respect of these items which need to be more convergent. The additional items are: (1) the methodologies used to calculate the Unearned Premium Reserve; (2) the calculation of the Additional Unexpired Risk Reserve; (3) the calculation of a provision for Unallocated Loss Adjustment Expenses (Claims Handling Expense); (4) Actual versus Expected Analysis; (5) Periodic Payment Orders; (6) Claims Inflation; (7) Court Awards; (8) Post Balance Sheet events; and (9) any other key areas of uncertainty identified during the review.

Central Bank Publishes Errata on its Guidelines on Preparing for Solvency II – Submission of Information

On 18 February 2014, the Central Bank published an Errata on its Guidelines on preparing for Solvency II – Submission of Information. The Central Bank made amendments in respect of Guideline 6 and Guideline 10 which are available for review here.


UK Law Commission Consults on “Initial Clauses” for Insurance Contracts Bill

On 28 January 2014, the UK Law Commission published the final stages of its consultation process in relation to the proposed Insurance Contracts Bill. The Commission published a set of draft clauses for inclusion in the bill which will reform the law relating to insurance contracts (both consumer and business). The Commission held a four week public consultation which ended on 21 February 2014. The Commission’s clauses focus on four areas: fair presentation of risk in non-consumer contracts; damages for late payment; remedies for fraudulent claims; and good faith.

The draft clauses require any proposal that is made to an insurer to be a “fair presentation of risk”. The clauses define what amounts to “fair presentation”. Further, while insurers will be able to avoid a policy where there have been deliberate and reckless breaches of this duty, a scale of proportionate remedies will apply if the breach was not deliberate and reckless.

In addition the Commission proposes an implied term in every contract of insurance that the insurer must pay any sums due within a reasonable time, with failure to do so entitling the insured to claim damages from the insurer for any loss which results. Where an insured makes a fraudulent claim, insurers will have the right to terminate a contract from the date of a fraudulent act without returning premium, but remain liable for any losses sustained by the insured prior to the fraudulent act. The Commission also recommends retaining the duty of utmost good faith but abolishing the remedy of avoidance for breach of that duty.

It is envisaged that the principles will be mandatory for consumer insurance, but only default principles for business insurance, leaving such parties free to contract out of the proposed reforms.

EIOPA Publishes Report on the Implementation of the Test Achats Case

On 6 February 2014, EIOPA published a report on a mapping exercise it conducted on the implementation of the Test Achats decision in the national legal framework of EEA Member States. The deadline for implementation was 21 December 2012.

EIOPA notes that the majority of Member States complied with that deadline, including Ireland. However as at December 2013, three Member States had not yet implemented the ruling of the Court of Justice (Italy, Luxembourg and Portugal). The report explains where each of those Member States are in terms of complying with the requirement. The judgment was implemented in Ireland by the Equal Status (Amendment) Act 2012, which amended the Equal Status Acts 2000-2011.

EIOPA’s Timeline on Solvency II

EIOPA’s overall goal is to deliver the regulatory and supervisory framework for the technical implementation of the Solvency II by 1 January 2016 (Solvency II’s application date). On 31 January 2014, EIOPA published a timeline by which it intends to deliver two key elements of that framework – the Solvency II Implementing Technical Standards (the ITS) and Guidelines.

EIOPA explains that there will be four significant documents in total. There will be two sets of ITS – Set 1 Approval Processes, Set 2 Pillars 1-3 and supervisory transparency. There will also be two sets of Guidelines – Set 1 is relevant for approval processes and internal models, and Set 2 is relevant for Pillars 2 and 3. The timeline sets out the planned consultation phases for each set. Interested parties should note the public consultation dates on the timeline, when stakeholders will have a final opportunity to input into the process.

Insurance Europe Publishes Insurance Figures for 2012

Insurance Europe has published “European Insurance in Figures” (the Report). The Report provides data on the performance of the insurance industry in Europe in 2012. The European insurance industry is the largest in the world (with a share of 33% of the global market). Total gross written premiums amounted to €1093bn in 2012, a slight decrease of 0.3% on the previous year. Total benefits and claims paid by insurers amounted to €948bn. Life premiums accounted for 59% of all premiums written in Europe, with the largest markets continuing to be the UK, France, Germany and Italy. Non-Life premiums amounted to €451bn, an increase of 1.1% on 2011 figures. European insurers continued to invest in fixed-income instruments offering attractive yields, not yet returning to equities. Total assets held by European insurers increased by 8.6% in 2012 (to €8.4trn).

In 2012, the main distribution channel for the life insurance market continued to be bancassurance (e.g. accounting for more than 60% of premiums in France). However the Report notes that it is a limited distribution channel in the UK and Ireland. For the non-life market, agents continue to be the main distribution channel, followed by brokers, direct writing and bancassurance.


EIOPA Updates Q&A on Solvency II Guidelines 

EIOPA has updated its Questions and Answers template on the Guidelines for preparation for Solvency II with Questions 21 – 30. All questions relate to the submission of information to national competent authorities. New responses have been uploaded in relation to, among other items, the calculation of the solvency capital requirement and the countries for which the natural Catastrophe Risk details should not be reported.

IMD2 Update

On 26 February 2014, the European Parliament published a press release stating that it had voted to adopt amendments to the proposed text of IMD2. Last month, the amendments had been set out in a report on IMD2 adopted by the Committee on Economic and Monetary Affairs. The European Parliament did not vote on the proposed IMD2 as a whole, in order to leave open the possibility of negotiating a first-reading agreement with the Council of Ministers.

Insurance Europe has responded to the European Parliament in a press release. It welcomed the Parliament’s confirmation that each Member State may establish whether to prohibit or further restrict the offer or acceptance of fees and other benefits from third parties in relation to the sale of investment products. However, it is concerned with the Parliament’s proposed ban on tying together different products, arguing that it is inconsistent with MiFID II, which provides for disclosure that the products can be bought separately, as an alternative. Insurance Europe calls on the trialogue parties to align the IMD2 requirements on tying with those in MiFID II. Insurance Europe also raised concerns regarding the detail on disclosures to consumers, ensuring that they are not distracting consumers from more relevant information such as coverage. IMD2 is not expected to come back to plenary session before the Parliament’s May 2014 elections.

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