This is the January edition of the Arthur Cox Insurance Regulatory Update, the monthly bulletin of the Arthur Cox Insurance Group focused on recent developments in insurance regulation, law and practice. In this issue, topics covered include: The Department of Finance publishing the PRIIPS statutory instrument, the Cost of Insurance Working Group’s Report on the Cost of Employer and Pubic Liability Insurance and EIOPA’s publication on IBIP guidelines and the Central Bank’s analysis of key trends in health insurance complaints.
Read the full update below:
IN DOMESTIC NEWS …
DEPARTMENT OF FINANCE PUBLISHES PRIIPS STAUTORY INSTRUMENT
On 9 January, the Department of Finance published the European Union (Key Information Document For Packaged Retail and Insurance-Based Investment Products (PRIIPs)) Regulations 2017 S.I. 629 of 2017 (the “Regulations”). The Regulations amend the Central Bank Act 1942 to enable the Central Bank to deal with infringements of the PRIIPs regulations under its administrative sanctions procedure. Under the Regulations, the Central Bank also has the power to issue the following measures where it has been established that one or more of the infringements listed in Article 24 of the PRIIPs Regulations have occurred:
- an order prohibiting or suspending the marketing of a PRIIP;
- a public warning, which indicates the person responsible for and the nature of the infringement;
- an order prohibiting the provision of a key information document, that does not comply with the form and content requirements under the PRIIPs Regulations;
- fines of up to €10,000,000 or 10% of turnover for corporates (€1,000,000 for natural persons) or up to twice the amount of the profits gained or losses avoided as a result of the infringement; and
- a direction requiring the PRIIPs manufacturer or person selling or advising on the PRIIP to issue a direct communication to the retail investor concerned, notifying the retail investor that they have been sanctioned by the Central Bank for a breach of the PRIIPs regulations and informing them of where to lodge a complaint or submit a claim for redress;
- The Regulations also require firms to have robust internal procedures in place for the reporting of actual or potential breaches of the PRIIPs Regulations. Any sanction imposed by the Central Bank under the Regulations or under the PRIIPs Regulations may be appealed to the Irish Financial Services Appeals Tribunal.
The Regulations are available here.
COST OF EMPLOYER AND PUBLIC LIABILITY INSURANCE REPORT PUBLISHED
On 25 January, the Cost of Insurance Working Group’s (CIWG) Report on the Cost of Employer and Public Liability Insurance was published on the Department of Finance’s website. 15 recommendations with 29 associated actions are made in the report. The recommendations and actions are detailed in an action plan contained in the report with agreed timelines for implementation. The recommendations cover three main themes. First, enhance levels of transparency and improve data sharing and collection processes. Second, the Law Reform Commission should undertake a detailed analysis of the possibility of developing constitutionally sound legislation to delimit or cap the amounts of damages which a court may award in respect of some or all categories of personal injuries; and third, improvements to the personal injuries litigation framework.
Insurance Ireland issued a press release stating that the report confirms that Irish award levels are significantly above those in the UK for minor, moderate and severe neck, back and ankle injuries. Kevin Thompson, CEO of Insurance Ireland stated, “It is time to tackle the fundamental insurance costs that make up the price paid by a business and that is awards and the cost of settling them. Insurers want reform and support the Report’s objective of bringing consistency to personal injury award levels, but the pace of reform outlined needs to be accelerated.”
The CIWG’s report is here
Insurance Ireland’s press release is here.
CENTRAL BANK PUBLISHES KEY TRENDS IN HEALTH INSURANCE COMPLAINTS
On 24 January, the Central Bank published its Consumer Protection Bulletin setting out its analysis of complaints from personal consumers in relation to their health insurance policies. The data analysed was reported by the main health insurance firms. Key trends identified include: in H1 2017, the companies received a total of 7,709 complaints in relation to health insurance, representing 0.75% of live policies during that period; this is lower than the comparable H1 2014 figure when complaints relating to health insurance represented 1.12% of live policies; complaints per thousand policies relating to health insurance (7.5) were more than double the number for other non-life insurance products (3.0); the most common cause of complaints related to claims (48.1%) which contrasts with other non-life insurance, where only 23.2% of H1 2017 complaints related to claims; after claims, customer service was the most common complaint, at 32.7% of H1 2017 complaints; 5.6% of complaints received during H1 2017 received redress payments, and the total amount of redress paid out was €223,857; and 98% of health insurance complaints were resolved within 40 business days.
The Central Bank’s Consumer Protection Bulletin is here.
THE CENTRAL BANK OF IRELAND’S RESPONSE (RESPONSE) TO THE LAW REFORM COMMISSION ISSUES PAPER “REGULATORY ENFORCEMENT AND CORPORATE OFFENCES”
In its response to the Issues Paper, the Central Bank recommends:
- that reforms should be introduced to identify and strengthen the accountability of senior personnel in regulated entities in this jurisdiction;
- that the suspension period for an individual from senior positions in regulated firms as part of the fitness and probity regime should be extended;
- the introduction of a legislative criminal offence of ‘egregious recklessness’ by those in charge of financial firms that fail;
- to embed core common standards within a legislative framework to guide regulated entities, and the individuals in control of them, as to what is expected of them;
- encourages the establishment of specialised appeals body, similar to the Competition Appeals Tribunal (“CAT”) in the UK, as a method of reducing delay in the appeals process; and
- the establishment of a division within an existing criminal agency, which will be dedicated to investigating white collar crime, with the goal of ensuring more effective investigations and prosecutions of white collar crimes.
The Law Reform Commission Issues Paper, “Regulatory Enforcement and Corporate Offences” may be accessed here.
The Central Bank’s Response is here.
The Press Release for the Central Bank’s Response is here.
NEW INSURANCE DATA TRAILED IN QUARTERLY BULLETIN SIGNED ARTICLE
The Central Bank published the signed article, Insurance Corporations Statistics in Ireland: Introducing the New Quarterly Statistics. The article presents a dataset considering the size and operation of the insurance and reinsurance sectors in Ireland and containing the following main take away points:
- insurance corporations represented 6% of total assets within the Irish financial sector in 2016, compared to a euro average of 11%, over the last five years the insurance sector has grown steadily, demonstrated by the total assets of the second quarter amounting to €303 billion, equivalent to 110% of GDP and placing as the third highest in the euro area,
- the majority of the assets can be accounted for by life insurance corporations contributing to 79% of the total, and
- the contribution of foreign business amounting to 85% of total premiums written in Ireland, demonstrates its important nature to the industry.
- The Central Bank publication is here.
The Quarterly Bulletin Signed Article is here.
REGULATORY SERVICE STANDARDS PERFORMANCE REPORT H2 2017
On the 31st of January the Central Bank published “Regulatory Service Standards Performance Report H2 2017”, setting out that it has maintained and exceeded a 100% service record in processing authorisation applications within the statutory timeframe applicable.
The Central Bank’s press release may be found here.
The Regulatory Service Standards Performance Report H2 2017 may be found here.
INSURANCE IRELAND FACTFILE 2016
Insurance Ireland recently published Factfile 2016, its annual analysis of the insurance industry in Ireland. It also provides a historical perspective with data compiled from 2012 until the end of 2016. The data collected is from members of Insurance Ireland unless otherwise indicated in the report. The report contains a detailed breakdown of the domestic and international business of insurers based in Ireland, looking at various statistics including premium levels, the rate of benefits and claims paid, year-end value of investments, employment rates. Some main points to take away from the Executive Summary in relation to the Irish insurance market include:
- combined gross insurance premium decreased by 3.9%, falling from €13,439.1 million in 2015 to €12,908.2m in 2016 and premiums per capita decreased from €2,922 in 2015 to €2,746 in 2016 such that the premium income as a percentage of GDP for 2016 was 4.68%,
- there was an increase in the capital values of assets in many investment areas in 2016,
- the aggregate value of policyholders’ funds managed by Insurance Ireland’s Life Members increased in 2016 by 8.7%; and
- cash holdings increased to a value of €10,413 million, rising from 9.5% to 9.7% from 2015 to 2016.
The Insurance Ireland Factfile 2016 is here.
SPEECH TO ASSOCIATION OF COMPLIANCE OFFICERS IN IRELAND EVENT: ARE YOU FIT FOR FINTECH?
On the 17th of January Gerry Cross, the Director of Policy and Risk of the Central Bank, delivered a speech on Financial Technology (FinTech). In the course of this speech he examined the new European legislative and regulatory framework is impacting the area, how the Central Bank is planning on updating its current approach, the preliminary work done by the Central Bank and the interplay of FinTech with other relevant trends, including virtual currencies.
Mr. Cross stressed the importance of other new legislation such as the PRIIPs Regulation, which improves the quality, accessibility and comparability of information that customers across Europe receive when investing in these products.
Mr. Cross stated that the Central Bank are currently engaged in an internal review of their approach to FinTech and can be expected to deliver further insight into their approach over the next few months. The Central Bank intends to focus the scope of review to include, the interaction between the regulator and tech companies, how technological innovation can improve supervision and how an understanding of innovation can help develop an appropriate regulatory approach.
Mr. Cross referred to the Central Bank’s discussion paper, Consumer Protection Code and the Digitalisation of Financial Services, (the “Code”) which the Central Bank is currently in the process of reviewing the responses with the aim of formulating how the Code can best target emerging risks and how protections may need to be enhanced. He also notes the growing focus on the reliance of information technology for financial firms and how the Central Bank is looking to increase its focus on the use of technology in these firms, most notably in bringing together the specialist resources from the different sectoral area, into one centralised IT inspections team.
Finally, Mr Cross discussed FinTech’s relationship with the areas of compliance, stressing the expectation to see compliance officers adapting appropriately to the modern risks, and the Central Bank’s intention to actively engage with and influence the European treatment of FinTech. He concluded by looking at initial coin offerings and virtual currencies, and warns of the various problematic challenges they create for users such as falling outside the regulatory scope and their speculative and fluctuant nature.
The Speech can be found here.
CENTRAL BANK ANNOUNCES NEW LEADERSHIP APPOINTMENTS
On 16 January, the Central Bank announced three new appointments at director level in its Financial Conduct pillar. The financial conduct pillar was established following a restructuring of the financial regulation division in 2017 and the three new directors will report to Director General, Financial Conduct, Derville Rowland. The three appointed directors are: Gráinne McEvoy as Director of Consumer Protection (previously Head of Securities and Markets Supervision Division); Seanna Cunningham as Director of Enforcement and Anti-Money Laundering (previously Head of Enforcement Advisory Division); and Colm Kincaid appointed to the role of Director of Securities and Markets Supervision (previously Head of Consumer Protection). The directors are to be members of the Central Bank’s Senior Leadership Committee and their roles are to take immediate effect.
The Central Bank’s press release is here.
IN EUROPEAN AND INTERNATIONAL NEWS…
EUROPEAN PARLIAMENT COMMENTS ON TRANSPOSITION OF INSURNACE DISTRIBUTION DIRECTIVE
On 16 January, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) published a letter (dated 9 January 2018) on its website relating to the legislative proposal adopted by the European Commission in December 2017 to postpone the application date (the date by which affected undertakings must comply) of the Insurance Distribution Directive (IDD) and related Delegated Regulation to 1 October 2018.
The letter notes that, in addition to postponing the date of application, 15 Member States have requested the European Commission to postpone the date of transposition (the date by which Member States must transpose the Directive into national legislation). The European Parliament is considering positively the postponement of the date of transposition of the IDD by a few months, for example to 1 July 2018.
The letter confirms that the European Parliament intends to adopt the amending directive in an expedited manner.
ECON’s letter is here.
EIOPA PUBLISHES INSURANCE-BASED INVESTMENT PRODUCTS (IBIPs) GUIDELINES
On 19 January, EIOPA published the translations of the Guidelines under the Insurance Distribution Directive for IBIPs that incorporate a structure which makes it difficult for the customer to understand the risks involved. The Guidelines are now available in all official languages of the European Union. As previously reported, the Guidelines relate to “execution-only” sales. These tend to be IBIPs that are sold online or over the phone where the insurance distributor neither provides advice nor verifies the customer’s knowledge of the product and the risks involved. The Guidelines aim to mitigate the risk of detriment to consumers due to mis-selling of IBIPs. The guidelines have two sections: the first part deals with requirements that apply to contracts that only provide investment exposure to financial instruments deemed non-complex; and the second part deals with requirements that apply to other non-complex insurance-based investment products.
The translation of the Guidelines commences a two month period in which EU competent authorities need to confirm whether they comply or intend to comply with the Guidelines.
A link to the Guidelines is here.
THE FCA AND HM TREASURY AND THE BANK OF ENGLAND PUBLISH STATEMENTS ON EU WITHDRAWAL
On 20th December 2017, the Financial Conduct Authority (FCA), the HM Treasury and the Bank of England published statements detailing the progress of Brexit negotiations between the UK and the European Union. These statements highlighted their proposed approaches, including in the event of there being no deal with the EU. Interesting takeaways include:
- the UK Government plans to legislate for a “temporary permission” regime to allow EEA firms and funds to continue operating in the UK for a limited time, without requiring new authorization to be given, the UK government also plans to legislate for longer term issues such as insurance contracts;
- they assure that UK authorities will be able to take responsibility for situations that will no longer be covered by EU authorities;
- the key focus will be to avoid disruption to the financial sector by ensuring the necessary technical arrangements are in place, and provide firms with up to date information on the arrangements, as negotiations take place, to ensure a smooth transition; and
- ensuring that, regardless of the outcome of the negotiations, there is a continued engagement between European and UK regulators to protect the stability of the financial market.
- The FCA statement may be found here
- The Bank of England statement may be found here
- The HM Treasury statement may be found here
THE BANK OF ENGLAND PUBLISH STATEMENT ON ITS FUTURE APPROACH TO AUTHORISATION AND SUPERVISION.
On 20 December 2017, the Bank of England (the Bank) opened a consultation on its approach to authorisation and supervision of insurers, in the context of Brexit. The Statement contains some interesting observations by the Bank on the UK’s future relationship with the EU and its proposed approach to supervising EEA insurers in the UK, post Brexit:
- it expects a continued high degree of supervisory cooperation between the UK and the EU post-Brexit;
- EEA insurers that do not conduct “material retail business” may apply for authorisation as a branch in the UK (the PRA is writing to relevant firms in this regard);
- depending on the scale of a relevant EEA’s insurer’s liabilities protected by the UK Financial Services Compensation Scheme, it may be required to operate through a UK authorised subsidiary; and
- if the PRA is unable to gain a sufficient degree of cooperation from the home state supervisor regarding its oversight of the branch of an EEA insurer, the PRA may impose specific regulatory requirements on the branch or if this proves ineffective, the PRA may require the firm to be authorised as a UK subsidiary.
The consultation on the proposed policy is open for public comment until the end of February 2018.
The Bank’s statement may be found here.
EUROPEAN COMMISSION RELEASES NOTICE TO STAKEHOLDERS REGARDING EU RULES IN THE FIELD OF DATA PROTECTION IN LIGHT OF BREXIT
On 9 January, the European Commission released a notice reminding stakeholders that in the absence of a ratified agreement to the contrary, all primary and secondary EU law will cease to apply to the UK from 30 March 2019, after which date the UK will become a ‘third country’. Therefore, subject to any transitional measures being put in place, the EU rules for the transfer of personal data to third countries apply.
Aside from an ‘adequacy decision’, which allows the free flow of personal data from the EU without the EU data exporter having to implement any additional safeguards or being subject to further conditions, the EU’s data protection rules (under the new General Data Protection Regulation 2016/679, “GDPR” – which will apply as from 25 May 2018) allow a transfer to a third country data controller or processor if they have provided ‘appropriate safeguards’. These safeguards may be provided for by:
- approved Codes of Conduct together with binding and enforceable commitments of the controller or processor in the third country; and
- approved certification mechanisms together with binding and enforceable commitments of the controller or processor in the third country.
- In the absence of an adequacy decision or of appropriate safeguards a transfer or a set of transfers may take place on the basis of so-called ‘derogations’. Derogations allow transfers in specific cases, such as for the performance of a contract or other cases based on consent, for the exercise of legal claims or for important reasons of public interest. The European Commission has confirmed that it is working with interested parties and data protection authorities to make the best use of the new tools for data transfers to third countries that are to be implemented under the GDPR.
The European Commission’s notice to stakeholders is available here.
EIOPA PUBLISHES RISK DASHBOARD
On 25 January, EIOPA published its quarterly risk dashboard summarising the main risks and vulnerabilities in the insurance sector based on third-quarter 2017 data. Overall the risk exposure remained stable. Potential credit risk mispricing and the risks linked to the low interest rates are still major concerns. Increases in the eligible own funds were mainly responsible for the improvements in solvency ratios. Some profitability and underwriting indicators deteriorated due to the impact of the recent natural catastrophes. Market perception remained stable with some improvements in the rating outlooks.
A link to the risk dashboard is here.
INSURANCE EUROPE RESPONDS TO THE EUROPEAN COMMISSION’S CONSULTATION ON COOPERATIVE INTELLIGENT TRANSPORT SYSTEMS (C-ITS) SPECIFICATIONS
C-ITS, sometimes referred to as ‘connected driving’ is the technology that allows vehicles to communicate with other vehicles and infrastructure, such as traffic signals, that are fitted with the same system. On 9 January, Insurance Europe published a response to the European Commission’s consultation on C-ITS specifications, which agrees with the need for a clear EU legal framework and identifies access to in-vehicle data as being a major issue that requires immediate attention. According to Insurance Europe, regulation in this area would allow all stakeholders to be on an equal footing when it comes to accessing in-vehicle data that is free from any interference by vehicle manufacturers and is based solely on the consent of drivers/consumers. Insurance Europe also urged the Commission to give due consideration to the conclusions of the Transport Research Laboratory study on access to in-vehicle data and resources, which was published in August 2017.
Insurance Europe’s press release is here.