Insurance Reform: Minister for Finance publishes General Scheme of the Insurance (Miscellaneous Provisions) Bill
The Department of Finance has published the general scheme of the Insurance (Miscellaneous Provisions) Bill (the “General Scheme”). The intention of the bill is to address a number of different issues that have arisen since the Irish government produced its action plan on insurance reform in December 2020. The proposed changes are significant and if enacted will amend some of the most important pieces of legislation affecting the insurance industry in Ireland, including the Consumer Insurance Contracts Act 2019 (“CICA”), the European Union (Insurance and Reinsurance) Regulations 2015 (the “Solvency II Regulations”) and the Central Bank (National Claims Information Database) Act 2018(the “NCID Act”).
Collection of data on state supports deductions
In response to the Covid-19 pandemic and the consequent restrictions on businesses, the Irish government provided a number of supports to the sectors affected, including a wage subsidy scheme and various loan and guarantee schemes. It has come to the attention of the Central Bank and the Government that an industry practice has developed whereby insurers deduct the value of state supports from insurance settlements or amounts paid in respect of business interruption claims.
Head 3 of the General Scheme proposes to amend the NCID Act to enable the Central Bank to collect data on insurers deducting the value of state supports from insurance settlements or claims payments. The purpose of the data collection is to ascertain how widespread the practice is and whether further action is needed to address to address it.
Head 8 of the General Scheme proposes to make a related change to CICA requiring insurers to inform claimants: (i) where the insurer has made a deduction to a claims payment (including amounts received by the consumer from state supports), (ii) the amount of the deduction and (iii) the reason for doing so. Amounts that the State may recover through the Recovery of Benefits and Assistance scheme are excluded under the proposed amendment. The General Scheme acknowledges that a lead-in time for this new measure will be necessary to enable insurers to make any adjustments needed to their internal systems to comply with this provision. Therefore, it is proposed that the provisions in Head 8 will come into operation at a future date to be determined by the Minister for Finance.
Head 4 of the General Scheme is a response to the Central Bank’s investigation on differential pricing practices in the private motor and home insurance markets (an Arthur Cox briefing on the Central Bank’s final report on differential pricing is available here). The Central Bank intends to use its existing powers to ban the practice known as “price walking”, to strengthen the provisions regarding renewal of all private non-life products, and to require insurers to review pricing policies on an annual basis. However, it is not clear at this stage whether existing powers will be sufficient to achieve the Central Bank’s objectives. The purpose of the proposed legislative amendment is to amend the NCID Act to ensure that 18 months after the relevant amendments come into effect the Central Bank must report on the progress of the measures it has taken to the Minister for Finance. This report will then suggest any further legislative changes that may be necessary in the interests of customers.
Post-Contractual Duty of Disclosure
Heads 5, 6 and 7 of the General Scheme include proposed changes to CICA to remove the present section 16(10) relating to the post-contractual disclosure of information. This provision requires disclosure of information (including information that would otherwise be subject to privilege) that would either support or prejudice the validity of a claim made by a consumer to the other party. It is felt that the current wording encroaches too much on legal professional privilege. Therefore the General Scheme contains proposals to repeal section 16(10) and replace it with a new section 16A. The new section 16A removes the words “including information that would otherwise be subject to privilege” and introduces a new subsection, which provides that where the relevant supporting or prejudicial information is contained in a report prepared for the purposes of pending or contemplated civil proceedings, the report should be disclosed to the other party within 60 days of receipt. If enacted, Section 16A will be a designated enactment under the Central Bank Act 1942, enabling the Central Bank to enforce its obligations against insurers under the Central Bank’s administrative sanctions procedure.
Effect of fraud on innocent
Section 18(4) of CICA was enacted to give effect to a recommendation in the Law Reform Commission’s 2015 Report on Consumer Insurance Contracts, to ensure that where a policy of insurance is in the names of a number of consumers and one of those consumers intentionally destroys the relevant property, the innocent co-insureds would still be able to claim under the policy. However, concerns have emerged that the present wording in CICA is too broad as it refers to “any other person” destroying the property. This could have the unintended consequence of nullifying standard policy exclusions for criminal damage, such as for acts of terrorism.
Head 9 of the General Scheme proposes to amend section 18(4) to narrow its scope to the situations it was intended to address by replacing the reference to the “intentional act or omission of a consumer or any other person” with the “intentional act or omission of a consumer co-insured”.
Amendments to the Temporary Run-Off Regime
Head 10 proposes to make technical changes to the Solvency II Regulations to rectify two issues raised by the Central Bank in relation to the operation of the Temporary Run-off Regime (“TRR”) for UK and Gibraltar based insurers; one on the provision of reinsurance and the other in relation to firms in liquidation.
Following the withdrawal of the UK from the EU, amendments were made to the Solvency II Regulations, allowing insurers who, prior to 31 December 2020, had been authorised in the UK or Gibraltar and had been carrying on business in Ireland on a branch or cross-border basis to enter into the TRR for a maximum of 15 years. One of the conditions for entering the TRR was that such an insurer “exclusively administers its existing portfolio in order to terminate its activity in the State”.
As currently drafted, Regulation 10(3) of the Solvency II Regulations exempts third country firms, (firms authorised outside of the EEA), that carry on reinsurance activity from the requirement to be authorised. To avail of this this limited exemption the third country firm must be duly authorised in their home country and limit their activities in Ireland strictly to reinsurance.
The requirement on insurers in the TRR to “exclusively administer their existing portfolios of Irish business to terminate their activity in the state” meant that UK and Gibraltar insurers availing of the TRR could not lawfully carry out third country reinsurance activity in Ireland, which would otherwise be permitted by Regulation 10(3) of the Solvency II Regulations.
Head 10 proposes to amend the Solvency II Regulations to allow UK and Gibraltar based firms availing of the exemption under Regulation 10(3) to also run-off any insurance business that they wrote in Ireland prior to 31 December 2020 pursuant to the TRR. This avoids a situation where such firms would have to cease carrying on reinsurance business in Ireland where they have pre-Brexit direct insurance business in Ireland.
To avail of the TRR, insurers were required to have been authorised in the UK or Gibraltar immediately before 31 December 2020. Head 10 also proposes to amend Regulation 13A(1)(a) and Regulation 13A(2)(a) to permit insurers in liquidation that have had their authorisation withdrawn under the laws of the UK or Gibraltar prior 31 December 2020 but otherwise satisfy the conditions of the TRR, to enter the TRR and run-off their existing portfolio of Irish insurance policies.
What does this mean for (re)insurers?
While the proposed clarifications to CICA and the rule changes concerning entry into TRR are welcome, the changes proposed by Heads 3, 4, and 8, indicate that business interruption, differential pricing and enhanced disclosure requirements continue to be areas of focus for the Central Bank and insurers should expect further engagement with the Central Bank on these issues.