Insurance Regulatory Update, May 2019
This is the May 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.
Commission Delegated Regulation Amending The European Insurance Distribution Directive
Article 10 of the Insurance Distribution Directive sets out minimum levels of professional indemnity insurance or some other comparable guarantee against liability arising from professional negligence that distributors must hold. The amounts referred to in Article 10 are to be regularly reviewed by EIOPA to take account of the European index of consumer prices.
Article 1 of this amending Regulation adjusts the base amounts specified in Article 10(4) and (6) of the Directive to reflect the percentage increase of the European index of consumer prices produced for the Union by Eurostat. Insurance must now be €1,300,380 per claim and €1,924,560 per year in aggregate. Intermediaries must have financial capacity amounting to 4% of the sum of annual premiums received on a permanent basis (subject to a minimum of €19,150).
Article 2 sets out the date of application of the Regulation, taking into consideration a transitional period of 6 months to allow Member States to change their national legislation and to give industry time to adopt the necessary implementation measures.
The Regulation is available here.
Insurance Europe Publishes its Annual Report 2018-2019
The issues covered in this year’s report include the Solvency II review, climate change, sustainable finance, pensions, the global insurance capital standard, the global systemic framework, cyber risk and data protection. Insurance Europe notes that 2019 is an important year for the EU’s insurance regulatory regime, as work is commenced on the first major review of Solvency II since its introduction at the beginning of 2016.
One matter that Insurance Europe is critical of is the rules contained in the Packaged Retail and Insurance-based Investment Products Regulation, as it believes they are simply not working. It welcomes the review of the Regulation to be conducted this year. In terms of improving the EU’s regulatory process, Insurance Europe calls for the introduction of three measures:
- sufficient implementation timelines to ensure companies have time to prepare for new legislation;
- the prioritisation of quality over speed when developing regulation; and
- sufficiently detailed regulation that is adequately scrutinised by legislators and is not left to the interpretation of supervisors.
Government hosts sustainable finance workshop coinciding with launch of landmark world bank sustainable development bond
The Department of Finance and Sustainable Nation Ireland (SNI) hosted a conference on sustainable finance on 16 May entitled “Catalysing Global Savings to Advance our Shared Sustainability Goals”.
The focus of the conference was to discuss the importance of the private sector in providing capital to further the sustainable agenda. The event was attended by key market participants in the area of sustainable finance and included addresses from An Taoiseach, Leo Varadkar TD, and Environment Minister, Richard Bruton TD.
On the same day and also in Dublin, the World Bank launched a 10-year Global Sustainable Development Bond, which raised €1.5 billion. This follows on from the issuance of Ireland’s first Green Bond in October 2018 and demonstrates a strong appetite in the market for sustainable products.
Separately, Insurance Europe issued a statement on 23 May calling for action from European policymakers to ensure insurers can maximise their contribution to a sustainable Europe. In particular, the statement highlighted the need to: ensure capital requirements reflect insurers’ actual risk; provide a clear taxonomy that avoids greenwashing; and ensure conduct rules provide consumers with a clear choice over environmental, social and governance (ESG) and non-ESG investment products. The statement also noted that demand for sustainable and long-term investment is significantly higher than supply at the moment. It therefore called for action to be taken to encourage the creation of suitable, sustainable investment opportunities.
EIOPA reviews the use of big data analytics in motor and health insurance
On 8 May 2019, EIOPA published a report (the Report) on big data analytics in motor and health insurance. The Report sets out EIOPA’s findings following its thematic review on the use of Big Data Analytics and associated benefits and risks focusing on motor and health insurance business lines. The Report contains a number of findings:
- There is a strong trend towards data-driven business models in the insurance value chain.
- Traditional data sources such as demographic data or exposure data are increasingly merged with new sources, including online and telematics data, for increasingly modified products and services and more precise risk assessments.
- 31% of insurance firms use big data analytics tools such as artificial intelligence and machine learning algorithms and 24% have reached proof of concept stage.
- Cloud computing services are used by 33% of insurance firms and a further 32% of insurance firms indicated that they will be moving to the cloud over the next 3 years.
- The increased granularity of risk assessment has not yet resulted in exclusion for high-risk consumers but it is anticipated that the effect of big data analytics will increase in the future.
- It is essential that issues regarding the fairness of the use of big data analytics and the correctness and explainability of “black-box” algorithms are addressed.