Financial Services Regulation and Compliance - Insurance May 2022

Domestic

Domestic: In domestic news, the Insurance (Miscellaneous Provisions) Bill 2022 was scheduled for report and final stages in the Dáil. The CBI published updated Q&A on the Insurance Regulations 2022 and the Department of Finance published its feedback statement on its Public Consultation on the Development of a National Resolution Framework for (re)Insurers.

EUROPEAN

European: In European news, EIOPA published a discussion paper on European insurers’ exposure to physical climate change risks and the potential implications for non-life business and published advice on retail investor protection. It also published a feedback statement on the use of blockchain and smart contracts in the insurance industry and its risk dashboard for Q4 2021. ESMA published a public statement on the implementation of IFRS 17 insurance contracts.

DOMESTIC

Insurance (Miscellaneous Provisions) Bill 2022 Scheduled for report and final stages in the Dáil

Having passed its second stage in the Dáil, the Insurance (Miscellaneous Provisions) Bill 2022 (the Bill) was discussed by the select Committee on Finance, Public Expenditure and Reform, and Taoiseach on 11 May 2022. It proposes drafting amendments to the Consumer Insurance Contracts Act 2019 and amendments to the Central Bank (National Claims Information Database) Act 2018 relating to deductions of State support payments from COVID-19-related claim settlements. The Bill also provides new requirement for the Central Bank of Ireland (CBI) to report to the Minister for Finance on its work relating to price walking, and amends the European Union (Insurance and Reinsurance) Regulations 2015 to address issues arising in the scope of the Insurance Temporary Run-off Regime, created following Brexit. The Bill is scheduled for report and final stages in the Dáil on 1 June 2022.

Differential Pricing - CBI publishes updated Q&A on the Insurance Regulations 2022

On 9 May 2022, the CBI published an updated Q&A on the Insurance Regulations 2022. The Q&A has been provided to give clarity to insurance undertakings and insurance intermediaries' understanding of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Insurance Requirements) Regulations 2022. The updated Q&A answers questions received by the CBI from industry following a public consultation and report in July 2021 on differential pricing which highlighted the potential implications of price-walking practices on consumers and led to a ban on price walking with effect from 1 July 2022.

Public consultation on the Development of a National Resolution Framework for (re)Insurers - feedback S=statement

This month, the Department of Finance published its feedback statement on its public consultation on the Development of a National Resolution Framework for (re)Insurers held late last year. The Department concluded that there was broad support for a resolution framework aligned with the EU-level proposal for an Insurance Recovery and Resolution Directive (IRRD) among stakeholders. Most respondents to the Consultation agreed with the use of a public interest assessment to ensure that resolution tools would be deployed in exceptional circumstances only. Meanwhile, many were opposed to additional capital buffer requirements, which would place Irish undertakings at a competitive disadvantage internationally. Finally, respondents voiced their preference for a cautious and fair approach to any levies impose as a means of financing resolution.

European

EIOPA publishes discussion paper on European insurers’ exposure to physical climate change risks and the potential implications for non-life business

On 20 May 2022, the European Insurance and Occupational Pensions Authority (EIOPA) published a discussion paper on the exposure of European non-life insurers to climate change risks. The paper follows a large, industry wide data collection project and examines the impacts of various physical climate change risks, e.g. windstorms, wildfires and flooding on property, content and business interruption insurance. While the consensus is that premiums will likely have to increase in line with risk, EIOPA will continue to monitor trends that could have a negative impact on affordability for consumers. EIOPA also highlighted that over half of participants had not commenced any climate change analyses, solidifying its view that there is an ever-growing need for engagement with national competent authorities and the wider industry to further its sustainable finance agenda.

EIOPA publishes advice on Retail Investor Protection

EIOPA has published advice on retail investor protection relating to insurance-based investment products (IBIPs). The advice feeds into the European Commission's 'Capital Markets Union Action Plan' and addresses five main topics:

  • improving consumer engagement with disclosures, for example, by issuing a personalised "annual statement" to policyholders, to ensure consumer-focused disclosure, fit for the digital age
  • assessing opportunities for use of digital tools, such as using digital platforms to sell IBIPs
  • addressing conflicts of interest which arise in the product lifecycle
  • enhancing sales process efficiency and affordability, e.g. by clarifying the scope of the "demands and needs" test and suitability assessment
  • assessing how complexity impacts the market and how to improve product coherence

EIOPA feedback statement - discussion paper on blockchain and smart contracts in insurance

EIOPA published a feedback statement on the use of blockchain and smart contracts in the insurance industry on 6 May 2022. The statement revealed that insurers are enthusiastic about blockchain and its ability to offer solutions that streamline their business, improve efficiency and help them provide better customer service. Insurers were also, however, cognisant of the risks attached to this new technology, including its use by inadequately trained staff and issues arising from incorrect coding. Insurers also voiced concern on the sustainability of some blockchain solutions, noting their high levels of energy consumption. EIOPA advised that it will continue to consider the responses from stakeholders in its assessment of the potential use of blockchain in its processes.

ESMA statement on transparency on implementation of IFRS 17 insurance contracts

On 13 May 2022, the European Securities and Markets Authority (ESMA) published a public statement on the implementation of IFRS 17 insurance contracts (IFRS17). IFRS 17 is to replace requirements under IFRS 4, which allowed entities to utilise a range of national accounting requirements and practices for insurance contracts. In contrast, IFRS 17 introduces principles-based requirements that will improve users' ability to compare contracts across issuers. Among the statement's recommendations, ESMA called for insurers to equip their financial statements with the most relevant and comparable information possible to make sure that users can best assess the possible impact of IFRS 17 in the initial application period. ESMA advised insurers to include these disclosures in the 2023 interim and annual financial statements, bearing in mind the effective date of IFRS 17 is 1 January 2023 across the EU.

EIOPA risk dashboard for Q4 2021 flags macro risks

On 3 May 2022, EIOPA published its risk dashboard based on Solvency II data from Q4 2021. The results show that the insurance sector's primary concern is insurers’ exposures to macro risks which remain at a high level. Digitalisation and cyber risks are also at a high level. Insurance, profitability and solvency risks remain at medium levels of risk, as do environmental, social and governance (ESG) associated risks.

EIOPA publishes monthly technical information

EIOPA published, on 4 May 2022, its monthly technical information on the relevant risk free interest rate term structures (RFR) and symmetric adjustment of the equity capital charge for Solvency II with reference to the end of April 2022. Upcoming publication dates in 2022 are 5 July, 3 August, 5 September, 6 October, 7 November and 5 December.

Sanctions imposed in response to the crisis in the Ukraine

Since February, the EU imposed a number of sanctions in response to the crisis in the Ukraine. Given that the crisis is developing and sanctions are continuing to evolve, the CBI is publishing details of new restrictive measures/sanctions that are adopted in this regard, as well as any associated EU/UN guidance, on their dedicated webpage.

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

Date published: 14 June 2022