The CBI’s perspective on focal points for the Irish insurance sector  

In a recent speech at Insurance Ireland's annual industry lunch, the Governor of the Central Bank of Ireland (CBI) Gabriel Makhlouf, set out the key areas of CBI focus in respect of the insurance sector. Insurance and reinsurance undertakings should factor these areas of focus into their horizon scanning and overall regulatory planning.

Climate change

As previously highlighted, climate change is a key CBI financial regulation priority this year. The CBI recognises that the insurance industry is at the front end of physical risks posed by climate change, and is key to the transition to net zero, given its role in channeling savings to support investment.

Mr. Makhlouf commented that the CBI welcomes insurance industry engagement on the issue of climate change broadly, and more specifically, through the Climate Risk and Sustainable Finance Forum. This forum aims to build a shared approach to the understanding and management of the financial risks and opportunities posed by climate change.

The CBI will soon consult on draft guidance on climate change risks for insurance undertakings, the aim being to provide support and clarify expectations on how firms can address the climate change risks in their business. 

While not discussed at the annual industry lunch, as previously highlighted, insurance undertakings and insurance intermediaries must also be ready for sustainability-related changes that will become effective early August 2022.

Intra-group arrangements

It was noted that that the CBI recognises the benefits which many firms derive from relationships with the wider group to which they belong, such as innovation in the delivery of services and increased flexibility and agility. However, Mr. Makhlouf commented that the CBI has identified areas where oversight of intra-group relationships should be strengthened.

The CBI has found that, in a number of firms, the risks associated with reliance upon related group entities are often not considered to a sufficient degree, perhaps due to intragroup arrangements being perceived by some as being 'less risky' than external arrangements.

The CBI's expectation is that firms should have sufficient capability at legal entity level to apply similar standards of governance and oversight to intra-group arrangements as they would to external arrangements. The CBI also expects boards and senior management to be particularly mindful of EIOPA's product oversight and governance framework, as well as its recent supervisory statement on assessment of value for money of unit-linked insurance products. These considerations will be reflected in the CBI's supervisory focus over the coming period.

The CBI has developed draft guidance on intra-group transactions, with the aim of being more transparent about their expectations in this area, and will invite feedback through a consultation process set to be launched at the end of Q2/beginning of Q3 this year.

Differential pricing

Further to publication of the price walking regulations, the CBI's expectation is that firms will put in place relevant changes to their pricing practices by 1 July 2022.

National resolution framework

The CBI acknowledges all the respondents to its public consultation on the development of a national resolution framework for insurers and reinsurers, and their contributions.

The CBI welcomes the European Commission's proposal for a harmonized EU Insurance Recovery and Resolution Directive (IRRD), which is broadly aligned with its own approach to resolution. The CBI recognises that this proposal will greatly enhance its ability to take appropriate and proportionate action in the event of insurance firm failures, and will continue to engage with the Department of Finance and at EU level on its development.

Transparency

The CBI continues to support transparency on the functioning of the insurance market, and highlights that the introduction of the National Claims Information Database was a step change in improving transparency and providing information on developments within the market. The CBI will continue to enhance the database and meet the needs of stakeholders in the insurance market including current – and potential – market participants, policymakers and the public.

Next steps

While insurance undertakings will have already have been focused on most, if not all of these areas, those that have not, should bring these important areas of CBI focus into their horizon scanning and board updates.

Risk and compliance teams should ensure that their regulatory and compliance plans are continually refreshed to ensure that these developments are captured, impact assessed and monitored.

For further information on this topic please contact James Grennan, Partner, Laura Mulleady, Partner, Sinéad Lynch, Partner, or any member of the A&L Goodbody Insurance and Reinsurance team.

Date published: 29 June 2022