THIS MONTH'S NEWS
- CENTRAL BANK PUBLISHES ITS GUIDELINES IN PREPARATION FOR SOLVENCY II
- NEW GUIDANCE ON THE ADVERTISING REQUIREMENTS OF THE CONSUMER PROTECTION CODE 2012
- UPDATE ON REVIEW OF SALES OF PPI
- CENTRAL BANK'S HEAD OF LIFE INSURANCE ADDRESSES THE CHALLENGES POSED BY A CHANGING INTEREST RATE ENVIRONMENT
- CENTRAL BANK PUBLISHES FINDINGS FROM THE HOUSEHOLD PROPERTY CLAIMS THEMED INSPECTION
- CHAIRMAN OF EIOPA GIVES VIEWS ON EIOPA 'S ACHIEVEMENTS.
- EUROPEAN COMMISSION PROPOSES DIRECTIVE TO DELAY IMPLEMENTATION OF SOLVENCY II
- EIOPA PUBLISHES 2013 LIST OF CROSS BORDER INSURANCE GROUPS, ACTION PLAN FOR 2014/2015 AND THE JOINT COMMITTEE PUBLISHES LIST OF FINANCIAL CONGLOMERATES
- FCA REVIEW OF PPI COMPLAINTS HANDLING FINDS SIGNIFICANT ROOM FOR IMPROVEMENT
- INSURANCE EUROPE PUBLISHES POSITION PAPER ON KEY REGULATORY AND MARKET ACCESS ISSUES
- IAIS ANNOUNCES PLAN TO DEVELOP A RISK BASED GLOBAL INSURANCE CAPITAL STANDARD
- EIOPA PUBLISHES 2014 WORK PROGRAMME
- UPDATE – CENTRAL BANK INDUSTRY BRIEFING – SOLVENCY II
- UPDATE - INSURANCE MEDIATION DIRECTIVE 2
IN DOMESTIC NEWS...
Central Bank Publishes Its Guidelines On Preparing For Solvency II
On 4 November 2013, the Central Bank published its Guidelines on Preparing for Solvency II (reflecting the EIOPA Guidelines published on 27 September last, the official translations of which were published on 31 October). The Central Bank Guidelines are designed to assist insurers in preparation for Solvency II and cover the following key areas: Systems of Governance; Forward-Looking Assessment of Own Risk; Submission of Information to the Central Bank and the Pre-Application of Internal Models. The Guidelines have been uploaded to the "Regulatory Requirements/Guidance" Sections for each of Life, Non-Life and Reinsurance undertakings on the Central Bank's website at www.centralbank.ie.
Central Bank Publishes Guidance On The Advertising Requirements Of The Consumer Protection Code 2012 (CPC)
On 23 October, the Central Bank published guidance on the advertising requirements in the CPC (the Guidance). The Guidance aims to assist firms in understanding their obligations under the CPC regarding advertising and therefore raise advertising standards and promote consumer protection. The Guidance takes account of the Central Bank's review of advertisements over 2012 and 2013 (the Central Bank has taken action in respect of 189 advertisements in 2013). In drafting the Guidance, the Central Bank had regard to feedback from consumer and industry groups, and other regulators.
The Guidance provides useful direction on a number of aspects of the CPC's advertising rules including the scope of the rules, the standard of systems and control checks expected, the role of the compliance officer in advertising, the treatment of outsourced activities, the use of regulatory disclosure statements and the use of the description "independent" in adverts. It also provides clarity on the requirements that advertising needs to be clear, accurate and not misleading, and the treatment of key information and qualifying criteria in advertisements.
Notably, the Central Bank reiterates its concern about the use of customer profile examples in motor insurance advertising. The Guidance reminds firms that, in order to comply with the requirements of the CPC, all price specific advertising must contain the specific key information and qualifying criteria regarding who can avail of the price quoted in the advertisement. The Guidance also provides a useful checklist which should be considered by firms as part of their advertising campaigns.
A link to the Guidance is here.
Update On Review Of Sales Of Payment Protection Insurance (PPI)
On 3 October, the Central Bank issued a further update on its continuing investigation into the mis-selling of PPI. Following its initial investigation, the Central Bank required firms to undertake a review of PPI policies sold since July 2007 and to investigate whether such policies were compliant with the CPC. In its update, the Central Bank notes that approximately one in five policies reviewed so far was sold in breach of the CPC. By the end of 2013, the Central Bank expects all the firms involved to have contacted consumers who hold policies subject to the review. The review, being overseen by independent third parties, has already identified €25 million in refunds to affected customers.
A link to the Update is here.
Central Bank's Head Of Life Insurance, Mark Burke, Addresses The Challenges Posed By A Changing Interest Rate Environment
On 27 September, the Central Bank's Head of Life Insurance addressed the 3rd Annual Best Practice in Managing Insurance Assets. His speech focused on the challenges faced by insurers and reinsurers as a result of a prolonged period of low interest rates. He noted that the business models most affected by the low-interest rate environment are predominantly longtail life assurance, and particularly those with investment guarantees.
However, he made some interesting observations on the differing effects the low interest rate environment has on each industry sector – life, non-life and reinsurance. He also set out how the Central Bank has responded to these challenges by making changes to its supervisory strategy and engagement philosophy.
His key messages were that each firm should do the following, having regard to its own circumstances: (1) undertake sufficient work to deal with the challenges of a low interest rate environment, (2) introduce pricing strategies reflective of current market realities, (3) understand the implications of changes to asset allocations in terms of both credit quality and liquidity and the potential impact of a sudden spike in credit spreads, (4) recognise the need for some original thinking and product innovation, particularly in the areas of savings and retirement solutions. A strategy of product simplicity and flexibility will be rewarded, and (5) recognise the benefits of Solvency II's market consistent approach in increasing the transparency of the costs of investment guarantees in life assurance products, particularly those provided over long periods of time.
A link to the Speech is here.
Central Bank Publishes Findings From The Household Property Claims Themed Inspection
On 24 October, the Central Bank published its findings from an inspection carried out on household flood damage claims-handling by ten of Ireland's largest non-life insurers, focusing on compliance with the CPC. The findings of the inspection highlight the importance of oversight and control when outsourcing. Notably, the Central Bank identified a lack of controls when engaging third parties to handle claims. In this regard, it noted the importance of compliance with the CPC, both by the insurer and the third party claims handler.
The Central Bank also noted a lack of transparency around the claims retention policy of a number of insurers and in particular a failure to describe how the policy operates in practice. This resulted in retentions not being claimed by consumers. Additionally, the Central Bank has asked insurers to review their terms and conditions, as it identified a lack of transparency and fairness to consumers in a number of instances. The Central Bank is continuing its investigation into a number of issues, namely unfair settlement offers made by firms and the sale of inappropriate insurance policies to apartment owners. Following its inspection, the Central Bank issued an industry letter to insurers emphasising the requirement to comply with the CPC when handling claims, either directly or through a third party. Insurers are also being instructed to improve controls over third party service providers and to review policy documentation to ensure they are fully compliant.
A link to the press release is here.
Chairman Of EIOPA Gives Views On EIOPA's Achievements (Interview With The Irish Broker)
On 14 October 2013, Paul Carty interviewed Gabriel Bernardino, the Chairman of EIOPA. In the interview, Mr Bernardino gave his views on topical insurance issues including the achievements of EIOPA in the last three years. He highlighted the publication of the final Solvency II Guidelines and the Long-Term Guarantee Assessment as two of EIOPA's key accomplishments this year in the insurance sector. He discussed the important role that the college of supervisors plays in unifying the supervisory approach of cross-border insurance groups in the EEA. Regarding whether or not Ireland should adopt a "twin peaks" approach to regulation, whereby a separate regulator would be responsible for the areas of prudential and consumer protection, he indicated that regulators must focus on consumer protection issues in a consistent manner, but that it was not necessary to have more than one regulatory body carry out this task.
IN EUROPEAN AND INTERNATIONAL NEWS...
European Commission Proposes Directive To Delay Implementation Of Solvency II
On 2 October 2013, the Commission published a proposal to amend the Solvency II Directive once more. The proposed Directive amends the transposition date for Solvency II to 31 January 2015 and the application date of Solvency II to 1 January 2016.
Omnibus II was due to be transposed on 30 June 2013 and applied by 1 January 2014. As this will not occur, the Commission believes it is necessary to change the date of implementation of Solvency II so that the transitional rules which are associated with Omnibus II may be adopted prior to the implementation of Solvency II. Otherwise Solvency II would have to be implemented without transitional rules and other important adaptations. Therefore, the Commission has published this proposed Directive, but has also emphasised that the substance of Solvency II is not affected by it and that this will be the last amendment to the originally scheduled transposition and application dates.
A link to the draft Directive is here.
EIOPA Publishes 2013 List Of Cross Border Insurance Groups For Which A College Is In Place And Action Plan For 2014/2015 And The Joint Committee Publishes 2013 List Of Identified Financial Conglomerates
On 9 October 2013, EIOPA published the Action Plan 2014/15 for Colleges of Supervisors and the list of cross-border insurance and reinsurance groups for which a College is in place. The purpose of the Colleges is to improve supervision of cross-border insurance and reinsurance groups.
EIOPA indicated that the focus of the Action Plan is the further development of consistent risk-based supervision according to Solvency II requirements. To reach this goal, EIOPA set out five key proposals for the Colleges for 2014 which are: (1) exchange/discuss qualitative and quantitative information and data regularly, (2) discuss and agree on the implication of the recently published Solvency II guidelines and update the College work plan and the internal model pre-application work place accordingly, (3) form a shared view on the risks of the relevant group and its major solo entities, (4) review status of coordination arrangements/emergency plans in all Colleges, and (5) discuss and review progress and consistency of the implementation of preparatory guidelines by the group.
EIOPA has also published a new list of the insurance groups for which a College of Supervisors is in place which includes 2 new insurance groups (giving a total figure of 92 for 2013). The list is in tabular form, which sets out the name of the insurance group (or EEA subgroup), giving the country of authority of the group supervisor, the head office of the subsidiaries or other related undertaking, and the location of significant branches of each insurance group. The purpose of the updated list is to continue to improve the level of transparency and ensure that non-EEA member states are aware of the existence of a College for a particular group. EIOPA also recommends that the list be read together with the annual list of financial conglomerates published by the Joint Committee of the European Supervisory Authorities Sub-Committee on Financial Conglomerates, which was published on 8 October 2013. To increase transparency, the manner in which the list was composed changed. In particular, to align with FICOD 1, the list included all financial conglomerates, reinsurance undertakings, asset management companies and alternative investment fund managers. The list will be updated again once alternative investment fund managers entities in financial conglomerates have been authorised by the relevant competent authorities.
Links to the publications are here.
FCA Review Of Medium-Sized Firms' PPI Complaints Handling Finds Significant Room For Improvement
On 25 September 2013, the UK FCA published the findings of a complaints handling review which should be of interest to all firms involved in PPI. To carry out this inspection, the FCA reviewed a sample of 50 PPI complaint files from 18 medium and small sized firms who are currently processing PPI complaints.
The report focused on the fairness of the decisions made by those firms which processed PPI complaints and the FCA found that six of the eighteen firms involved in the review, on the whole, delivered fair outcomes to the customers. The FCA noted that these six firms used a 'holistic' approach when reviewing complaints so that an overall understanding of each customer's personal circumstances was taken into consideration when reaching a decision.
The FCA expressed serious concerns in respect of the other 12 firms in that it disagreed with the majority of their decisions. Overall, the FCA indicated that these firms overlooked key facts when reaching their conclusions regarding the mis-selling of PPI cover.
However, the FCA pointed out that appropriate measures had been taken in respect of those complaints which were mis-handled, and steps taken to ensure that these firms have more stringent procedures in place regarding PPI complaints handling going forward.
The FCA is currently carrying out a similar exercise in relation to larger firms and will publish a separate report when this review is complete.
A link to the review is here.
Insurance Europe Publishes Position Paper On Key Regulatory And Market Access Issues
On 8 October, Insurance Europe published a position paper highlighting the challenges faced by European insurers and reinsurers when trading with each of US, Canada, Brazil, Japan, India, Russia, China and Argentina. Addressing each jurisdiction in turn, the Paper summarises the key regulatory challenges for European insurers doing business. A useful outline of the developments taking place in each country to facilitate enhanced trade is also provided.
Recognising the importance of these markets to European insurers, Insurance Europe stated that it is confident that, with the removal of trading barriers and increased regulatory convergence, these trading relationships could be enhanced. It emphasises the need for continued and effective regulatory dialogue at all stakeholder levels to achieve this goal.
A link to the Paper is here.
The International Association Of Insurance Superv Isors (Iais) Announces Plan To Develop A Risk Based Global Insurance Capital Standard
On 9 October 2013, the IAIS announced its plan to develop a risk based global insurance capital standard (ICS) by 2016 (with full implementation to follow by 2019). It will use the capital component that underpins the solvency assessment in Comframe to develop the ICS. In 2014, the IAIS plan on developing straightforward backstop capital requirements for globally systemically important insurers to be implemented by late 2014. Their development and testing will also inform development of the ICS.
EIOPA Publishes Its Work Programme For 2014
On 10 October 2013, EIOPA published its work programme for 2014. In the Programme, EIOPA outlines its key priorities for the coming year. These priorities are divided into different areas including regulatory tasks, supervisory tasks, consumer protection, financial innovation and financial stability. Points of interest and actions for EIOPA in the regulatory field include additional work on finalising technical standards and guidelines for all areas covered by Solvency II. The Programme contains a useful table which outlines the objectives of EIOPA and sets out the deliverables involved in fulfilling those objectives.
A link to the Programme is here.
Updates
Central Bank Industry Briefing – Solvency II
On 20 October 2013, the Central Bank announced that it will host an industry briefing on 25 November 2013 in relation the Guidelines on Preparing for Solvency II.
The Central Bank will invite Solvency II responsible persons and Compliance Officers at (re)insurance undertakings and other stakeholders for the briefing.
A link to the press release is here.
Insurance Mediation Directive 2
The European Parliament is now scheduled to consider the proposed Directive amending the Insurance Mediation Directive at its 10-13 January 2014 plenary session (rather than the plenary session on 9 to 12 December 2013).
Arthur Cox's Insurance Regulatory Update is a monthly digest of significant domestic and international legal and regulatory developments.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.
