Natural disasters killed more than 10,000 people in 2018. They left millions more homeless. In the same year, natural catastrophe-related economic losses reached US$160 billion. The vast majority — 95 percent — of the registered events were weather related. Adding further urgency to the issue, a recent report by the International Panel on Climate Changes spoke of the dire consequences for people, economies and ecosystems which would result from global warming exceeding 1.5 °C above pre-industrial levels. It is also rocketing up the insurance agenda. Not just because natural disaster insurance claims are rising, but also because insurers are increasingly recognizing that the mid- to long-term outlook on climate change carries some massive risks. The following article explores the risks and how the insurance industry can take the lead.
We also include a Q&A about the insurance impacts of climate change with Karina Whalley, Public Sector Business Development Manager at AXA Global Parametrics.
Insurers are under more pressure than ever to effectively manage their current operating expense environment. Persistent low investment returns, ever-increasing competitive pressures and enduring excess capacity have hampered the industry's ability to grow revenue faster than the rate of operating costs. In order to understand the current environment, KPMG and ACORD recently completed a survey focused on the challenges and opportunities insurers face with respect to improving operational efficiency. Responses were collected from more than 60 life, P&C, composite and reinsurance carriers from around the world, with premiums ranging from less than US$1 billion to more than US$10 billion.
The role of tax is rapidly evolving as geopolitics, economic, social, regulatory and technological developments are driving significant changes to the operational structure of tax functions. Insurers today are being challenged to embrace their tax functions to improve performance, manage risk and deliver value.
In TDI’s March Insurtech Insights, Tal Kaissar, Global Head of Insurance Tax, KPMG in the US, shares three key pieces of advice for tax leaders in insurance companies to transform their tax functions and drive strategic value.
In its ‘Dear CEO’ letter of 8 April 2019, the CBI raised concerns on the lack of general awareness/ understanding of regulated financial services firms of their own legal obligations under the Central Bank Reform Act 2010 and under the Fitness & Probity Standards (F&P) and provided recommendations in this regard. CBI highlighted that “Firms are the first line of responsibility to ensure that people working in key roles are fit and proper to hold those positions”. The CBI expects firms to review their fitness and probity policies, procedures and practices and address any deficiencies.
Read the 'Dear CEO' (PDF, 305KB)
Discussing the CBI’s work on strengthening consumer protection, Governor Philip R. Lane emphasised to the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach that consumer protection is a priority for the CBI. He gave information of the various programmes done by CBI in this regard such as the proposed introduction of a new Individual Accountability Framework which would, he said, ensure clearer lines of accountability within firms and provide for an enhanced F&P Regime and a unified enforcement process.
Referring to the five strategic objectives identified by the CBI in its strategic plan of 2019-2021 (strengthening resilience, strengthening consumer protection, Brexit, engaging and influencing and enhancing its organisational capability), Gerry Cross, Director of Financial Regulation - Policy & Risk at the CBI, discussed the risks of technological innovation and its implications for financial regulation, while speaking at Funds Europe, European FundTech Lab event. Furthermore, the Director touched upon the topic of outsourcing and discussed the significant risks that come with the benefits of outsourcing. He urged regulated firms to refer to the discussion paper ‘Outsourcing – Findings and Issues for Discussion’ published by the CBI in November last year, which included results from a survey of regulated firms’ outsourcing activity and analysis of the findings from the CBI’s direct supervisory work on outsourcing.
In a speech at an Association of International Life Offices (AILO) event, Sylvia Cronin delivered remarks on diversity in the insurance industry. Sylvia Cronin highlighted that gender diversity is one of the important aspects of diversity as it is relatively easy to measure, but that diversity needs to be looked at from a broader perspective to include different personalities (e.g. optimist versus pessimist), educational background, ethnicity, diversity of thought and more. These can all contribute to facilitating a variety of perspectives and more effective challenge. She stated that a lack of diversity at senior management and board level can be an indicator of heightened behaviour and culture risks.
On 4 April the European Parliament and Council adopted the text of the regulation on a pan-European Personal Pension product. The draft regulation lays down uniform rules on the registration, manufacturing, distribution and supervision of personal pension products that are distributed in the European Union under the designation “pan-European Personal Pension product” or “PEPP”.
On 4 April the ESAs published additional questions and answers (Q&A) on the Key Information Document (KID) requirements for Packaged Retail and Insurance-based Investment Products (PRIIPs) laid down in the European Commission's Delegated Regulation (EU) 2017/653.
Read the Q&A (PDF, 1.5MB)
As part of the review of long-term guarantee measures, EIOPA has requested insurance undertakings from the European Economic Area and subject to Solvency II to provide information in the context of EIOPA's 4th Long-Term Guarantees (LTG) Report due in 2019 as well as in the preparation of EIOPA's Opinion on those measures and the review of Solvency II due in 2020.
EIOPA published a paper on the approach of EU National Competent Authorities to the authorisation and supervision of InsurTech companies where they seek to carry out regulated activities.
Read the paper (PDF, 491KB)
EIOPA published its report on ‘Outsourcing to the Cloud: EIOPA's Contribution to the European Commission Fintech Action Plan’. The report provides an overview of cloud computing and of the market practices on cloud computing, focusing on how it is used by the financial services industry, for example.
Read the report (PDF, 1.1MB)
The objective of the Discussion Paper is to contribute to the debate on systemic risk and macro-prudential policy in insurance. In this Paper, EIOPA identifies sources of systemic risk as well as potential tools and measures for further consideration, including additional reporting of liquidity risks and the use of liquidity ratios, the enhancement of the ORSA, the enhancement of the prudent person principle and the request of recovery and resolution plans. The Discussion Paper is open for comments until 30 April 2019.
Read the discussion paper (PDF, 2MB)
In its Report, the Joint Committee highlights the risks directly arising from Brexit and those related to asset valuations, the repricing of risk premia and a less favourable economic environment, and makes recommendation to the ESAs, National Competent Authorities, financial institutions and market participants on how those risks can be addressed.
Read the Joint Committee report (PDF, 1.2MB)
On 4 April EIOPA published a consultation paper as well as draft implementing regulations amending Commission Implementing Regulation (EU) 2015/2450 with regard to the templates for the submission of information to the supervisory authorities and Commission Implementing Regulation (EU) 2015/2452, laying down implementing technical standards with regard to the procedures, formats and templates of the Solvency and Financial Condition Report. The amendments proposed reflect recent amendments made to the Solvency II Delegated Regulations and do not reflect the detailed review of the Solvency II reporting requirements, which will be part of the reporting and disclosure 2020 review.
EIOPA published in April a Supervisory Statement on the application of the proportionality principle in the supervision of the SCR under Solvency II. Through this statement, EIOPA highlights that in case of immaterial SCR sub-modules the principle of proportionality applies regarding the supervisory review process, but warns that it is important to guarantee supervisory convergence as divergent approaches could lead to supervisory arbitrage.
As noted by EIOPA, the aim of this Supervisory Statement is to promote convergence in the adoption of proportionate supervisory practices while ensuring a prudent approach in the calculation of immaterial SCR sub-modules, by:
a) prudent calculation of the sub-modules;
b) proper management and adequate monitoring of the risks by the undertakings;
c) an adequate early warning system established by the undertakings; and
d) timely and effective supervisory dialogue.
Read the supervisory statement (PDF, 668KB)
The following updates, while UK specific, may be of interest to Irish based (re)insurers:
In this consultation paper, the PRA proposes amendments to its expectations in respect of firms investing in equity release mortgage (ERM) portfolios, as set out in Chapter 3 of Supervisory Statement (SS) 3/17 ‘Solvency II: Matching adjustment – illiquid unrated assets and equity release mortgages’.
In this speech David Rule highlights the continuing trend in the transfer of defined benefit pension liabilities from employers to insurers and sets out some of the key risks facing annuity writers. David explains how the PRA’s implementation of Solvency II achieves a balance of protecting policyholders and facilitating long-term investment in the economy.