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Insurance Insights November 2019

How do customer-obsessed insurers differentiate themselves in today's market?

Brian Morrissey, Head of Insurance, and our insurance team have compiled a collection of KPMG's latest publications and articles which focus on developments in, and issues facing the insurance industry. Also included are recent publications from the CBI, EIOPA, and other European bodies.

2019 Global Customer Experience Excellence Report

We are pleased to share our new 2019 Global Customer Experience Excellence Report, in which the central theme is customer obsession – a defining characteristic of all companies that achieve leading positions in each country’s index.

In the report, we explore how these leading companies, are creating a customer obsessed culture that is realised across all aspects of their business – purpose and brand, products and services, customer interaction and organisational design model – resulting in outstanding experiences for their customers. 

Particularly, there are three defining and competitively advantageous characteristics of customer obsessed companies: they are customer led; they are insight driven; and they practice customer foresight to anticipate customer needs.

Most insurance leaders recognise that the industry has been under pressure from digital disruption, legacy infrastructure and process issues, changing customer needs and ongoing regulatory requirements. The good news is there are a number of insurers that achieved top Customer Experience (CX) rankings in markets around the world; and in the insurance section (pg. 42-43) you’ll find 4 key actions customer-obsessed insurers are taking to differentiate themselves in today’s increasingly competitive market.

Operational Excellence in Insurance

In today's rapidly-changing and increasingly competitive market, insurers are looking for every opportunity to improve their operational efficiency. Yet most insurance executives admit they are already falling far behind on their targets. What will it take to achieve operational excellence in today's insurance industry? This article explores this topic in further detail including building an overall framework for success. 

Central Bank of Ireland Update

New transparency rules for motor insurance providers

New rules introduced by the Central Bank of Ireland (CBI) on the 1st of November increases the amount of information insurers must provide to customers renewing their motor insurance policies. The rules seek to increase transparency for policyholders by requiring details of their previous year premiums to be displayed on the same page as the renewal premiums. Policyholders will also be afforded more time to seek comparison quotes by extending the renewal notification period from 15 to 20 days. 

Read more on the Central Bank website.

Money Advice and Budgeting Service National Conference

A speech by the Deputy Governor of the CBI, Ed Sibley, on ‘Building Financial Resilience’ covered a number of topics which warrant (re)insurer’s attention. The importance of reporting wrongdoing through CBI’s Protected Disclosure team was highlighted. Ed also spoke of their PRISM approach to Supervision and their credible threat of Enforcement. When speaking about the Insurance Market, Ed stated ‘they are not operating optimally for a variety of reasons. Clearly there is also more work to be done, including in the behaviour, culture and accountability of management and boards in financial services firms’.

How Sustainability Disclosure Regulation will apply to Insurance Companies

As part of Climate Finance Week, Gerry Cross (Director of Financial Regulation - Policy and Risk at CBI) spoke of the developing sustainable finance regulatory landscape. Gerry provided guidance on how the Sustainability Disclosure Regulation will apply to insurance companies that provide investment products.

2018 Disclosures now available on CBI’s website

The Solvency and Financial Condition Reports and Data Repository appendix for 2018 are now available on the Central Bank of Ireland website. 

The Case for the Senior Executive Accountability Regime

In recent speeches, the CBI’s Director General Financial Conduct, Derville Rowland, reiterated why the CBI has advocated for more individual accountability at senior level, summarised the CBI’s proposals and explained how they will play an important part in helping firms drive a positive and customer-focused culture in the future. The Director General also provided examples of what a “good culture” would look like and encouraged firms to prepare for the proposed new regime by “making sure their people are clear about the standards expected of them and are willing to be accountable for living up to those standards”.   The CBI continues to be engaged with the Department of Finance in the development of the necessary legislative provisions and if the reforms are implemented, the Director General clarified, there will be a consultation process and extensive engagement with industry. 

Read the full speeches here and here

CBI: Discussion Paper 9 - Use of Services Companies in the Insurance Sector

The CBI has published a Discussion Paper (PDF, 1.2MB) on the use of services companies in the insurance sector in order to seek stakeholder’s views on how undertakings who enter such arrangements adequately identify, assess and mitigate against all material risks that they introduce.

European Supervisory Authorities Updates

Committee on Economic and Monetary Affairs of the European Parliament

On the 4th of November, EIOPA’s Chairman Gabriel Bernardino made an introductory statement at the hearing of the Committee on Economic and Monetary Affairs of the European Parliament sharing insights on EIOPA’s work in strengthening supervisory convergence, the impact of the current financial and economic environment on the sectors and on our current focus on climate change, cyber risk and the completion of the Capital Markets Union. 

National competent authorities respond to EIOPA’s recommendations for insurers on UK withdrawal from EU

On 31st October, EIOPA published responses from National Competent Authorities to their ‘Recommendations for the insurance sector in light of the United Kingdom withdrawing from the European Union’.  According to the information received, all national competent authorities comply or intend to comply with almost all recommendations. 

EIOPA published its updated Risk Dashboard for October 2019

On the 25th October 2019, EIOPA published its updated Risk Dashboard based on the second quarter 2019 Solvency II data. It shows broadly stable risk exposures of European insurers, with macro and market risks still at a high level.

EIOPA launches call for research proposals

On the 21st October, EIOPA launched a call for research proposals aimed at addressing open questions in relation to insurer’s and pension funds investment allocations; liquidity stress testing in the insurance sector; and economic valuation of insurers’ liabilities, among others.

ESAs seek to promote consistent application of the PRIIPs Regulation to bonds

On 24th October 2019 the ESAs issued a Supervisory Statement seeking to promote national consistency in the application of the regulation of packaged retail and insurance-based investment products (PRIIPs Regulation) to bond markets.  

ESAs consult on changes to the key information document for PRIIPs

A Consultation Paper was issued by The European Supervisory Authorities (ESAs) on 16th October 2019 on the amendments to existing rules underpinning the Key Information Document (KID) for Packaged Retail and Insurance-based Investment Products (PRIIPs). The aims of the review are to:

  • Address issues that have been identified by stakeholders and supervisors since the implementation of the KID in 2018;
  • Make specific changes to allow the rules to be applied to investment funds that are expected to have to prepare a KID from 1 January 2022 onwards.

As part of the review, the European Commission, in cooperation with the ESAs, is undertaking a consumer testing exercise to assess the effectiveness of different presentations of performance scenarios. ESA will consider these results alongside customer feedback when deciding on their final proposals. 

The Consultation Paper and template for comments can be accessed via this webpage. The deadline for submission of feedback is 13 January 2020.

EIOPA published an Opinion on AML risks affecting the EU

A joint opinion of the European Supervisory Authorities was published on the 4th October 2019, identifying current and emerging anti money laundering and terrorist financing risks. The ESA’s grouped the risks into two broad categories: cross-sectoral risks and sector-specific risks. The main risks were identified as new technologies, virtual currencies, legislative divergence and divergent supervisory practices, weaknesses in internal controls, terrorist financing and de-risking. 

Other articles

Insurance Europe has published responses or position papers in relation to a number of issues over the past month: 

  • Views on EU proposals for a sustainability taxonomy, in view of current trilogue discussions between the European institutions
  • Joint response with the CFO and CRO Fora to a consultation by EIOPA on its discussion paper on methodological principles of insurance stress testing
  • Joint response with the CFO and CRO Fora to a consultation by the EIOPA on its proposals for the Solvency II 2020 review package on supervisory reporting and public disclosure 
  • Insurance Europe has said it opposes an EU initiative on insurance guarantee schemes (IGS), in response to a consultation by the European Insurance and Occupational Pensions Authority (EIOPA) on the topic 
  • An insight briefing that examines the liability questions raised by light electric vehicles and automated vehicles, as well as the issue of access to the data of connected and automated vehicles. The briefing was launched at an event on insuring future mobility.

PRA Related Updates

11 October: Solvency II: Adjusting for the reduction of loss absorbency where own fund instruments are taxed on conversion
The PRA issued a consultation paper (PDF, 715KB) proposing to update SS3/15 Solvency II: The quality of capital instruments (PDF, 903KB) in relation to the tax charge suffered on RT1 instruments that convert to ordinary shares rather than being written down.  The PRA proposes that insurers should deduct the maximum tax charge generated on conversion where RT1 own fund items have a Conversion Share Offer (CSO) mechanism. The consultation closes on 13 January 2020 and the final policy’s implementation date will be the date of its publication. The revised policy will only apply to new instruments issued after the date of publication of the final policy.

16 October: Machine learning in UK financial services
The Bank of England and Financial Conduct Authority has conducted a joint survey to better understand the use of machine learning by financial institutions. The survey noted that machine learning is most commonly used in anti-money laundering and fraud detection as well as in customer-facing applications. It is also used in areas such as credit risk management, trade pricing and execution, as well as general insurance pricing and underwriting.

5 November: PRA letters on GI reserving 
James Orr (Chief Actuary, General Insurance) issued a letter to Chief Actuaries of General Insurance firms (PDF, 729KB). His colleague, Gareth Truran (Acting Director, Insurance Supervision) has also written to CEOs with a number of points relating to reserving (PDF, 154KB), underwriting, exposure management and firms’ culture. Following its review of casualty lines in the London market, reserving in UK motor and a thematic review of case reserves across retail and wholesale markets, the PRA appears to be concerned about the following issues relating to reserving including: 1) Bias in reserve assessment; 2) Weakening of case reserving basis; 3) Inadequate claims inflation allowance; 4) Attritional loss deterioration; 5) Transparency over key judgments and assumptions in management information; and 6) Other areas of uncertainty. 

Further information

For more on any of the items above, or any Insurance-related queries, contact Brian Morrissey, Head of Insurance.