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Impact of Digital innovations on Insurance

What's new in Insurance? What's new in Insurance?

Insurance Insights December 2019

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.

KPMG Insurance Breakfast Briefing

We held our annual year end insurance breakfast briefing on 28 November 2019 in the wonderful setting of the Banking Hall in the Westin Hotel. The presentations were provided by: 

  • Andrew Candland, Head of Actuarial, Advisory and Major International Insurance Firms at Central Bank of Ireland, provided an update on progress on the 2019 regulatory priorities and gave his perspective on the key focus areas for the Central Bank in 2020
  • Brian Medjaou, Principal, KPMG, discussed the current hot topics including likely technical issues particularly focusing on IFRS and Solvency II applicable for 2019 year ends and an update on technical issues arising out of IFRS 17 implementation projects
  • Ciara Wrafter, Director, KPMG, provided an update on emerging tax issues including recent legislative changes in the Finance Bill 2019, transfer pricing and anti-hybrid rules;
  • Jean Rea, Director, KPMG, updated on emerging trends in risk management including dynamic risk assessments and frameworks for risks and controls associated with data analytics and AI solutions

Click here to download the presentation slides (PDF, 1.4MB)

Dynamic Risk Assessment: An evolution in traditional risk assessment

Dynamic Risk Assessment (DRA) is an evolution in risk management methodology designed to address the challenges in a world where economic and political volatility is becoming the norm and where traditional risk management methodologies are increasingly considered insufficient. It has been pioneered by a KPMG Global Lead Partner and a supporting team of data scientists, mathematicians and economists. The following article explores further the insights and benefits that DRA can bring to (re)insurance firms. 

Click here to view the article (PDF, 546KB)

Recovery planning: for (re)insurers

Recovery and resolution planning have been key areas of focus from European regulators over the past year. In Ireland the Central Bank of Ireland (CBI) plans to go to public consultation next year on proposals to introduce formal recovery planning requirements for insurers. The following article examines what is meant by ‘recovery’ and ‘resolution’, Regulators’ approach to recovery planning and the key ingredients of a recovery plan. 

Click here to view the article (PDF, 1MB)

FASB defers effective dates for long-duration insurance

The FASB has issued ASU 2019-09, which amends the effective date for long-duration contracts: targeted improvements. The final ASU defers the effective date for all entities. For SEC filers, excluding those eligible to be ‘smaller reporting companies’, the effective date is January 1, 2022. 

Brexit: The Exit, Transition and FTA negotiations

The overwhelming majority achieved by the UK’s Conservative Party, that campaigned with an “oven ready” deal, points to a UK departure from the EU on or before 31 January 2020 under the terms of the Withdrawal Agreement agreed between the EU and the UK on 17 October 2019.

Irish businesses need to understand the terms of the Withdrawal Agreement and what trading under the terms of a Free Trade Agreement (FTA) with mainland UK will mean. 

The Withdrawal Agreement provides for a permanent solution to preventing a hard border on the Island of Ireland and contains a new consent role for the Northern Ireland Assembly.  The UK and the EU have also agreed a new non-legally binding political declaration which sets out their aspirations of their future relationship – the most significant element of this is a future trading relationship based on a Free Trade Agreement.

We have set out below our initial analysis of the key areas business needs to focus on, including:

These and many other Brexit related issues are addressed in our Brexit Podcast series, ‘Navigating Brexit’.

Central Bank of Ireland Update

Review of differential pricing in motor and home insurance

The CBI has issued a Dear CEO letter (PDF, 280KB) on the 21 November 2019 informing insurers of the review of differential pricing in the motor and home insurance industries that will be conducted by the CBI from January 2020.  The purpose of the review is to examine the extent to which the practice of differential pricing (whereby customers with the same risk and the same cost of service are charged different premiums) is consistent with the Consumer Protection Code 2012. The Bank has advised the Boards to be aware of their firms’ pricing policies and be satisfied that they are implemented in a manner compliant with the Code. Also, the Boards need to ensure that the requirement to treat customers fairly forms an integral part of their firms’ corporate culture.   

CBI publishes the Financial stability review 2019 II

The CBI has published its second financial stability review of 2019 (PDF, 3MB) on the 4th December 2019. The review outlines the key risks facing the financial system and the CBI’s assessment of the resilience of the economy and financial system to the adverse shocks.

Launch of the Financial stability review 2019 II

While speaking at the launch of the second financial stability review of 2019, the Governor of the CBI, Gabriel Makhlouf spoke of the macro financial outlook for Ireland in terms of risks, resilience and policies. He explained the important components underlying the CBI’s mission; financial stability and the operation of the financial system. He discussed the risks to the financial stability highlighted in the financial stability review and the need for resilience in the financial system. 

Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach

The Governor of the CBI, Gabriel Makhlouf, while speaking at the Joint Committee on Finance, Public Expenditure and Reform, shared some of his reflections on the CBI’s mandate to serve the public interest by safeguarding monetary and financial stability.  He covered a number of principal issues that are being dealt with by the CBI currently, such as Financial stability review, Brexit, Consumer protection, Mortgage arrears and mortgage based finance and market based finance. 

Derville Rowland at the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach

Delivering a speech at the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on the 12 November 2019, the Director General, Financial Conduct, Derville Rowland, spoke about the CBI’s work in regulating and supervising the Irish insurance industry and specifically the practices of differential pricing and dual pricing. 

Reinforcing the significance of the Consumer Protection Code 2012 (Code) which protects the interests of consumers in their dealings with insurers, she highlighted that the Code is central to the conduct of the CBI’s business mandate. She further informed about the two key events where the CBI has further strengthened protection for consumers. Firstly, in November, when the CBI introduced new regulations requiring insurers to provide individual policyholders with details of the premium paid for private motor insurance renewals in the previous year and secondly, in September, when it introduced new rules to ensure transparency of commission arrangements between financial intermediaries and product producers. 

Launch of the Administrative Sanctions Guidance (ASG)

The Director General, Financial Conduct, Derville Rowland, delivered remarks at the launch of the CBI’s Guidance on Administrative Sanction. The purpose of the guidance is to help the financial services industry and the wider public to understand CBI’s approach in sanctioning regulatory breaches under the Administrative Sanctions Procedure. In her speech, the Director General has explained the Administrative sanctions procedure, the need for the guidance, the aggravating and mitigating sanctioning factors and the need for a culture of high standards. 

Towards a Consumer-Focused Culture in Financial Services Firms

Speaking at a breakfast briefing by Grant Thornton, Gráinne McEvoy, Director of Consumer Protection at the CBI, shared some best practice insights on building a consumer-focused culture in Financial Services firms. She spoke of the role of the CBI and its sectoral risk analysis. In her speech, Gráinne has cited various examples to build a strong consumer focused culture in terms of values & behaviors; senior accountability and tone at the top and performance management, reward and incentives. 

Innovation in Financial Services: A Regulator’s Perspective

The Deputy Governor at the CBI, Ed Sibley spoke at the University College of Cork about the Regulator’s perspective on innovation in financial services.  In terms of role of innovation in insurance, the Deputy Governor stated that telematics and wearable technology are identified as one of the key technologies driving innovation in insurance. He mentioned concerns over the potential for Cyber exposure to disrupt the property and casualty line of business as another potential impact of technology in insurance. 

Thematic approach on Financial regulation and technological innovation

The Director of Policy & Risk, Gerry Cross, spoke at the Digital Finance Summit 2019 in Brussels on the topics of Regulation and Fintech, which he stated are high on the agenda of the CBI. 

He explained how the CBI is working to respond to the overwhelming challenges posed by the developing technological innovations - one such tool being the launch of “Innovation hub” that is designed to facilitate an open and active engagement with the FinTech sector.  He also discussed the CBI’s approach to Technological innovation, consumer protection, use of Big Data by insurers,  Crypto Assets and Anti-money laundering. 

European Supervisory Authorities Updates

First global frameworks for supervision of internationally active insurance groups

On 14 November 2019, EIOPA welcomed the adoption of the first global frameworks for supervision of internationally active insurance groups, including an Insurance Capital Standard Version 2.0, and for the mitigation of systemic risk in the insurance sector.

In particular the adoption of the Insurance Capital Standard (ICS) Version 2.0 for the monitoring period to enhance convergence towards a global group capital standard over time is a major milestone. 

EIOPA also underlines its support to the Common Framework establishing supervisory standards and guidance and the Holistic Framework for the assessment and mitigation of systemic risk in the insurance sector.

Gabriel Bernardino, EIOPA Chairman, said 'Today's developments represent a major step in ensuring an effective supervision of the insurance sector globally. Together, these frameworks take us one step closer to a sound and consistent global insurance regime. EIOPA will continue its commitment and play an active role in the work of the IAIS to strengthen a global approach to supervision and its implementation in the future.’

Gabriel Bernardino's keynote speech at the opening of EIOPA's ninth annual conference on 19 November 2019

Gabriel Bernardino's keynote speech at the opening of EIOPA's ninth annual conference on 19 November 2019 (PDF, 137KB)

The theme of EIOPA's 9th Annual Conference was Leading the Future with areas of discussion including: 

  • Climate change
  • Risk management practices
  • Role of Insurance & pension funds in mitigating the impact of climate change
  • Digitalisation and development of a sound cyber resilience framework - standardised cyber incident reporting framework
  • Business supervision conduct set on priority of EIOPA’s supervisory convergence agenda
  • Address areas such as proportionality, proposals aiming at substantial reduction of reporting requirements for undertakings with a low risk profile


EIOPA publishes second annual European Insurance Overview

On the 19 November 2019, EIOPA published its second annual Insurance Overview report (PDF, 1.5MB). The report focuses on the annual review for solo undertakings for the year end 2018 covering the following areas:  

  1. Life market overview: Growth majorly driven by increase in the health insurance & Other life insurance in the EEA countries
  2. Non-life market overview: At EEA level, the most dominant non-life lines of business are motor vehicle liability insurance, fire and other damage to property insurance and medical expense insurance
  3. Solvency & Capitalisation: Includes data on SCR & MCR coverage, Impact of loss absorbing capacity of deferred taxes and expected profits included in future premiums for reinsurance and insurance companies

Investments: Asset type breakdown, credit quality steps, location of assets, use of derivatives & sector distribution

Regulating key aspects of the Pan-European Personal Pension Product (PEPP)

On 2 December 2019, EIOPA launched the public consultation of its approach to the regulatory and implementing standards, and technical advice to the European Commission on delegated acts, as mandated by the Pan-European Personal Pension Product (PEPP) Regulation. The Consultation Paper sets out EIOPA's current stances to approach the regulation of key aspects of the PEPP, underpinning the idea of establishing a simple, safe and cost-efficient savings product.

EC: Council of the EU adopts conclusions on strategic AML and CTF priorities

The Council of the EU published an outcome of proceedings document (14823/19) (PDF, 287KB) enclosing the conclusions on strategic anti-money laundering (AML) and countering terrorist financing (CTF) priorities adopted at the Council's meeting. Generally, the Council stresses that the fight against money laundering and terrorist financing remains a high propriety for the EU and notes the significance of a number of recent changes to the legal framework. However, it recognises that further work is needed to determine the areas in which the current legal framework could be further harmonised throughout the EU. 

EC: European Commission outlines next steps on cryptoassets and digital operational resilience

The European Commission published a speech by Valdis Dombrovskis, European Commissioner for Financial Stability, Financial Services and Capital Markets Union (CMU), given after the conclusion of the Economic and Financial Affairs Council (ECOFIN) meeting. In the speech, Mr Dombrovskis notes that some member states, such as France, Germany and Malta, have introduced national crypto-asset legislation. However, he states that most agree with the advice of the European Supervisory Authorities (ESAs) that crypto-asset markets go beyond borders and so a common European framework is needed. 


IAIS: Insurance Capital Standard Update

At its Annual General Meeting in Abu Dhabi, in November the International Association of Insurance Supervisors (IAIS) adopted a comprehensive set of reforms to promote effective cross-border supervision of insurance groups and enhance global financial stability.

The reforms include:

  • The Common Framework (ComFrame) is a comprehensive and outcome-focused framework for enhancing group-wide supervision of Internationally Active Insurance Groups (IAIGs).  ComFrame builds on the Insurance Core Principles (ICPs) applicable to all insurers.  It provides supervisors with a common language for the supervision of IAIGs and targets a more efficient approach to supervision for both supervisors and IAIGs
  • The Insurance Capital Standard (ICS) aims to provide a globally comparable risk-based capital adequacy measure for IAIGs.  The IAIS adopted ICS Version 2.0 that will apply for a five-year monitoring period from January 2020.  During the monitoring period, IAIGs will need to report confidentially on an ICS Version 2.0 basis to support discussion in the supervisory colleges.  The IAIS will set out a workplan and timeline for 2020-2024 to refine further the ICS prior to its implementation as a group-wide prescribed capital requirement (PCR)
  • The IAIS agreed an overarching approach for the development of criteria to assess whether the Aggregation Method (AM), preferred by the United States, provides comparable outcomes (i.e. substantially the same), to the ICS
  • The Holistic Framework for the assessment and mitigation of systemic risk creates an enhanced set of macro-prudential policy measures, preventative and corrective measures to enable a prompt and appropriate response to address financial stability risks.  The Holistic Framework recognises that systemic risk can arise both from sector-wide trends with regard to specific activities and exposures, as well as a concentration of these activities and exposures in individual insurers

Click here for further details.

IAIS: Feedback on main comments received to consultation on revisions to supervisory material and ICP 22

The IAIS has published documents (dated November 2019) that set out the main comments received on its consultations on revisions to the IAIS supervisory material and on ICP 22 (the insurance core principle on anti-money laundering and combating the financing of terrorism), together with its feedback to those comments. The consultations were part of the IAIS's mid-2019 public consultation package of IAIS supervisory material published in June 2019. 

IAIS: Report following peer review of ICPs 1 and 2

The IAIS published a report setting out the aggregate assessment results and observations from the IAIS peer review process (PRP) on the mandate for supervisors and supervisory powers.  The PRP covered IAIS insurance core principle (ICP) 1 (Objectives, powers and responsibilities of the supervisor) and ICP 2 (Supervisor), which were adopted in October 2011. A total of 72 authorities participated in the PRP.

IAIS: Consults on draft application paper on liquidity risk management

The IAIS published for consultation a draft application paper on liquidity risk management. The purpose of the draft application paper is to provide guidance to supervisors about the application of liquidity risk management standards in the Insurance Core Principles (ICPs) and the Commons Framework (ComFrame).  

IAIS: Application paper on recovery planning

The IAIS has published an application paper on recovery planning. The paper aims to provide: 1) Recommendations and guidance to supervisors regarding recovery planning, and co-operation and co-ordination between supervisors; 2) Additional information for insurers about recovery planning; 3) Examples to illustrate the application of principles, standards and guidance relevant to recovery planning.

IAIS: Feedback on main comments received to consultation on revisions to holistic framework for systemic risk in insurance sector

The IAIS has published a document setting out the main comments received on its consultation on revisions to the holistic framework for systemic risk in the insurance sector, together with its feedback to those comments. The IAIS published this consultation in June. On 14 November 2019, at its 2019 Annual General Meeting, the IAIS adopted and published the finalised holistic framework.

FSB report highlights need to address remaining resolution gaps

The Financial Stability Board (FSB) today published its 2019 Resolution Report. The report provides an update on progress in implementing policy measures to enhance the resolvability of systemically important financial institutions and sets out plans for further work. For Insurance, resolvability monitoring in the insurance sector highlighted in particular challenges stemming from group-internal interconnectedness.

Click here for further details.

Insurance Europe

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

  • New publication profiles insurers’ role in combatting insurance fraud: Insurance Europe has published (on 18 November 2019) a new booklet entitled: Insurance fraud: not a victimless crime. The publication profiles the various measures that insurers are taking to combat insurance fraud, which is second only to tax fraud in most common forms of fraud globally. 
  • Insurance Europe has published on 4 December 2019 a new paper on how EU policymakers can ensure rules for insurers work properly and benefit consumers. The insurance industry firmly supports high-quality regulation that protects consumers and helps them to buy the right products. 

A new publication from Insurance Europe urges policymakers to make sure the industry’s special features are taken into account when developing insurance regulation. 

PRA Related Updates

  • 12 November: Member state responses to EIOPA’s February 2019 ‘Recommendations for the insurance sector in light of the United Kingdom withdrawing from the European Union’
    The PRA responded to French regulator’s (ACPR) comment on the EIOPA recommendations, particularly on Change in habitual residence or establishment of the policyholder in light of Brexit. The PRA and FCA have encouraged firms to take legal advice and consider any risk arising from ACPR approach to affected policyholders 
  • 14 November: ‘Solvency II: Supervisory disclosures, PRA’s supervisory approach and insurance regulations applicable in the UK’ 
    The disclosures (PDF, 576KB) include aggregate statistical data on key aspects of the application of the prudential framework; a table covering the manner of exercise of the options provided for in the Solvency II Directive; links to the texts of insurance regulations applicable in the United Kingdom; and links to the PRA’s supervisory approach
  • 14 November: PS25/19 ‘Solvency II: Maintenance of the transitional measure on technical provisions (TMTPs)’
    The PRA issued a policy statement in relation to the TMTPs covering: (1) Different methodologies between Solvency I and Solvency II; (2) Consistency of assumptions between Solvency I and Solvency II; (3) Simplifications to calculate TMTP / Solvency I position; and (4) Adjustments to the FRR test (Financial Resource Requirement test) 

Further information

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