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

Insurance Insights February 2020

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.

New tool for Insurance data analysis

Informing decision making using publicly available data

During January 2020, we introduced our KPMG Solvency and Financial Condition Report (“SFCR”) analysis tool which provides analysis on publicly available SFCR data. We have built this application in order to demonstrate powerful data analytics and visualisation tooling available and their ability to produce dynamic and interactive data driven insights instantaneously available to key decision makers. The development of this tool was led by Jean Rea (Director in our Actuarial practice), who was supported by members of our actuarial team.

This application is an extract from our larger application which includes analysis in relation to Technical Provisions, investments, financial performance and which allows side by side comparison of institutions. We plan to publish further extracts from our larger application over the coming weeks.

Please click here to access the SFCR analysis tool

Insurance in 2020 - Challenges and opportunities

What are the key challenges and opportunities facing the insurance sector in 2020? We explore the impact of IFRS17, regulatory challenges and opportunities in data analytics and AI solutions.  

Ten key regulatory challenges of 2020

2020 brings a new decade of business change that will be directly confronted with regulatory and policy mandates of fairness, safety, and protection. In our new paper, KPMG Regulatory Insights evaluates how, in 2020, five business imperatives—technology transformation, customer interaction, payments modernisation, market expansion, and cost efficiencies—will force new and differing regulatory risks and concerns.  

State pension policy

The state pension age issue became one of the ‘big issues’ of the General Election campaign 2020 prompting comment from many quarters, ranging from the costings to public versus private sector considerations.  The Society of Actuaries in Ireland, the membership body for actuaries, issued a statement on State pension policy to facilitate constructive discussion on an issue of primary importance to many Irish people. In 2017 we in KPMG carried out, on behalf of the Department of Employment Affairs and Social Protection, the most recent actuarial review of the Social Insurance Fund.  One of the key findings from that review was that in order to provide pensions at the current level, with future increases to allow for the impact of inflation, the PRSI contributions payable by and in respect of those in work would have to increase significantly in the medium and longer term.’ A link to the review is available here. 

Customer experience and operational efficiency, together

Many insurance carriers have long had to make a trade-off in managing their claims organisation. A carrier could traditionally focus on delivering a great customer experience or concentrate on achieving operational efficiency, yet one would always come at the expense of the other. But changing customer expectations, shifting market realities and new technologies are driving new standards and an evolution in claims organisations — enabling insurers to avoid that trade-off. Today’s insurers are increasingly in a position to embrace “purpose-driven claims” — an approach to claims that delivers both an exceptional customer experience and the operational efficiency needed to manage costs and losses. This article discusses emerging trends and new tools that could evolve claims organisations and make trade-offs a thing of the past. 

Brexit Update

In our latest Brexit update, we have set out our analysis of key issues business will need to focus on, including:

It is helpful for businesses that the departure has taken place on a managed basis under the terms of the Withdrawal Agreement. That said, the key issue in 2020 is whether the parties can agree an overall new relationship including a new Free Trade Agreement (FTA) before transition ends. Until this is clear and what the terms of any such FTA deal are, the threat of a cliff edge, with trade in goods defaulting to tariff laden WTO terms, will persist.  This will be significant for many Irish businesses trading heavily with Great Britain. It will also affect the value of British based businesses that trade heavily with the EU. Click here to download a copy of our latest Brexit update. 

Sustainable Futures

The climate change and sustainability agenda has finally reached a tipping point. No longer is it considered a corporate social responsibility topic, but rather a strategic commercial issue for Irish businesses. Social, regulatory and investor pressures mean Irish business will need to respond to ESG (environmental, social and governance) topics to stay relevant and drive long-term shareholder value. 

KPMG Sustainable Futures is a dedicated cross-functional team of experts who help corporates and public sector clients plan and execute programmes addressing ESG topics, decarbonisation and long-term value creation. The team brings together a wide range of disciplines including sustainability practitioners, economists, engineers, corporate strategists, accountants and financiers to help clients navigate the complex and fast evolving climate change and sustainability agenda.   We have a strong track record of delivery, having raised over €1billion of low carbon funding across the island of Ireland in recent years, assisted private and listed companies develop long-term sustainability and decarbonisation strategies, implemented long-term renewable corporate power purchase agreements and developed high quality thought leadership and policy positions.

For further details please click here, and please click on this report for a steer on how to integrate ESG into your business

Central Bank of Ireland Update

CBI’s 2020 Regulatory Priorities to include differential pricing in motor and home insurance

Derville Rowland, Director General, Financial Conduct, announced the CBI’s intention to strengthen consumer protection in 2020. In order to achieve this, their priorities include a review of the Consumer Protection Code, as well as focusing on key areas such as mortgage arrears, the culture in financial services firms and the differential pricing in motor and home insurances. The CBI are conducting an ongoing examination in the differential pricing within these fields, with an aim of gaining a better understanding of the impact it has on consumers and have confirmed their intention to publish an interim report on the findings at the end of the year. In the meantime, Ms Rowland highlighted that ‘We expect the boards of insurance companies to ensure their pricing practices comply with the Consumer Protection Code and that they can stand over their underwriting strategies.’ 

European Supervisory Authorities Updates

EIOPA publish the technical specifications for the Market and Credit Risk Comparative Study YE2019

EIOPA have published instructions and technical specifications for the annual Europe-wide comparative study on the modelling of market and credit risk. Undertakings using an internal model covering market risk, and holding material exposure to Euro-denominated investments, are expected to take part in the study. Participants are requested to follow the instructions for filling out the data request, using the provided answer templates and submit the relevant documentation to their National Supervisory Authorities by 31 May 2020.

EIOPA publish annual report on the use of exemptions and limitations by national competent authorities under Solvency II

The report provides data on the number of limitations and exemptions from regulatory reporting requirements granted by national competent authorities during 2018 and in Q1 2019, marking comparisons with those used in previous years. The report highlights the use of proportionality within reporting obligations, providing examples of how to apply this concept in order to enable reporting entities to reflect the nature, scale and complexity of the risks inherent to the business. Two examples of the implementation of proportionality were provided, such as the look-through reporting of collective investment undertakings and the range of templates used by different sized companies.

EIOPA: European insurers face stable risk exposures, but macro and market risks remain high

EIOPA published its updated Risk Dashboard based on the third quarter 2019 Solvency II data. The results show that the risk exposures of the European Union insurance sector remained overall stable compared to October. Macro and market risks continue at a high level. Despite the recent easing of monetary policy by major central banks, the macroeconomic environment remains subdued and the prolonged low interest rates challenge the insurance sector. Solvency ratios for groups and life undertakings declined across the whole distribution in Q3-2019, but profitability and solvency risks continue at medium level. The full dashboard can be found here.

EIOPA seek comments on the review of technical implementations means under the Solvency II 2020 review

In a bid to improve the efficiency and effectiveness of the reporting and disclosure framework, thereby reducing associated costs for reporting entities, EIOPA have decided to include the review of implementation means within their 2020 Solvency II review. The consultation paper considers the process for XBRL taxonomies development and publication, how businesses define and document technical validations, taxonomy architecture and ways to improve access to publicly disclosed data. The deadline for submissions of feedback is Monday 20 April 2020 and can be submitted via the following link.

EIOPA: discussion paper on IBOR transitions

EIOPA published a discussion paper addressing the ongoing changes to the new interbank benchmark rates (IBOR transitions). The paper focuses on issues identified within the EIOPA risk free rate (RFR) methodology and on the EIOPA RFR production. EIOPA explains that IBOR transitions are a significant challenge for both regulators and the industry as they primarily affect liability valuations, derivative valuations and the structure of numerous financial and insurance products. Feedback to the discussion paper is requested by 30 April 2020. Based on this feedback, EIOPA will produce a consultation paper, which will include specific policy recommendations relating to IBOR transitions.

EIOPA: Guidelines on outsourcing to cloud service providers

The final report provides the final text of the EIOPA ‘Guidelines on outsourcing to cloud service providers’, which include the criteria for distinguishing whether cloud services should be considered within the scope of outsourcing, the governance principles of cloud outsourcing, required pre-outsourcing analysis, contractual requirements, as well as principle-based instructions for national supervisory authorities. The final report, which includes EIOPA’s feedback statement to the public consultation as well as EIOPA’s response to stakeholders’ questions and comments, can be found by clicking on the link below. 

EIOPA: Roundtable discussion on mortgage life and other credit protection insurance sold through banks

EIOPA have launched an EU-wide thematic review to explore consumer protection issues identified to be associated with banks selling mortgage life and credit protection insurance. Issues such as unmitigated conflicts of interests, aggressive sales techniques and high commissions as causes of poor conduct were reported as the causes of customer detriment in in EIOPA’s 2019 Consumer Trends Report. EIOPA is organising a roundtable on 5 March 2020, with the aim of collecting external stakeholders’ views on the issues. Gabriel Bernardino, EIOPA Chairman has made it clear that they will take action where the thematic review shows areas of consumer detriment. 

EIOPA: report on lessons learned from first crisis walkthrough exercise

EIOPA published a report on its approach and lessons learned from its first crisis walkthrough exercise (EIOPA-BoS-19/479). EIOPA defines a walkthrough exercise as a type of crisis exercise in which the involved parties gather together in a room and within a few hours "walk through" a process or a range of processes, simulating a crisis period of several months. In the report, EIOPA distinguishes these exercises from other types of table-top exercise, such as communications tests, simulation exercises and stress tests, and sets out the key elements of each type of exercise. In the report, EIOPA sets out its findings from its first walkthrough exercise conducted in June 2019 with a national supervisory authority (NSA) that related to a specific insurance group. The main objective of the exercise was to test crisis processes and procedures in a severe but plausible stress scenario and assess the way in which participants interacted in terms of exchanging information, co-operating and adopting decisions.

EIOPA sets out strategies on cyber underwriting and SupTech

On 11 February 2020 EIOPA published its strategies for cyber underwriting and supervisory technology, or SupTech. The strategies reflect strategic priorities and respond to the evolving insurance landscape, in particular related to digital technology.

EC Conference on the ‘Challenges and Opportunities under the Solvency II 2020 Review’

In his keynote speech, Gabriel Bernardino (EIOPA Chairman) reflected on the positive change to the insurance industry, both for insurers and consumers, since the implementation of Solvency II four years ago and how the review is a great opportunity to ensure that it continues to be fit for purpose in all economic environments. He notes the importance of the regime being regularly evaluated and updated, especially given the challenges faced, including climate change and sustainability, digitalisation, new technologies and cybersecurity. To read the full speech and EIOPA’s next steps please click on the link below. 

Other Articles

Insurance Europe: Joint industry comments on EIOPA’s opinion on the 2020 review of Solvency II

The industry welcomes the opportunity to provide its views regarding the ongoing Solvency II review, and to comment on EIOPA’s draft proposals.  

Insurance Europe: European insurance in figures

This report is based on yearly data collected by Insurance Europe from its member associations. The report provides detailed 2018 statistics showing European insurers’ life, health and property & casualty (P&C) insurance premiums and benefits paid. Furthermore, it includes figures on insurers' investment portfolio and information on the market structure.

Insurance Europe: Ambitions for Europe – Overview 

The European insurance industry makes major contributions to the European Union’s economic growth and development. This means that it is well placed to contribute to the ambitions of the 2019–2024 European Commission to create a prosperous, sustainable and competitive Europe. This booklet looks at the role of insurers and sets out how to achieve four objectives:

Insurance Europe: EU trade associations raise serious concerns with European Commission regarding ESAs' ongoing review of RTS under PRIIPs Regulation

Insurance Europe published a letter it has written jointly with the Association of Mutual Insurers and Insurance Co-operatives in Europe (AMICE), the EBF and the European Fund and Asset Management Association to the European Commission, raising serious concerns with the review by the ESAs of the regulatory technical standards under the KIDs for packaged retail and insurance-based investment products (PRIIPs) (1286/2014) (PRIIPs Regulation). The letter refers to the consultation on proposed amendments to Commission Delegated Regulation 2017/653 on KIDs for PRIIPs (PRIIPs Delegated Regulation) that was published by the Joint Committee of the ESAs in October 2019 and closed to responses on 13 January 2020. While the trade associations remain supportive of the overall objectives the PRIIPs Regulation seeks to achieve, they have serious concerns regarding the ESAs' review, which is not mandated by the PRIIPs Regulation and which is taking place at a time when the Commission is scheduled to have completed the official review process of the PRIIPs framework in line with Article 33 of the PRIIPs Regulation. In their view, the ESAs' current approach to amending the PRIIPs KID is "fundamentally flawed and will not meet the PRIIPs Regulation's aim of providing information that is fair, clear and not misleading". The letter sets out the trade associations' concerns relating to timing, consumer testing, constant changes and ensuring information provided to consumers is meaningful. The ESAs have indicated they intend to conclude their review towards the end of the first quarter of 2020 and submit final proposals to the Commission shortly afterwards. 

Consumer Insurance Contract Act 2019 signed into law

The Consumer Insurance Act 2019, signed into law by the President of Ireland on 26 December 2019, is likely to fundamentally change the way life and non-life insurers conduct insurance business with consumers in Ireland. The Act was a result of the 2015 Report on Consumer Insurance Contract published by the Law Reform Commission and aims to address the perceived imbalances in consumer insurance contract law. 

The Financial Markets Law Committee publish their response to EIOPA’s October consultation paper on Solvency II 2020 Review 

The Financial Markets Law Committee (FMLC), an educational charity which seeks to enhance the understanding of financial law, published a response to EIOPA’s 2019 consultation paper in which they sought to draw attention to a number of uncertainties and ambiguities within the recommendations made. FMLC argue that some of the proposed amendments are not necessary and may cause a divergence in interpretation across member states. Their full response can be found by clicking on the link below. EIOPA intends to publish its final opinion on technical advice for the European Commission in June 2020.  

IMF: The Financial Sector in the 2020s - Building a More Inclusive System in the New Decade

Kristalina Georgieva, Managing Director, IMF, gave a speech on how to deliver a more inclusive system in the new decade, identifying inequality as one of the main drivers of uncertainty as we enter the new decade.  Ms Georgieva reflects on the results of their new research which have shown the role that the financial sector has in the area of inequality and how uncertainty harms business confidence, investment, and growth. 

Department of Finance: International Financial Services Strategy 2025

The Irish Government launched their new ‘Ireland for Finance’ whole of Government strategy for the further development of the international financial services (IFS) sector in Ireland to 2025. In formulating the Strategy, the Government has taken account of current and future developments while also exploring potential challenges and opportunities, especially the potential impact of technology, both positive and negative. The vision of the Strategy is for Ireland to be a top-tier location of choice for specialist international financial services. The Strategy was jointly launched by Minister for Finance, Paschal Donohoe TD, and Michael D’Arcy TD, Minister of State for Financial Services and Insurance. The employment target for the Strategy is to reach 50,000 people in direct employment in the sector by 2025. This compares with 44,000 people directly employed in the sector at the end of 2018. 

British Insurance Brokers Association (BIBA) launch non-statutory agreement committing a number of parties to assisting in gaining people with pre-existing medical conditions insurance protection.

On 21 January at the House of Parliament the British Insurance Brokers Association (BIBA) launched a new non-statutory signposting agreement which commits a number of parties to assist in ensuring ease of access to insurance for people with pre-existing medical conditions or disabilities. There are two types of parties to the agreement: supporting bodies (that is, trade associations, professional associations and charities) and several regulated insurance or financial services providers. A full list of signatories can be found in Appendix A of the agreement. Under the agreement, insurers or intermediaries will, when they have made a reasonable decision based on reliable evidence to refuse cover to an applicant with a pre-existing medical condition, refer them to a suitable specialist firm that should be able to offer protection insurance in such cases, or to a recognised signposting service (for example, BIBA's Find-Insurance helpline and website services). This is subject to the criteria and approaches outlined in the agreement.  The agreement will be effective from 21 January 2020 and does not have an expiry date. The agreement is voluntary and does not create legal obligations; rather, it sets out how the parties will co-operate to deliver the UK’s Access to Insurance Working Group's (AIWG) objectives.

Further information

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