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

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.

We enclose KPMG thought leadership that offers guidance and suggested practices to help you navigate COVID-19, in the following articles below: 

• How CEOs can respond to the crisis and build a resilient future: The COVID-19 epidemic is emerging as the biggest challenge for multinational CEOs since the global financial crisis. In this brief paper, we discuss how companies can manage the immediate challenge to their business and also address the systemic risks that the COVID-19 outbreak exposes – risks that will not disappear when the COVID-19 pandemic is over. 
• Maintaining business resilience in the face of COVID-19: This brief paper discusses the preparations that can be undertaken for your organisation so that it remains resilient through the outbreak. 
• COVID-19 Insights on International Tax Impacts: KPMG's reports of tax developments in response to the coronavirus (COVID-19).

We have also compiled a planning checklist to help you understand what others are doing and what you might want to be considering.  This checklist includes: (i) Recommended actions that should be accomplished to date; (ii) Recommended actions that should be performed now; and (iii) Recommended actions that should be performed when the pandemic ends.

On 17 March EIOPA issued a statement on actions to mitigate the impact of COVID-19 on the EU insurance sector.  Key messages were issued in relation to maintenance of business continuity and monitoring of solvency position.  The following points were mentioned specifically: 

• “In order to offer operational relief in reaction to coronavirus, national competent authorities (NCAs) should be flexible regarding the timing of supervisory reporting and public disclosure regarding end 2019. EIOPA will coordinate the specifics of the approach”.
• “Furthermore, in the short term, EIOPA will limit its requests of information and the consultations to the industry to essential elements needed to assess and monitor the impact of the current situation in the market”.
• On Solvency and Capital position the following has been noted: 
  • “Notwithstanding existing tools and powers, and together with national authorities and the other ESAs and the ESRB, EIOPA will continue to monitor the situation and will take or propose to EU institutions any measure necessary in order to mitigate the impact of market volatility to the stability of the insurance sector in Europe and safeguard the protection of policyholder”.

“Nevertheless, insurance companies should take measures to preserve their capital position in balance with the protection of the insured, following prudent dividend and other distribution policies, including variable remuneration”.

The CBI has on 9 March published the Consumer Protection Outlook 2020, which sets out the key risks to consumers of financial services which the CBI identified during its annual sectoral risk analysis. The report also sets out the CBI’s expectations of what firms should do to minimise those risks and protect their customers. 

Speaking at the European Financial Forum, the CBI’s Governor reflects on the challenges facing the regulatory framework and the need to be agile and responsive to change. Reflecting on the international trade tensions caused by Brexit as well as the impact of the coronavirus, Mr Makhlouf warns businesses, consumers and other regulators to expect, and plan for, more friction and divergence. He advised that the CBI would be looking at its key frameworks to ensure they remain fit for purpose for the decade ahead, including reviews of the consumer protection, macroprudential and European frameworks. 

Speaking at the European Financial Forum 30% Club, Director General Derville Rowland reiterates the importance of diversity and inclusion in the financial services industry. The need to have more women on boards was highlighted, with women currently accounting for only 19% of directors at listed companies overall and 14 companies continuing to have all-male boards. Speaking of the CBI’s intention to drive diversity at regulated firms, Mrs Rowland reflected on the thematic review carried out last year on the level of diversity and inclusion within the insurance sector. She advised the findings are expected to be published at the end of April, with an objective of ‘providing a perspective on the approach to diversity and inclusion within the Irish insurance industry more broadly, identifying good practices and areas for development that will be useful for firms beyond those involved in the assessment.’ She also spoke of the CBI's intention to increasingly incorporate diversity and inclusion into their supervisory thinking, requiring the quality of firms’ decision making and risk management apparatus to be more sophisticated and balanced. 

The CBI’s Director of Financial Stability, Mr Vasileios Madouros, believes there isn’t a more complex problem facing our society than climate change and its risk to financial stability. Speaking of the need to develop a financial system that is self-resilient to climate-related risks, Mr Madouros identifies the most direct link to the financial sector is through the insurance sector, due to its coverage of losses borne by households and businesses when physical risks crystallise.  

The Q4 2019 Insurance Corporations Statistics were published on the CBI’s website on Friday 6 March.

On 11 February, EIOPA published an update on the use of Supervisory Technology (SupTech), by National Competent Authorities to deliver innovative and efficient supervisory solutions covering prudential and conduct supervision, policy, and interaction with entities. The priority areas identified are: 

1. Improving data sharing and analytics by developing a common risk assessment framework.
2. Supporting market monitoring - developing a tool to automate assessment of the information available in Key Information Document (KID), established by the Packaged Retail Investment and Insurance Products (PRIIPs) regulation or Insurance Product Information (IPID) established by IDD.

EIOPA is launching a thematic review of mortgage life and credit protection insurance. This follows the publication of the EIOPA consumer trends report and national competent authorities have identified risks which threaten consumer protection. The risks include unmitigated conflicts of interests, aggressive sales techniques and high commissions.

On 17 February, EIOPA published the agenda of the event for the EU-US public forum scheduled for 13 March 2020. The discussion centred on: confronting cross-border insurer cybersecurity risks, development of the cyber insurance market and the future of big data and AI in insurance.

EIOPA, on 20 February, issued a supervisory statement on the potential effects of low interest rates on insurance assets and liabilities. 

In the short term, EIOPA recommends that national supervisors:

1. Should intensify monitoring and supervision of insurers with greater exposures to low interest rates 
2. Engage with undertakings to explore actions they could take to improve financial resilience
3. Pay special attention on pre-emptive recovery and resolution planning, 
4. Broaden the analysis of low rate environment and consider the build-up of systemic risk. 

Over the medium- to long-term, national supervisors should identify whether there are any tools or powers missing in their current toolkit and request from the (national) relevant authorities the missing powers if a gap is identified. 

On 20 February 2020, EIOPA published a statement from the Chairman Gabriel Bernardino which highlighted the developments of the global International Capital Standard (ICS) led by International Association of Insurance Supervisors (IAIS). EIOPA aims to continue working with international peers to ensure that the standard is based on a market-adjusted valuation, capital requirements are sufficiently robust and risk sensitive and that internal models are allowed to be used under sound and prudent criteria.

On 20 February 2020, EIOPA launched the public consultation on implementing technical standards for supervisory reporting and cooperation as mandated by the Pan-European Personal Pension Product (PEPP) Regulation. The proposals specify the annual supervisory reporting requirements on PEPP and formalise the notifications required by the PEPP Regulation to facilitate efficient processes in the cooperation between competent authorities and EIOPA. The regular, annual submission of information on the PEPP business and efficient communication channels between competent authorities are key building blocks of the supervisory framework for the PEPP.

EIOPA has launched an impact assessment to support the 2020 review. A sample of insurance and reinsurance undertakings from the European Economic Area, which are subject to Solvency II, have been requested to provide information on the combined impact of the draft advice for the 2020 review of Solvency II. The assessment was launched on 2 March and the entities asked to take part will have to submit results to their national supervisory authorities by 31 March. In Ireland, we understand that the CBI have asked 24 firms to participate, covering the Life, Non-Life and Reinsurance sectors.

EIOPA published a speech given by Fausto Parente, EIOPA Executive Director, on managing the risks of digital finance. Mr Parente explains that the digitalisation of finance is dependent on many things, but the core drivers are technology and data. Data held by financial institutions is valuable, and technology is vulnerable. This leaves companies and people open to cybercrime risks. EIOPA believes that data needs to be respected. It must be used fairly and organisations holding data must act responsibly. Because of this, in 2019 EIOPA set up a consultative expert group on digital ethics in insurance to help it develop principles of digital responsibility in insurance. EIOPA wants these principles to have EU values at their core, while at the same time recognising the important role that insurance plays in the EU economy and society. Mr Parente refers to this as operationalising best practice for the insurance sector.

The ESRB published a report on macroprudential policy for the insurance sector. The report has been published to inform the European Commission's ongoing "2020 review". In line with its strategy for expanding macroprudential policy beyond banking, the ESRB believes that the 2020 review should result in an enhanced regulatory framework for the insurance sector that better reflects macroprudential considerations. In the report, the ESRB outlines the macroprudential toolkit it thinks should be incorporated into the Solvency II regime.

The EU-US Insurance Dialogue Project’s Big Data Working Group (WG) has been focusing on aspects of the relationship between innovation, technology, and insurance, specifically: (1) the increased use of large data sets (Big Data) by insurers; and (2) the use of data analytics in the insurance sector. The Big Data WG published a paper in 2018 providing the reader with a better understanding of what data is collected, how it is collected, data portability, data quality and how it is made available and used by both insurers and third parties. This report provides a summary of the Big Data WG discussions since publication of the 2018 paper and outlines proposed next steps for 2020-2021.

The EU-US Insurance Dialogue Project Cyber Insurance Working Group (WG) is pursuing an ongoing bilateral dialogue to share knowledge and experiences with respect to the development of cyber insurance markets in the United States (US) and European Union (EU). In November 2018, the Cyber Insurance WG published a paper describing the status of cyber insurance markets in the US and EU, the types of available cyber insurance coverages, challenges in underwriting cyber insurance and current supervisory practices for assessing cyber insurance underwriting. This report summarizes key elements of the discussions in 2019 and proposes topics for further discussion in 2020.

The IAIS published a press release on the monitoring period for version 2.0 of the Insurance Capital Standard (ICS). The IAIS outlines several issues related to the first phase of ICS implementation participation in the monitoring period and the process of refinement of the ICS during this period. 

The IAIS and the Sustainable Insurance Forum jointly published an issues paper on implementation of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The paper provides an overview of practices that supervisors have considered in developing climate-related disclosures within their markets. Among other things, it sets out a range of options for supervisory approaches based on case studies describing supervisory practices in twelve jurisdictions. Given the diversity of supervisory frameworks across jurisdictions, the paper focuses on practices that can be implemented with limited direct regulatory intervention.

In reaction to the EC’s roadmap on the EU’s Climate Law, Insurance Europe highlighted that (re)insurers are especially aware of and sensitive to the risks posed by a changing climate, both as underwriters of risk and compensators of losses.

Insurance Europe has warned that the approach taken by EIOPA to draft proposals for technical standards that set out the details of the pan-European personal pension product (PEPP) is extremely ambitious, with EIOPA exceeding its mandate, which is set by the PEPP regulation, on several occasions. 

A group of financial associations have written to the EC president to call for the new Commission to consider global competitiveness as a key objective in its policymaking. They also called on the Commission to ensure an international level playing field, focusing on eliminating the potential for any regulatory arbitrage between Europe and other jurisdictions which would create disadvantages for European companies.  

The key messages are highlighted in this article.  

24 February: Responses to Occasional Consultation Paper 25/19:
The PRA published minor updates to SS35/15 on strengthening individual accountability in insurance.

A number of updates have also been published in relation to the UK’s withdrawal from the EU: 

• 7 February: Transfer of roles and responsibilities. The Bank of England has set out a web page to communicate how it intends to fulfil its legal responsibilities, from the end of the transition period at 11pm on 31 December 2020 when EU law would no longer be applicable in the UK.  
• 6 February: Transitioning to Post Exit Rules
• 6 February: Temporary Permissions Regime: The PRA published an update on the temporary permissions regime (TPR). Following the UK’s exit from the EU at 11pm on 31 January 2020, the UK entered the transition period agreed as part of the Withdrawal Agreement between the UK and EU. The transition period is due to end at 11pm on 31 December 2020. Passporting rights will now cease at the end of the transition period.
• 7 February - Financial Services Contracts Regime (FSCR): HM Treasury has legislated such that the FSCR will now take effect from the end of the transition period at 11pm on 31 December 2020. The purpose of the FSCR is to be a back-stop to the Temporary Permissions Regime (TPR) and to allow for the orderly wind down of the UK regulated activities of firms that (i) were passporting prior to the end of the transition period (previously prior to exit day) and require authorisation in the UK to continue servicing their contracts; and (ii) The FSCR is premised on a ‘no deal’ scenario – now deleted. 
• 11 February - Financial Services Compensation Scheme (FSCS): Existing FSCS protection for insurance policies issued prior to the end of the transition period would be maintained as long as the insurer remains a 'relevant person' under the Financial Services and Market Act (FSMA).  Where an insurer transfers FSCS-protected insurance liabilities to an insurer without UK authorisation, FSCS protection would only be available for claims in respect of acts or omissions (‘insured events’) that arose before the transfer to the non-authorised successor. Policies in respect of risks situated in the UK, Gibraltar, Channel Islands and Isle of Man issued by 'relevant persons' after the end of the transition period may be FSCS protected, depending upon the location of the establishment through which the policy is issued.  The FSCS would not protect policies issued after the end of the transition period in respect of EEA risks.

28 February - Letter from Anna Sweeney: Outstanding EU Liabilities: The PRA published a website version of the letter from Anna Sweeney, Executive Director for Insurance Supervision, addressed to firms which have outstanding liabilities relating to EU27 risk. The firms would have notified the PRA of their reliance on EU run off regime or intention to transfer liabilities to an EU Insurer but have not completed the process.  Firms intending to rely on EU run-off as a temporary or permanent solution for continuity are encouraged to undertake a thorough analysis of their expected runoff profile and discuss their proposed approach with the relevant EU authorities. Firms seeking to transfer their EU liabilities to an EU authorised insurer have no guarantee that any Part VII transfer will be sanctioned by the Court within firms’ intended timeframes. Firms are encouraged to proactively contact the EU authorities to ensure contingency plans and associated risks remain satisfactory. By 30 April 2020, firms are expected to provide proof of their engagement with the relevant EU Authorities.

• February 2020
• January 2020
• December 2019
• November 2019
• October 2019

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