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COVID-19,  mitigating actions and next steps

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

Insurance Insights April 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.

Implications of COVID-19 for insurers

A crisis such as Covid-19 affects all business sectors – but there are some unique considerations that impact the insurance industry. So, how is the insurance industry likely to shape up to the unfolding crisis? What are the implications across the different segments of general and life insurance? And, what longer-term trends might the outbreak serve to usher in for the future? To help you understand your exposure to COVID-19, and more importantly, position your business to be resilient in the face of this and prepare for the future, please review timely insights from KPMG Insurance leaders from across the globe. 

COVID-19 impact on your business

Our teams are continuously working to provide up to date COVID-19 guidance and support to businesses in both the Republic of Ireland and Northern Ireland and we have developed practical guides to help you manage the impact on the following areas:

Innovation in Insurance – Irish Times articles

Brian Morrissey, KPMG Actuarial Partner and Head of Insurance, has provided insights in a series of articles on innovation in insurance published by the Irish Times:

 

Central Bank of Ireland update

Central Bank responds to COVID-19

The Central Bank of Ireland (“CBI”) has published a number of statements announcing a series of measures aimed at supporting households and firms through the significant uncertainty and disruption caused to the Euro area economy by the COVID-19 virus.

CBI sets out expectations of insurers in light of COVID-19

Recognising the spread of the COVID-19 virus as a global public health emergency, which has created significant uncertainty and economic disruption, the CBI has set out its expectations of how regulated insurance firms should treat their customers in light of the significant economic disruption caused. These expectations include;

  • The need to put forward consumer-focused solutions on policy payment breaks, rebates and claims;
  • The interpretation of policy terms most favourable to the consumer should prevail; and
  • CEOs of Irish authorised insurers should take responsibility for the oversight of how their firm is managing determinations of whether claims are covered or not in the context of COVID-19.

Guidance for Essential Financial Services

The CBI announced its expectation that the Chief Executive Officer or another relevant member of senior management should be accountable for ensuring an adequate process so that only individuals in roles necessary to perform essential financial services, who cannot work remotely, are designated as essential financial services workers. In the context of maintaining essential financial services, regulated firms must ensure Business Continuity Plans are kept under review, there is appropriate designation of staff and ongoing engagement with critical service providers to ensure maintenance of services and that the CBI is notified as soon as possible, where they believe circumstances present a risk to the maintenance of essential services to consumers, industry or markets. 

COVID-19 Hub

The CBI have set up a dedicated COVID-19 hub to bring together relevant and timely information, guidance and policy decisions for consumers, businesses and regulated firms on the CBI’s response to COVID-19. Content will be updated as new information becomes available.

Quarterly Bulletin - COVID-19 has triggered a severe negative shock to the Irish economy

The CBI published its second Quarterly Bulletin of 2020, which focuses entirely on the impact of the COVID-19 pandemic. Making heavy use of judgement and drawing on a range of analytical tools, the Bulletin provides an assessment and estimate of the potential impact of the crisis under certain assumptions. 

European Supervisory Authorities Updates

EIOPA: Mitigating Actions Required by Insurance Undertakings

EIOPA released a statement with key messages on actions required to mitigate the impact of COVID-19 on the EU insurance sector. These include the need for insurers to be able to maintain business continuity, the need for national competent authorities (“NCAs”) to be flexible around timing of reporting and disclosures, EIOPA introducing a short-term limit on information requests to essential elements only and an extension on the deadline of the Solvency II 2020 review by 2 months, until 1 June 2020. EIOPA also reference the Solvency Capital Requirements under Solvency II, and the flexibility it provides them in cases of extreme situations, including measures to extend the recovery period of affected insurers if required.

EIOPA: Recommendations on flexibility for supervisory reporting and public disclosure deadlines

EIOPA published recommendations to NCAs on supervisory flexibility regarding the deadline of supervisory reporting and public disclosure by insurers, in the light of the COVID-19 pandemic. The aim of the recommendations is to foster convergence and consistent supervisory approaches across member states when providing flexibility for supervisory reporting and public disclosure of insurance and reinsurance undertakings. EIOPA considers that undertakings need to concentrate their efforts on monitoring and assessing the impact of the COVID-19 situation as well as ensuring business continuity and comments that, in this context, the Q1-2020 submission of information to competent authorities will be extremely important for undertakings and competent authorities.  EIOPA also advised (re)insurers to consider the current situation as a “major development” and disclose in their Solvency and Financial Condition Report (“SFCR”) the impact of COVID-19. 

EIOPA urges insurers and intermediaries to continue to take actions to mitigate the impact of COVID-19 on consumers

EIOPA published a statement specifically asking insurers and intermediaries to consider a number of different actions when taking into account developments relating to the COVID-19 outbreak. EIOPA warns that the scale and depth of the disruption caused by the COVID-19 outbreak could undermine trust in the insurance sector if the fair treatment of consumers does not remain at the heart of the sector's responses. It states that it is critical that insurers and intermediaries continue focusing on ensuring business continuity and the fair treatment of consumers. It expects all market participants to continue to act in the best interests of consumers, throughout the lifecycle of their relationship with the consumer. EIOPA also warns that it is important to recognise that in the case of a widespread pandemic, the pooling of risks necessary for insurance may be difficult to achieve, which sets boundaries on what the sector can offer. As a general principle, imposing retroactive coverage of claims not envisaged within contracts could create material solvency risks and ultimately threaten policyholder protection and market stability, aggravating the financial and economic impacts of the current health crisis.

EIOPA: COVID-19: statement on dividend distribution and variable remuneration policies

EIOPA published a statement on dividend distribution and variable remuneration policies in the context of COVID-19. EIOPA explains that insurers must take all necessary steps to continue to ensure a robust level of own funds, so they are able to protect policyholders and absorb potential losses.

EIOPA: COVID-19 press release giving update on delays to consultations and other projects

To ensure that priorities are consistent with the current situation, EIOPA is re-prioritising and alleviating the burden by extending the deadlines or delaying projects where input from NCAs or the industry is foreseen. EIOPA provided details of delays in a number of projects, including confirming a delay on its data collection for the work on the impact of ultra-low yields on insurers to complement Solvency II data (planned for the first and second quarters of 2020), which will incorporate COVID-19 reflections if necessary. EIOPA has confirmed their decision to cancel the planned data request relating to the 2020 climate risk sensitivity analysis. 

EIOPA publishes extraordinary information for Solvency II Relevant Risk Free Interest Rate Term Structures and Symmetric Adjustment to Equity Risk

Due to the COVID-19 outbreak, in the coming weeks EIOPA will be carrying out extraordinary calculations on a weekly basis to monitor the evolution of the relevant risk-free interest rate term structures (“RFR”) and the symmetric adjustment to equity risk (“EDA”). EIOPA is publishing this information in order to support insurance and reinsurance undertakings in the monitoring of their solvency and financial position.

EIOPA publishes second report on costs and past performance of insurance-based investment products and personal pension products

EIOPA published its second report on costs and past performance of insurance-based investments products (“IBIPs”) and personal pension products (PPPs) in the European Union following a request from the European Commission to the European Supervisory Authorities to periodically report on the costs and past performance of retail investment products. The report provides an analysis of costs for 2018 and past performance for the period between 2014 and 2018. 

EIOPA publishes Opinion on the supervision of remuneration principles in the insurance and reinsurance sector

EIOPA have published an Opinion piece on how to ensure consistent practices in the application of the remuneration principles included in Solvency II, aiming to give guidance to NCAs on how to challenge the application of certain principles.

EIOPA: Review of technical implementation means for the package on Solvency 2 Supervisory Reporting and Public Disclosure

EIOPA aims to improve the efficiency and effectiveness of the reporting and disclosure framework, thereby reducing the costs associated to the processes, with a revised deadline of 1st of  June 2020. In this context, EIOPA proposals in this technical area contribute further to the proportionality and cost efficiency framework.

Other Articles

IAIS: Executive Committee takes steps to address impact of COVID-19 on the insurance sector

The International Association of Insurance Supervisors (“IAIS”) held a conference call to continue its discussions of the impact of COVID-19 on the global insurance sector and the IAIS’ activities. Recognising that insurance has an essential role to play during a pandemic event such as COVID-19, by providing protection to individuals, households and businesses, IAIS members have confirmed they will remain vigilant in terms of the financial soundness and operational resilience of insurers, in support of the protection of policyholders and the maintenance of financial stability. Members are pursuing a range of regulatory and supervisory measures to provide operational relief to insurers in the wake of the COVID-19 outbreak and to provide appropriate flexibility to help insurers maintain their safety and soundness and deliver the essential services they provide to policyholders and the economy.

IAIS: ICS monitoring Level 2 document

The IAIS published the Level 2 document relating to the monitoring period for version 2.0 of the insurance capital standard (“ICS”). The first phase of the implementation of the ICS consists of the ICS being subject to a five-year monitoring period, which started in January 2020. The purpose of the monitoring period is to monitor the performance of the ICS over a period of time, but not the capital adequacy of internationally active insurance groups (“IAIGs”).

IAIS: Release of paper on use of Big Data analytics in insurance

The IAIS published an issues paper on the use of Big Data analytics in insurance which emphasised the need for insurance supervisors to support innovation, through the use of algorithms and advanced analytics capabilities, while also maintaining their focus on protecting policyholders. 

Insurance Ireland launches 2019 Annual Report

Insurance Ireland has launched its online 2019 Annual Report – reviewing topics including serving the customer, the contribution of the Insurance sector to the economy, the regulatory and competitive environment and sustainability. 

Insurance Europe: No one-size fits all approach to increase EU financial sector cyber resilience

Insurance Europe has published its response to a consultation by the European Commission on its proposal for a digital operational resilience framework for financial services. They stress that cyber risks faced by companies differ greatly from one industry to another and therefore a one-size fits all approach to the market will not work. 

Commission Delegated Regulation (EU) 2020/442, which corrects the Solvency II Delegated Regulation ((EU) 2015/35), was published in the Official Journal of the EU (“OJ”).

The new Delegated Regulation makes corrections relating to the look-through approach and risk weights for flood risk, which are necessary due to previous amendments made by Delegated Regulation (EU) 2019/981. 

Insurance Europe: Joint letter: Margin Requirements for Non-Centrally Cleared Swaps Margin – Impact of COVID-19 on Initial Margin Phase-In

Insurance Europe has called for a delay in the compliance dates for initial margin requirements for non-centrally cleared derivatives to account for problems companies face due to the COVID-19 pandemic. A wide group of financial associations – including Insurance Europe have called on the Basel Committee on Banking Supervision Bank for International Settlements (“BCBS”) and the International Organization of Securities Commissions (“IOSCO”) to issue an immediate recommendation for global regulators to suspend the compliance dates for phases five and six of the standards. They also asked global regulators to act swiftly to provide reassurance in their jurisdictions.

Insurance Europe: European financial services will maintain support for customers, employees and EU economy within governments’ boundaries during COVID-19 pandemic

The European social partners – which include representatives of both financial sector employers and employees, and of which Insurance Europe is a member – will continue supporting their customers and the European economy to the best of their abilities within government-set boundaries during the COVID-19 pandemic. 

Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA)

Dear CEO letter by Sam Woods

The PRA published a Dear CEO letter in regards to distribution of profits by insurers setting expectations on policyholder protection and maintaining safety and soundness of the business in light of COVID -19. In line with the requirements set out in supervisory statement (SS4/18), firms are encouraged to ensure that distributions are prudent and take into account their risk appetite.  In addition, firms are encouraged to manage financial resources prudently to ensure they are able to meet commitments to policyholders and continue to invest in the economy. 

Insuring SMEs: Business Interruption

On the 20 April, the FCA wrote to CEOs outlining considerations in relation to insurance cover in the context of COVID-19, including how insurers are interpreting their insurance policies as a result of the pandemic. 

Transition to IFRS 17

Every month KPMG Ireland’s IFRS team produces an update on the progress of the industry to date on the implementation of the new insurance accounting standard

 

Further information

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

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