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.
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.
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:
COVID-19 has posed an unprecedented challenge to Irish society and the Irish Government, ranging from the immediate health issues to how society will manage in the future and how Irish businesses will manage in this environment.
It is too early to say precisely what impact COVID-19 will have in the medium to longer term on the way society will work and how business will be done domestically and internationally. Thus, we will need to be adaptable and flexible and make strategic investments in areas that allow the country to respond to the challenges and opportunities that will arise.
To support this critical agenda, KPMG have compiled a number of suggested measures, which we have shared with the Department of Finance, designed to build on the measures already announced by the Government on 2 May 2020 and those made both prior and subsequent to that date.
Most companies are likely to be impacted by the COVID-19 pandemic, either directly or indirectly, and the increased economic uncertainty and risk may have significant financial reporting implications.
The resources provided by KPMG will help you to better understand the potential accounting and disclosure implications for your company, and the actions management can take now.
KPMG continues to publish insights on the impact of COVID-19 on our clients, exploring issues such as 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.
The focus of this Insight is on how COVID-19 might be the catalyst for innovation in insurance, unlocking greater levels of customer experience and personalization. KPMG's Six Pillars of Customer Experience - derived from ten years of primary research across 3,000 brands in 26 countries - identify the key universal principles that underpin successful customer relationships, with the two Pillars that are considered most important to specifically address in these uncertain times being Integrity and Empathy.
CBI Administrative Updates: Changes made to the retail intermediary authorisation process and Professional Indemnity Insurance Requirement
The CBI has updated the authorisation and registration process for retail intermediaries, whereby hard copies of applications are no longer required and can instead be submitted via the CBI’s secure file transfer system. Access to this system can be requested via email to RIAuthorisations@centralbank.ie.
The CBI also announced there will also be a change to the levels of Professional Indemnity Insurance (PII) that an applicant seeking authorisation under the Investment Intermediaries Act 1995 or registration under the European Union (Insurance Distribution) Regulations 2018 is required to have from 12 June 2020. The new PII levels will be €1,300,380 per claim and €1,924,560 in aggregate. The CBI intends to amend the Handbook of Prudential Requirements for Investment Intermediaries to ensure that the professional indemnity insurance requirements applicable to Investment Intermediaries will be consistent with the new requirements for Insurance Intermediaries. The CBI has advised that they will engage directly with relevant entities that have already submitted applications.
CBI publishes Annual Report 2019 and Annual Performance Statement 2019-2020
The CBI has published an overview of the key activities and work undertaken by them during 2019. The report reflects on the merit of the CBI’s work in creating a resilient financial system amidst the COVID-19 crisis and details the financial profit made by the CBI for the year, totalling €2.56 billion with surplus income of €2.05 billion being paid to the Exchequer.
Reflecting on the Annual Performance Statement, Governor Gabriel Makhlouf subsequently published a blog post on ‘Transparency, Accountability and Central Banking’ in which he looks back over the CBI’s performance for the year and also looks ahead as to where they will focus their efforts. The Governor emphasises the CBI’s role of maintaining stability and protecting the community where its “constant and predominant aim shall be the welfare of the people as a whole".
Economic Letter: Bank Credit Conditions and Monetary Policy
The CBI published the findings of its quarterly Bank Lending Survey carried out on a sample of Ireland’s Banks, which showed, that despite COVID-19, credit conditions remained relatively stable in the first quarter of 2020. The CBI expects changes to come with a particular drop in demand for credit from households in the second quarter.
EIOPA: European insurers face increased risk exposures due to COVID-19, but market perceptions and imbalances remained at medium level
EIOPA published its updated Risk Dashboard based on the fourth quarter 2019 Solvency II data. Despite the fact that some indicators used in this Risk Dashboard do not capture the latest market development in the context of COVID-19 outbreak, the expected deterioration of the relevant indicators reflecting all available information in a forward-looking perspective has been considered in the assigned risk levels. This addresses the current situation of high uncertainty in the insurance market. The results show that the risk exposures of the European Union insurance sector increased as the outbreak of COVID-19 strongly affected the lives of all European citizens with disruptions in all financial sectors and economic activities.
EIOPA publishes bi-weekly information for Relevant Risk-Free Interest Rate Term Structures and Symmetric Adjustment to Equity Risk with reference to 26 May 2020
EIOPA has changed the frequency of current extraordinary processes for risk-free interest rate term structures (RFR) and symmetric adjustment to equity risk (EDA) from weekly to every two weeks.
EIOPA: List of Internationally Active Groups
EIOPA published a list of Insurance Groups identified as Internationally Active Insurance Groups (IAIG), which are headquartered in the European Union. The expectation is to use the list in conjunction with the framework from International Association of Insurance Supervisors (IAIS). IAIGs are identified by meeting two criteria relating to their international activity and size.
Pensions Authority publishes statistics for defined benefit schemes - June 2020
The Pensions Authority published a set of statistics for defined benefit (DB) schemes which have been compiled from analysis of Annual Actuarial Data Returns (ADDRs) received to 31 March this year. Some of the findings from the data include:
IAIS: COVID-19: further adjustments to 2020/21 work programme and updated roadmap
The International Association of Insurance Supervisors (IAIS) published its newsletter for April/May 2020. Among other things, the newsletter contains further information about the adjustments the IAIS has made to its work programme for 2020/21 to address the impact of COVID-19 on the insurance sector. The IAIS announced these adjustments in March, but the newsletter reports on the outcome of its consultation with the Financial Stability Board (FSB) about reviewing the 2020 timelines for the implementation of the holistic framework for systemic risk in the global insurance sector.
The IAIS has now agreed that reporting on the results of the 2020 global monitoring exercise (GME) will be postponed by one year to October 2021. Accordingly, the comprehensive 2020 individual insurer monitoring (IIM) data collection has been suspended for now to allow the IAIS, member supervisors and participating insurers to focus on the targeted IIM COVID-19 data collection previously announced. Similarly, the 2020 sector-wide monitoring (SWM) data collection from insurance supervisors has been streamlined to focus on the impact of COVID-19.
The newsletter also states that the IAIS has updated its public roadmap for 2020/21, which sets out the specific projects that the IAIS will undertake over the next two years. The updated roadmap reflects the adjustments that the IAIS has made to projects as well as other changes to timelines (for example, changes to the timelines for issues and application papers). It also includes three new projects:
The IAIS will develop a risk dashboard of key market indicators with regular updates and inform the broader membership on the key developments in financial markets affecting the global insurance industry due to COVID-19.
IAIS Facilitates global co-ordination on financial stability and policyholder protection
The IAIS published a press release outlining how it is facilitating global co-ordination on financial stability and policyholder protection during the COVID-19 pandemic. The IAIS has been closely monitoring developments and actively co-ordinating with other standard-setting bodies and the FSB to assess the impact of COVID-19 on the global insurance sector.
In addition, the IAIS is facilitating the sharing of information and discussion among its membership on supervisory responses to the impact of COVID-19. These discussions have highlighted the importance of effective policyholder protection and fair customer treatment.
The IAIS welcomed the variety of proactive steps taken by insurance supervisors and insurers in support of policyholders.
The IAIS believes that in circumstances where pandemic risks are covered by a policy, it is important that insurers pay out such claims in a prompt and efficient manner. The IAIS considers that efficient claims handling and clear communication with policyholders on coverage for losses arising from COVID-19 should help deepen confidence and trust in the insurance sector and contribute to longer-term economic recovery efforts.
The IAIS also cautioned against initiatives seeking to require insurers to retroactively cover COVID-19 related losses, such as business interruption, that are specifically excluded in existing insurance contracts. In such cases, the costs of claims against losses have not been built into the premiums that policyholders have paid for their insurance. Requiring insurers to cover such claims could create material solvency risks and significantly undermine the ability of insurers to pay other types of claims. Such initiatives could ultimately threaten policyholder protection and financial stability, further aggravating the financial and economic impacts of COVID-19.
The IAIS also noted that COVID-19 has highlighted the limits on the types of coverage that can reasonably be offered by the insurance sector alone. Under such circumstances, the pooling and diversification of risks necessary to support viable insurance cover are difficult to achieve. The IAIS, therefore, encourages efforts seeking potential solutions to protect businesses and individuals against these types of risk, and is ready to help facilitate these discussions at the international level.
Financial policymakers discuss responses to COVID-19 with the private sector
Financial policymakers and international standard setters met virtually with private sector executives to discuss international policy responses to COVID-19. Organised by the FSB’s Standing Committee on Supervisory and Regulatory Cooperation (SRC), in cooperation with Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructures (CPMI), the International Association of Insurance Supervisors (IAIS) and the International Organization of Securities Commissions (IOSCO), the meeting brought together senior representatives from central banks, regulatory authorities and finance ministries as well as about 30 international banks, insurance firms, asset managers, market infrastructures and credit rating agencies.
The meeting was chaired by Himino Ryozo, Chair of the SRC and Vice Minister for International Affairs, Japan Financial Services Agency. The meeting explored the effectiveness of prudential and other financial policy measures taken to date, including experiences with their implementation. Participants also discussed policy issues going forward, notably how financial institutions can better cope with the challenges resulting from rising solvency risks and exchanged views on potential areas that may warrant further policy coordination.
Insurance Europe Insight Briefing: GDPR two years on – European Commission should examine innovation impact, role of EDPB & application consistency
On the second anniversary of the introduction of the EU General Data Protection Regulation (GDPR), Insurance Europe has published an insight briefing setting out its views on the Regulation ahead of the EC’s upcoming review. While the insurance industry has always been a firm supporter of the GDPR’s objectives, Insurance Europe:
European Commission: Adapting to Climate Change - EU Strategy
The European Commission launched a consultation for the climate change adaptation strategy in view of the European Green deal. The adaptation strategy aims to tackle additional priorities to support climate-resilience. The priorities include mainstreaming and adaptation in EU legislation and instruments and incentivising private investment in adaptation in relation to Sustainable Finance Strategy and EU taxonomy. Comments are expected by 20 August 2020.
Insurance Europe: Rushing an agreement on EC collective redress proposal will not get it right
Representatives of Europe’s business community – including Insurance Europe – have warned the Council of the EU and the European Parliament against rushing to conclude trilogue discussions on the European Commission (EC)’s collective redress proposal while many complex issues remain unresolved. A draft Directive was agreed by the Council in November 2019 as part of the Commissions “New deal for consumers” package, which aims to ensure fair and transparent rules for EU consumers by building a system to allow consumers to be able to defend their rights not only individually but also through collective actions. It will empower reputable organisations (so-called ‘qualified entities') to launch actions on behalf of consumers. The system will cover actions for both injunctions and redress.
Trilogue parties have not met – even at technical level – for several months. While efforts to find an agreement between the Parliament and the Council during the COVID-19 pandemic via written exchanges are laudable, several critical flaws and outstanding issues remain unaddressed. Yet there are reports that a compromise text will be discussed with member states in the hope of concluding discussions at a Coreper in just one week, on 10 June. Doing so could mean the many complexities of this proposal will not be adequately considered, which will result in defective legislation and greater chances of unintended consequences. It is therefore of utmost importance for Europe’s institutions to prioritise quality over expediency. Finally, Europe’s business community will continue to contribute constructively to these discussions with the aim of achieving a balanced, fair and harmonised EU system. Any new framework should focus on the inclusion of appropriate safeguards for both claimants and defendants. .
Insurance Europe: Statement on EC roundtable on COVID-19 relief measures
Insurance Europe president, Andreas Brandstetter, took part in a roundtable meeting hosted by EC Executive Vice President Valdis Dombrovskis to discuss measures taken by insurers and other members of the financial sector to alleviate the impact of COVID-19 on both consumers and businesses. Brandstetter said: “Today’s discussions provide a good opportunity to deepen our understanding of the impact that COVID-19 has had on people and businesses, as well as what the financial sector has done to cope and the steps it has taken to help customers and wider society.”
Insurance Europe: Insurers respond to EC proposals for a European data strategy
Insurance Europe has responded to a consultation by the EC on its proposals for a European data strategy. A common EU data strategy would provide a significant opportunity for the EU to adopt a future-proof, innovation-friendly framework that supports data-driven business and enables the digital transformation of society, while ensuring appropriate protection for consumers. For insurers, a greater availability of data could lead to improved risk monitoring and assessment, better customer experience and increased fraud detection. The more data that is available for the common good, the better the digital solutions and analytical models will be. As such, the data strategy should focus on strengthening the framework conditions for data collaboration and data partnerships. At the same time, individuals should be able to allow access to their personal data to a much higher extent than is possible today. It will be important to establish a framework on how to exchange data between companies, and how to give customers the possibility to export their data, ensuring appropriate anonymisation of data to protect privacy. This would help to encourage research and development, as well as the creation of anonymised data sources.
ECJ: Insured's right to choose lawyer under Solvency II Directive covers mediation
The European Court of Justice (ECJ) has ruled on a reference for a preliminary ruling concerning an insured person's right under the Solvency II Directive (2009/138/EC) to choose their own lawyer in proceedings relating to a contract for legal expenses insurance. The request was made in proceedings between the Orde van Vlaamse Balies and the Ordre des barreaux francophones et germanophone (the bar associations) and the Ministerraad (Council of Ministers, Belgium) relating to the freedom of an insured person to choose his or her representative in mediation proceedings in the context of a legal expenses insurance contract. The bar associations sought annulment of a 2017 national law as infringing the constitution, when read with the Solvency II Directive. The ECJ had been asked to consider whether Article 201(1)(a) of the Solvency II Directive must be interpreted as meaning that the term "proceedings" referred to in that Article includes judicial or extrajudicial mediation proceedings in which a court is involved or is capable of being involved. Article 201(1)(a) of the Solvency II Directive provides: "(1) Any contract of legal expenses insurance shall expressly provide that: (a) where recourse is had to a lawyer or other person appropriately qualified according to national law in order to defend, represent or serve the interests of the insured person in any inquiry or proceedings, that insured person shall be free to choose such lawyer or other person". The ECJ concluded that Article 201(1)(a) of the Solvency II Directive must be interpreted as meaning that the term "proceedings" referred to in that provision includes judicial and extrajudicial mediation proceedings in which a court is involved or is capable of being involved, whether when those proceedings are initiated or after they are concluded. The ECJ's decision is in line with the earlier opinion Advocate General Saugmandsgaard Øe handed down at a sitting on 11 December 2019, in which he concluded that Article 201(1)(a) of the Solvency II Directive "must be interpreted as meaning that it precludes national legislation from refusing to allow the holder of legal expenses insurance the free choice of a lawyer or representative in the event of judicial or extrajudicial mediation".
Statement on prioritisation in light of COVID-19
In response to COVID-19, the PRA and Bank of England jointly published a reprioritised plan to support firms to respond to operational burdens. The areas relevant to insurance are:
‘Life beyond Solvency II: A view from the top of the regulator’ - Speech by Charlotte Gerken
The PRA published a speech delivered by Charlotte Gerken, Executive Director of Insurance Supervision, highlighting how insurers responded to COVID-19 and impacts on Solvency II regime. The theme of the speech highlights the lessons learned in Solvency II and how the PRA regulatory framework may develop at the end of the EU withdrawal implementation period. The expected changes will be in relation to risk margin, matching adjustment and reporting requirements though the fundamental principles of Solvency II remain.
PRA Supervisory Approach for Insurance Special Purpose Vehicles (ISPVs)
The PRA published its final policy setting out the approach and expectations for authorisation and supervision of ISPVs. The policy took effect on 22 May 2020 and the New Risk Assumption Notification Form for Multi-arrangement ISPVs took effect on 26 May 2020.
Prudent Person Principle
The PRA published the final policy on expectations set out in a supervisory statement (SS1/20) for investments by firms under Solvency II Prudent person principle. The amendments include clarification of objective standards, the extent of risk management and outsourcing expectations and distinction between valuation uncertainty at a point in time and over the realisable value of an asset under stress. The expectations came into effect on 27 May 2020.
PRA identifies list of IAIGs headquartered in the UK
The PRA has published a list of four internationally active insurance groups (IAIGs) headquartered in the UK: Aviva plc; Legal & General Group plc; British United Provident Association Limited; and RSA Insurance Group plc.
IAIGs will be required to report privately to the PRA their solvency under the Insurance Capital Standard version 2.0 during the Monitoring Period.
Financial Services Initiatives Forum (FSRIF) launches a Regulatory initiatives Grid
Specific to insurance, the initiatives include liquidity management, resolution and recovery planning which are firm specific. The key milestones relate to:
The grid is expected to run for a 12-month pilot and will be published twice a year.
Financial Conduct Authority update on of the validity of Business Interruption Claims
Last month the UK Financial Conduct Authority (FCA) announced its intention to seek legal clarity on business interruption (BI) insurance to resolve doubt for businesses facing uncertainty when dealing with these type of claims. They have since published additional information on their decision to bring a Test Case before the English High Court, which will seek to resolve the contractual uncertainty as to whether losses arising from COVID-19 are covered by certain business interruption policy wording. The FCA have approached 56 insurers, reviewed over 500 relevant policies and 1,200 submissions from policyholders and brokers in dispute with their insurers over the terms of their policies. As a result, they have produced a sample of 17 policy wordings which capture the key issues that are in dispute. These issues include, for example, whether the policy covers government advice to close the business or whether a government order forcing the closure of the business is required or whether the outbreak of an infectious disease must take place within a certain vicinity of the business.
The FCA have listed 16 insurers using at least one of the policy wordings set out in the sample list and have asked eight of those 16 to assist them by entering into a framework agreement to be defendants in the Test Case. The framework includes an indicative timeline, with a claim form to be submitted to the English Commercial Court on 9 June 2020 with a view to having the case heard in the second half of July.
The FCA produced a consultation on draft guidance for insurers and intermediaries who are handling claims or complaints on policies which may be relevant to the dispute during the period of the test case. The FCA have cautioned against policyholders assuming that their losses are covered simply because their policy wording is included in the sample. They note that the Court may decide that some of the wordings in the sample are responsive to the COVID-19 pandemic and others are not.
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.
For more on any of the items above, or any Insurance-related queries, contact Brian Morrissey, Head of Insurance.