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Insurance Insights August 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.

Diversity & Inclusion update

The Central Bank of Ireland (“CBI”) recently issued a report on its thematic review of Diversity and Inclusion (“D&I”) in Insurance firms. The CBI published its key findings and observations following an assessment of the approach to D&I across a sample of insurance firms, including some of the largest insurers operating in Ireland. The report, ‘A Thematic Assessment of Diversity & Inclusion in Insurance Firms’, highlights evidence of a lack of D&I in a sample of 11 insurance firms and also sets out the CBI’s expectations with regards to D&I, including the need for all insurers to agree and implement a D&I plan which includes clear objectives, stretch measures and implementation targets.

KPMG has specially produced a document summarising the key findings highlighted by the CBI, the reasons why D&I is important and also how the KPMG team of Diversity & Inclusion experts can help.

COVID-19 update

KPMG continues to publish insights on the impact of COVID-19 on clients, exploring issues such as key considerations for Irish businesses and the measures outlined in the July Stimulus announcement from Government, understanding the COVID-19 tax changes and state support for business and navigating disruption:

  1. The July Stimulus Plan
  2. Business Response
  3. Tax and Government
  4. Navigating Disruption

New reality for insurance

KPMG Insurance Professionals have been reflecting intensively on – and widely discussing with clients - the nature of the upheaval taking place as a result of COVID-19 and what this means for insurers. The result is the following series of materials that provide insight:

  1. Macro Themes – Seven macro themes impacting on insurers.
  2. The new reality – Actionable insights across the insurance value chain.
  3. New reality for insurance webcast.

1. Macro Themes

KPMG starts by exploring seven key macro themes that are relevant to insurers and which they must respond to in a fundamental way in order to thrive in the new reality:

  1. The age of biology.
  2. The new reality workforce.
  3. Ambidextrous business models.
  4. Building financial resilience.
  5. Climate change.
  6. The innovation imperative.
  7. Digital first, digital now.

Some of the seven themes have been with us for some time but have become greatly accentuated and accelerated in the wake of COVID-19 - such as resilience or climate change response.

2. The New Reality

In preparing for the new reality, KPMG Insurance Professionals have set out the eleven key components of the insurance value chain and offer insights on the actions that insurers should be contemplating. Naturally, these actions vary according to sub-sector – Commercial, Personal Lines, Life and Health - as customer needs, preferences and reasons for buying are quite different in each.

The seven primary activities of the insurance value chain that are explored are: Product and service development; Marketing; Distribution and sales; Underwriting; Policy Administration; Claims management and Asset and investment management.

The four support activities that are explored are: Human resources and management; Financial, actuarial and tax; Risk management and Data and technology.

3. New Reality for Insurance Webcast

KPMG also held a webcast on the “New reality for insurance”. The webcast provided an overview of the new reality for insurance via KPMG’s 4Rs framework (Reaction, Resilience, Recovery, New Reality) and the near-term and far-reaching implications for insurers. KPMG explored the components of the insurance value chain one-by-one, discussing the interconnectedness between these elements and the key actions that insurers should consider preparing for the new reality for insurance.

Sustainable Finance in Insurance

KPMG, in association with Insurance Ireland, held a webinar on Environmental Social Governance (“ESG”) & Sustainable Finance – an overview of the current landscape on 22 July 2020.

In the webinar, the KPMG Sustainable Futures Team, led by Conor Holland (Director - ESG Asset Management) and Shane O'Reilly (Director - Corporate Finance), covered an overview of ESG investment strategies, performance comparisons and integration approaches, regulatory update on the EU Action Plan on Sustainable Finance and evolving reporting standard and an examination of the evolution of climate related risks and an overview of the Task Force on Climate-related Financial Disclosures.

Central Bank of Ireland updates

Business Interruption Insurance Supervisory Framework

On 5 August 2020, the Central Bank of Ireland (“CBI”) published its COVID-19 and Business Interruption Insurance Supervisory Framework, setting out the CBI’s approach to the identification of potentially systemic issues of customer harm; its expectations of insurers to address those issues where identified; and the escalation strategy for intervention by the CBI where necessary. The Framework also sets out the CBI’s expectations of insurance firms in handling COVID-19 related business interruption insurance claims.

Public Consultation on the Action Plan for a comprehensive Union policy on preventing money laundering and terrorist financing

In response to a Public Consultation launched by the European Commission on the Action Plan for a comprehensive Union policy on preventing money laundering and terrorism financing, the CBI sent a letter to the European Commission on 28 July 2020. This letter sets out the CBI’s high-level views on the aspects of the Action Plan that are directly relevant to the CBI’s Anti-Money Laundering and Countering the Financing of Terrorism (“AML/CFT”) mandate:

  • Section 1 – Ensuring the effective Implementation of the existing EU AML/CFT Framework;
  • Section 2 – Delivering a Reinforced rulebook;
  • Section 4 – Bringing about EU-level AML/CFT Supervision; and
  • Section 6 – Strengthening the International Dimension of the EU AML/CFT Framework.

In its letter, the CBI said it is supportive of steps taken to harmonise and/or strengthen the EU AML/CFT Framework, where evidence suggests there is divergence caused by national transposition and/or differing national approaches to AML/CFT supervision.

European Supervisory Authorities updates

EIOPA launches its Solvency II Single Rulebook

On 31 July 2020, EIOPA launched its first Single Rulebook. The Single Rulebook is an online tool that enables the navigation across different legal texts such as the Directive, Delegated and Implementing Regulation, as well as EIOPA Guidelines, Recommendations, Opinions and Supervisory Standards. The aim of this tool is to improve the understanding of the existing rules and to promote the European internal market.

EIOPA’s Single Rulebook provides access to key regulatory and supervisory texts within the scope of EIOPA’s activity. The pilot Rulebook comprises Directive 138/2009/EC, Delegated Regulation (EC) 2015/35, Delegated Regulation (EC) 2016/467, Delegated Regulation (EC) 2018/1221, Implementing Technical Standards adopted by the European Commission, as well as EIOPA’s Guidelines, Opinions, Supervisory Statements and Questions and Answers.

July 2020 Financial Stability Report

EIOPA published its July 2020 Financial Stability Report of the (re)insurance and occupational pensions sectors in the European Economic Area. EIOPA said that even though a solid and comfortable capital buffer helped insurers to withstand the initial severe market shocks experienced with the COVID-19 crisis, a high level of uncertainty on the magnitude of economic disruption and further dissemination of the virus threatening the health of European citizens increases downside risks.

Gabriel Bernardino, Chairman of EIOPA said: ‘There is no doubt that the economy will experience a deep and unprecedented recession. The high uncertainty on the recovery path needs to be captured by an appropriate forward-looking risk assessment. In this respect, different recovery scenarios should be captured in the design of next year’s European Union-wide insurance stress test’.

EIOPA: Impact of ultra low yields on the insurance sector

EIOPA published a paper on the impact of ultra low yields on the insurance sector, including first effects of the COVID-19 crisis. In the paper, EIOPA assesses the investment behaviour of insurers in the low yield environment as well as on the impacts of ultra low yields on profitability and solvency of insurers. The paper also discusses how low yields and Covid-19 affect the business model of insurance companies as well as consumers.

EIOPA Statement on Solvency II supervisory reporting in the context of COVID-19

Following EIOPA’s Recommendations of 20 March 2020 on annual and quarterly reporting and publication deadlines, EIOPA considers that insurance and reinsurance undertakings should now be in a position to comply with the deadlines provided in the Solvency II framework. EIOPA states that in the context of the current circumstances, it is of utmost importance to continue to provide a framework for consistent supervisory approaches and ensure that all competent authorities and EIOPA receive timely quarterly information. Therefore, the general objective of this Statement is to foster convergence and consistent supervisory approaches across Member States.

Insurance against pandemic risk: EIOPA identifies options for shared resilience solutions

EIOPA published an ‘Issues Paper on shared resilience solutions for pandemics’ on 27 July 2020. In the Issues Paper, EIOPA explores the impact of COVID-19 on insurance cover supply and demand; and concludes that pandemic risk cover cannot be provided solely by private commercial insurers and reinsurers. EIOPA invites views on this Issues Paper until 25 September 2020.

EIOPA Supervisory Statement on the Solvency II recognition of schemes based on reinsurance with regard to COVID-19 and credit insurance.

To promote supervisory convergence, EIOPA published a statement which provides EIOPA’s supervisory view on the treatment for Solvency II purposes of schemes based on reinsurance implemented by Member States within the Temporary Framework.

Outcome of ESAs review of the PRIIPs Delegated Regulation

EIOPA, together with the other European Supervisory Authorities (“ESAs”), wrote to the European Commission to communicate the outcome of the review by the ESAs of the packaged retail and insurance-based investment products (“PRIIPs”) key information document (“KID”) following the Consultation Paper published on 16 October 2019 on the draft regulatory technical standards (“RTS”) to amend Delegated Regulation (EU) 2017/653 (“PRIIPs Delegated Regulation”).

The ESAs explained that the draft RTS was adopted at the European Banking Authority and European Securities and Markets Authority Boards on the basis of qualified majority voting. At the EIOPA Board, although a large number of members agreed with the draft RTS, it did not receive the support of a qualified majority. Given that the draft RTS was not adopted by the three ESA Boards, the ESAs are not in a position to formally submit an RTS to the European Commission.

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.