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Insurance Insights February 2021

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.

KPMG Updates

The Future of small business commercial insurance: KPMG Connected Enterprise for Insurance

The COVID-19 pandemic has disrupted businesses of all shapes and sizes around the world. For small and medium businesses (“SMBs”) it has posed particularly significant challenges, given their typically thin cash reserves and dependence on a small number of routes to market. SMBs also tend to have relatively low levels of business insurance, viewing it as a cash outflow that may not provide them with the benefits they actually need.

Insurers that can drive a truly differentiated SMB proposition - putting the segment’s business needs and customer experience at the heart of everything they do and connecting it across the enterprise ― have the potential to secure a significant competitive advantage.

It is this notion of becoming a Connected Enterprise that KPMG, led by Laura Hay (Global Head of Insurance, KPMG International) explore in this report, setting out the hallmarks of Connected Insurance in the small business context.

Click here to find out more. 

KPMG 2020 CEO Outlook: COVID-19 Special Edition

The KPMG 2020 CEO Outlook COVID-19 Special Edition offers a unique lens on evolving attitudes as the pandemic has unfolded. KPMG initially surveyed 1,300 CEOs in January and February, before many markets were beginning to feel the full impact of lockdowns. Then, in July and early August, we conducted a follow-up survey of 315 CEOs to understand how thinking has evolved. Key developments include:

  • Talent and a new working reality;
  • Shifting risk agenda; and
  • Digital acceleration

Click here to find out more.

Harvey Nash/ KPMG CIO Survey 2020: Insurance sector

Now in its 22nd year, the Harvey Nash/ KPMG CIO Survey led by Steve Bates (Global Leader - CIO Advisory Centre of Excellence, KPMG International) and Bev White (CEO, Harvey Nash Group) is one of the most trusted and extensive international reports on the business of IT leadership.

The 2020 report explores the forces that are shaping the IT function of the future and the key characteristics that will be vital to maintain relevance in the face of accelerating change, as well as the impacts of the COVID-19 pandemic on IT organizations and digital leaders. We surveyed over 4,200 CIOs and technology executives across 108 countries and will use the insurance sector data cut to explore the major themes emerging for insurance CIOs in a short report.

Click here to find out more. 

On the 2021 Board Agendas

COVID-19, recession, extreme weather events , deep seated social unrest – all paint a picture of a daunting and opaque business and risk environment for the year ahead. Drawing on insights from KPMG’s latest survey work and interactions with board members and business leaders, in this article, KPMG, led by Rolf Hauenstein (Head of the Board Leadership Centre, KPMG Switzerland), highlight nine issues for boards to keep in mind as they consider and carry out the 2021 agenda.

Read more here.

Brexit Deal Agreed - Key Aspects of the Deal and Implications for Business

Brexit has, with effect from 1 January 2021, moved into full blown reality. The legal agreements underpinning what has been described as a thin deal as far as trade is concerned, covering goods and certain aspects of services, run to thousands of pages of new laws and regulations. They will have material consequences from a strategic and operational perspective for businesses on the island of Ireland. Some of these consequences are more immediate whilst others will take longer to play out. Some of the key consequences to take note are summarised in the following articles:

Waking up to climate related risks

Are capital markets finally waking up to climate-related risks? In this article, KPMG, led by Anthony Cowell (Head of Asset Management, KPMG Cayman Islands) looks at understanding the importance of climate change and investment outcomes. 

Click here to find out more. 

Central Bank of Ireland Updates

Statement: High Court Judgement of Business Interruption Insurance Test Cases

The Central Bank of Ireland (“CBI”) has prioritised dealing with the impact of COVID-19 on the financial system and on consumers. In the CBI’s COVID-19 and Business Interruption Insurance Supervisory Framework, they set out their expectations for insurers’ handling of COVID-19 related business interruption insurance claims. Consistent with the approach to all aspects of financial regulation, the CBI expects firms to adopt a customer-first approach to the resolution of issues.

In that context, the CBI in its press release welcomed the judgement of the Supreme Court in respect of the test case on Business Interruption Insurance. The CBI notes that it will be closely examining the potential impact of this judgement for customers in the context of its sustained and ongoing engagement with relevant firms.

COVID-19 and the year ahead

The CBI has published a speech delivered (virtually) by the Governor, Mr Gabriel Makhlouf, to students of the University of Limerick. He discussed three main areas for the year ahead: the economic outlook for the Irish economy, the priorities for the CBI for 2021 and how the CBI engages with key stakeholders in the community. He explained that while COVID-19 continues to have profound societal and economic effects, with a predicted continued increase in unemployment rates, the prospect of widespread deployment of vaccines offers hope. He added that, despite the pandemic, the CBI’s strategic plan for 2021 remains unchanged and will focus on five strategic themes: strengthening resilience, strengthening consumer protection; enhancing organisational capability; engaging and influencing; and Brexit. The upcoming work for the year ahead will include ongoing work in the review of the Consumer Protection Code. Mr Makhlouf reiterated the need for regulated entities to act in a way that will help the economy recover whilst also continuing to act in the best interesting of the consumer. In doing so, the CBI will create a financial system that fosters trust, protects consumers’ investments and deposits and ensures insurance reserves are adequate to meet insurance liabilities.

CBI supports common Eurosystem stance for climate change-related sustainable investments in non-monetary policy portfolios

The CBI welcomes the announcement from the European Central Bank on 4 February 2021 agreeing a common stance for climate change-related sustainable and responsible investment principles for euro-denominated non-monetary policy portfolios (“NMPPs”) for Eurosystem central banks. Consistent with the existing focus on climate-related issues, the CBI fully endorses this common approach. The CBI is already working to align itself with this approach in collaboration with its Eurosystem colleagues.

Quarterly Bulletin 2021 - Recovery anticipated in second-half of 2021 picking up momentum in 2022

The CBI published the first Quarterly Bulletin of 2021. The outlook for the economy will continue to depend on the future path of COVID-19 and, in the near-term, on the measures to contain its renewed spread. Beyond that, it is assumed that economic activity will benefit from the accumulating positive impact of successful and widening deployment of vaccines. While the EU-UK Trade and Cooperation Agreement will introduce new trade frictions which will impede growth in the Irish economy, the outlook, both for exports and for overall economic activity, has improved compared to the prospects under a no-deal Brexit.

Click here to find out more.

EIOPA updates

EIOPA: Single Programming Document 2021- 2023

The European Insurance and Occupational Pensions Authority (“EIOPA”) has published an updated version of its Single Programming Document 2021-2023 (“SPD”) which includes its annual work programme for 2021. EIOPA first published the SPD, which sets out the activities EIOPA intends to undertake during 2021- 2023 to deliver on its strategic objectives, in October 2020. However, EIOPA has not stated what changes have been made to that version. It appears that the document has been updated to reflect regulatory developments that have occurred since the SPD was prepared, including:

  • The publication of the European Commission (“EC”) action plan on the Capital Markets Union in September 2020.
  • The EC’'s legislative proposals relating to digital finance adopted in September 2020, including the proposed regulation on digital operational resilience.
  • EIOPA's opinion on the 2020 Review of the Solvency II Directive published in December 2020.

Read more here.

EIOPA: 2020 Consumer Trends Report

EIOPA has published its Consumer Trends Report with a risk heat-map providing a snapshot of the impact of the COVID-19 crisis on the insurance and pension sector from a consumer protection perspective as of 30 June 2020. EIOPA noted that despite initial concerns, insurers and pension funds have maintained business continuity. Buying products, submitting claims and complaints, or seeking information have carried on broadly as normal, though in new forms as digitalisation trends have accelerated. EIOPA also reported that when consumers may have found themselves in breach of contractual obligations because of the forced changes in habits and behaviours, insurers have shown forbearance.

EIOPA: Solvency II: 2019 report on use of capital add-ons by NCAs

EIOPA has published its annual report on the use by National Competent Authorities (“NCAs”) of capital add-ons (“CAOs”) under the Solvency II Directive. The analysis in the report addresses the CAOs set during 2019 to solo undertakings and insurance groups from the 30 European Economic Area (“EEA”) countries (or members) and from the UK. In the report, EIOPA explains that all NCAs reported no changes in the internal process of setting and reviewing CAOs for solo undertakings. Most NCAs do not have formal policies in place. During 2019, nine NCAs set CAOs to 19 solo insurers and reinsurers. These include nine non-life insurers, five life insurers, four reinsurers and one composite insurer. The amount of CAOs imposed on undertakings using the standard formula remains very low overall in 2019 (that is, the relative size of the CAO is less than 0.5% of the total solvency capital requirement in total). However, it is not insignificant when considering the amount at an individual level. The objective of the CAO measure is to ensure that the regulatory capital requirements reflect the risk profile of the undertaking or of the group. Therefore, it is important that it is used by NCAs when needed and it is also important to ensure a high degree of supervisory convergence. The setting of CAOs follows the process as described in Article 37 of the Solvency II Directive. CAOs should only be considered when either other measures have failed or are unlikely to succeed or are not feasible.

EIOPA: Open insurance

EIOPA has published a discussion paper on open insurance, which focuses on access to and sharing of insurance-related data. In the discussion paper, EIOPA considers questions on whether and how far insurance value chains should be "opened" up by sharing insurance-related and specific policyholder data between insurance and non-insurance firms, to protect policyholder rights and to allow for innovation in products and services. The discussion paper covers matters including the following:

  • The definition of open insurance and open insurance use cases in the EU;
  • The potential link between open insurance and new supervisory tools;
  • The risks and benefits of open insurance;
  • Regulatory barriers; and
  • Possible areas to consider for a sound open insurance framework. These include improving the level playing field and increasing competition with the entrance of new players.

Initial analysis by EIOPA indicates that the exchange of both personal and non-personal data through (open) application programming interfaces (“APIs”) has started to emerge in the insurance sector. This can facilitate industry-wide innovation and increase the agility of businesses in responding to changes in customer needs and expectations. However, it could also give rise to new or amplified risks such as data security, cyber risks, interoperability challenges and liability, ethical and broader consumer protection issues. Increased data sharing, especially if combined with artificial intelligence or machine learning tools, could also increase financial exclusion. A key consideration for possible open insurance solutions is finding a balance between regulatory objectives related to data protection, insurance and competition, while supporting innovation, efficiency, consumer protection and financial stability. Annex I to the report sets out case studies that look at how open insurance might hypothetically work in practice in different scenarios throughout one line of business. The case studies are based on motor insurance. Comments can be made on the paper until 28 April 2021.

EIOPA: Practitioners Network on Pension Tracking Systems

EIOPA has issued a call for experts to join a Practitioners Network on Pension Tracking Systems (“Network”) to strengthen and complement EIOPA's expertise with regard to the internet-based applications that provide citizens with an overview of their future retirement income, based on their entitlements from all pension schemes in which they participate. The expertise gathered from the Network should benefit the current work of EIOPA which aims to identify best practices for the set-up of a National Pension Tracking System tool following the call for advice from the EC.

EIOPA: Brexit: MoUs with UK authorities

EIOPA and all NCAs of the EEA with competencies in insurance have agreed memoranda of understanding (“MoUs”) with the Bank of England (“BoE”) in its capacity as the Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority (“FCA”) of the United Kingdom (UK). The MoUs took effect on 1 January 2021, at the end of the transition period following the departure of the UK from the EU. The following MoUs were agreed:

  • A multilateral MoU on supervisory cooperation, enforcement and information exchange between the EEA NCAs and the UK Authorities.
  • A bilateral MoU between EIOPA and the UK Authorities on information exchange and mutual assistance in the field of insurance regulation and supervision.

Read more here

EC: Report of consultation on Solvency II 2020 review

The European Commission (“EC”) has published a summary report of its consultation, which formed part of its review of the Solvency II Directive. The consultation was held between July 2020 and October 2020. In the report, the EC summarises the feedback received, but does not set out its response to the feedback. Of the 73 participants who responded, over half represent insurers and insurance trade associations. The feedback was in response to 44 questions on the following topics:

  • Long-termism, the sustainability of insurers' activities and priorities of the European framework.
  • Proportionality of the European framework and transparency towards the public.
  • Improving trust and deepening the single market in insurance services.
  • New emerging risks and opportunities.

The EC will consider the feedback, alongside EIOPA's work on the review, when shaping the legislative proposal it plans to adopt in the third quarter of 2021. The EC has a legal mandate to review the Solvency II Directive and to make legislative proposals, where appropriate.

Read more here. 

EC: Technical advice on best practice for establishment of pension dashboards

The EC has asked EIOPA for technical advice on the development of best practice for the establishment of individual "pension tracking systems". These systems would allow individuals to see all their retirement sources in one place and should provide clear, concise and simple (but sufficiently complete) information electronically. The EC has also asked EIOPA for technical advice on establishing what it refers to as "pension dashboards". These would provide information about future pension entitlement (both state and supplementary pensions) at an aggregate (member state) level allowing the EC to assess the adequacy and sustainability of overall retirement income in any given member state. The initiatives were announced in the EC's second action plan on the Capital Markets Union. The advice is to be delivered by 1 December 2021.

Read more here.

EIOPA 10th Anniversary Conference

EIOPA’s 10th annual conference was held virtually on 4 February 2021. In his keynote speech, the Chair, Gabriel Bernardino outlined three priorities for the future: the urgency to deliver adequate and sustainable pensions; a new approach to consumer disclosures; and the need for centralised insurance supervision. The event also marked the departure of Gabriel Bernardino, who has been Chair of EIOPA for a decade.

Read more here.

UK Updates

FCA Dear CEO letter re: Business Interruption Insurance

In this Dear CEO Letter, the Financial Conduct Authority (“FCA”) sets out its expectations of insurance firms. The FCA notes that where there are further disputes that are the subject of legal proceedings, firms should consider the significant costs faced by policyholders bringing legal proceedings and should clarify any remaining areas of uncertainty. Furthermore, firms should seek to narrow the issues in dispute to ensure that the litigation can proceed in the cheapest and quickest way possible, reflecting the firm’s obligation to act fairly, honestly and professionally.

Click here to find out more.

Table of High Court and Supreme court outcomes arranged by policy type

The FCA have produced a table which is intended to help policyholders navigate the High Court and Supreme Court judgments in the BI insurance test case. The table provides a starting point to highlight the overall conclusions on coverage and certain key paragraphs of the judgments by policy type. It is not definitive or legally binding.

Read more here.

Business interruption insurance – policy checker

This FCA has published a policy checker and policyholder frequently asked questions in relation to Business Interruption Insurance. The intention is to assist policyholders who want to find out if an insurance policy covers business interruption losses caused by COVID-19, as a result of the FCA’s test case, and provide information on what can be done next. 

Read more here.

Signposting to travel insurance for consumers with medical conditions

The FCA has made changes to the Handbook to introduce new requirements to help consumers with more serious pre-existing medical conditions better navigate the travel insurance market. Firms that sell travel insurance will have to signpost consumers to a directory of specialist firms that provide this type of insurance.

Other Updates

IAIS: Draft application paper on supervision of control functions

The International Association of Insurance Supervisors (“IAIS”) is seeking feedback through public consultation on the draft application paper on Supervision of Control Functions in the insurance sector. The application paper describes practices aimed at helping supervisors address issues related to the supervision of control functions as described in the Insurance Core Principles (“ICPs”) and the Common Framework for the Supervision of Internationally Active Insurance Groups (“ComFrame”). The paper supports observance of ICP 8 (Risk management and control functions) and is relevant to ICP 5 (Suitability of persons) and ICP 7 (Corporate governance). In addition to relevant literature and other publications, the paper is largely based on the results of a survey among IAIS members of their supervisory practices, which identified challenges in the supervision of control functions and effective supervisory practices for addressing these challenges. It also takes into consideration the outcome of the most recent peer review of corporate and risk governance relative to the standards set out in ICPs 4, 5, 7 and 8. The IAIS recognises the need to investigate further challenges to the supervision of control functions identified in the survey, the peer review process and other sources, and the paper looks to address those challenges by sharing relevant good supervisory practices. It covers the following aspects of supervising control functions of insurers:

  • Role of control functions (Section 2);
  • Independence of control functions (Section 3);
  • Stature of control functions (Section 4);
  • Internal audit function (Section 5);
  • Combination of control functions (Section 6);
  • Outsourcing of control functions (Section 7); and
  • Group-wide control functions (Section 8).

The deadline for responses to the consultation is 26 March 2021. Stakeholders are asked to use the consultation tool to submit their comments. The IAIS held a public background session via webinar on 10 February 2021 to discuss the paper.

IE: Insurance Distribution Directive

Insurance Europe (“IE”) has published its response to a questionnaire by EIOPA on the application of the Insurance Distribution Directive (“IDD”). While the IDD is working well overall, improvements should be made through the review of the Directive to:

  • Address flawed rules that result in consumers being overloaded with information; and
  • Create a legislative framework that is fit for the digital age and that allows consumers to benefit from increasing online sales.

IE: Why ESAs' proposed changes to PRIIPs RTS won’t work

IE has issued a paper outlining the reasons why changes proposed by the European Supervisory Authorities (“ESAs”) to the regulatory technical standards (“RTS”) of the Packaged Retail and Insurance based Investment Products (“PRIIPs”) Regulation will not work or deliver benefits for consumers. The ESAs and the EC are currently considering whether to reintroduce proposed changes to the PRIIPs RTS that were rejected by EIOPA's board of supervisors in July.

IE: Response to the EC consultation on the review of the ELTIF

IE has published its response to a consultation conducted by the EC on the review of the European Long-Term Investment Funds (“ELTIF”) regulatory framework. It welcomes a revision of the ELTIF framework that has the objective of making these investments more attractive for long-term institutional investors, such as insurers. The industry encourages the EC to make refinements to the framework to remove restrictions that prevent any significant interest from insurers.

IE: EC inception impact assessment on a single EU access point for company information

IE has published its comments on an inception impact assessment conducted by the EC on its plans to establish a European Single Access Point (“ESAP”) for financial and non-financial information disclosed by companies. IE welcomes the Commission’s ESAP initiative but warns that care should be taken to ensure that any wider scope beyond ESG data does not slow down the availability of ESG data within the ESAP. Data requirements for the ESAP must also be fully aligned with the regulatory requirements set by the Sustainable Finance Disclosure Regulation (“SFDR”), Taxonomy Regulation and the Non-Financial Reporting Directive (“NFRD”). The ESAP could also help to minimise related costs for participants, as they would no longer be forced to rely on third-party providers for ESG data. In addition, it can help to improve transparency about ESG data and enhance the comparability and reliability of research and ratings.

Business Interruption Insurance judgment in FBD Insurance test case

The Irish Commercial Court delivered its judgment in four test cases taken by publicans against FBD Insurance. The publicans initiated the proceedings after FBD Insurance informed them that the losses they had experienced as a result of COVID-19 were not covered by their business interruption (“BI”) insurance. The dispute centred on a clause in the BI insurance policies. Mr Justice Denis McDonald’s ruling was that the publicans’ BI policies cover losses caused by COVID-19.

Read more here.

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.