On 26 April 2022, the Central Bank of Ireland (the “CBI”) published its March 2022 insurance newsletter (here) highlighting recent regulatory developments and the CBI’s expectations in respect of same.

Key Developments and CBI Expectations

Sanctions in respect of the Conflict in Ukraine

The CBI confirms that it expects all (re)insurers (“Undertakings”) to have undertaken at least a preliminary assessment of their direct and indirect exposures to Russia, Ukraine and Belarus1. The CBI also highlights cyber risks and economic and financial market implications resulting from the conflict in Ukraine.

In respect of cyber risk, the CBI expects Undertakings to:

  • have measures in place to detect, defend, recover, protect and ensure continuity of their operations; and
  • assess their exposure to cyber risks and keep a watching brief for advisories from the National Cyber Security Centre.

In respect of economic and financial market implications, the CBI expects Undertakings to ensure that they have up-to-date data available to facilitate the monitoring of key financial metrics and a responsive own risk and solvency assessment (“ORSA”) process.

The CBI is concerned that an Undertaking’s own potential claims exposure in current circumstances may be “much higher than a historical technical provisions figure suggests”. The CBI also notes that all Undertakings will potentially face the secondary effects of the conflict on economic and financial market conditions, both in Ireland and globally. The key message from the CBI is that Undertakings should engage in a timely manner with their relevant CBI supervisor if matters of concern arise or potential risks look likely to crystallise.

Digitalisation Risks

The CBI expects Undertakings to give appropriate consideration to assessment of digitalisation risks within their risk management frameworks and the ORSA. The CBI expects that Undertakings have strong governance structures in place to monitor and respond to potential risks that may arise as a result of the adoption of new technologies within an Undertaking’s business model.

Undertakings should note that the CBI plans to issue a digitalisation survey in the second half of the year to a sample of Undertakings. The ongoing focus on digitalisation risk is evident in recent communications from the CBI (including, cross industry guidance on outsourcing here and operational resilience here) which Undertakings should also have regard to. The regulatory focus on digitalisation will continue into 2022 (and beyond) with the finalisation of the European Digital Operational Resilience Act (“DORA”) which aims to consolidate and upgrade information communication technologies (“ICT”) risk requirements throughout the financial sector (including the (re)insurance sector).

Review - Use of Exempt Ancillary Insurance Intermediaries in the Insurance Sector

The CBI recently completed a review of the use of exempt ancillary insurance intermediaries (“EAIIs”) in the insurance sector. The CBI’s review focused on the extent to which EAIIs are used to distribute insurance products in the Irish market and the level of oversight that EAIIs are subject to.

The CBI identified a number of areas that should be addressed by Undertakings to improve their oversight of EAIIs. The key areas for improvement related to (a) remuneration arrangements between Undertakings and EAIIs, (b) recording of reasons for cancellation of policies and (c) inadequate procedures.

The focus on EAIIs reflects the CBI view that the sale of insurance products on an ancillary basis poses a potential risk to consumers (as consumers are typically more focussed on the purchase of the primary product and less on the ancillary insurance product). Undertakings should address the areas for improvement identified by the CBI and expect follow-up on same in their supervisory engagements.

CBI Insurance Regulations and related Guidance

On 15 March 2022, the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Insurance Requirements) Regulations 2022 (the “Regulations”) were published here. The CBI also published a related feedback statement here and Q&A here and here.

The Regulations will apply to insurance undertakings and insurance intermediaries. The key aspects of the Regulations are (a) a ban on price walking2 in respect of all home and motor insurance policies and renewals sold to consumers and concluded after 1 July 2022, (b) a requirement that insurance undertakings and insurance intermediaries carry out an annual review of motor and home insurance pricing policies and (c) a requirement to provide specific information and reminders to a consumer in the case of automatic renewals.

The Regulations will apply from 1 July 2022. Undertakings will have anticipated this application date which was flagged in advance by the CBI in its public consultation on this matter. Undertakings should also note that the Insurance (Miscellaneous Provisions) Bill (the “Bill”) is currently progressing through the Oireachtas. The Bill will require the CBI to provide a report to the Minister for Finance on (a) any steps it takes to address the practice of price walking, (b) the CBI’s views in relation to oversight of pricing practices and (c) the CBI’s views on whether further legislation or regulatory action is required. Our briefing here provides further detail on the Bill.

Requirement to maintain Up-to-Date Customer Records

The CBI notes that Undertakings must comply with Section 11.5(b) of the Consumer Protection Code 2012 which requires regulated firms to maintain up-to-date records of a consumer’s contact details. The CBI states that following a number of engagements with life insurance undertakings, deficiencies were identified in this area. The CBI highlights good practices Undertakings may put in place to alleviate these deficiencies, including, (a) engaging the host mailing service provided by the Department of Social Protection, (b) engaging in media campaigns and (c) employing tracing services agencies.

The CBI expects Undertakings to have appropriate policies and procedures in place to trace uncontactable policyholders from when consumers are first identified as being uncontactable, until such time as they become subject to the requirements of the Unclaimed Life Assurance Policies Act 2003.

Use of Service Companies in the Insurance Sector

On 31 January 2022, the CBI published its Guidance on the Use of Service Companies for Staffing Purposes in the Insurance Sector (the “Guidance”) here. The Guidance addresses the practice whereby Undertakings are seeking to enter, or have entered, into arrangements for the use of separate legal entities for the provision of extensive staffing to the Undertaking (“Staffing Arrangements”). The Guidance sets out requirements under two headings - governance arrangements and reporting requirements.

The Guidance reflects the CBI’s concern that Staffing Arrangements, if not effectively managed, may threaten the operational resilience of Undertakings. Undertakings should note the CBI highlights that other regulatory obligations will also apply in respect of Staffing Arrangements, for example, general governance, fitness and probity, and risk management requirements. The CBI emphasises that it is the responsibility of each Undertaking to identify the obligations that apply to it, taking account of the nature and specificity of an Undertaking’s activities and its organisational and operational structures.

The CBI expects Undertakings to have conducted a review and ensure systems and processes are aligned with the Guidance, where appropriate, within 12 months of implementation of the Guidance, ie, by 31 January 2023. This review poses an opportunity for Undertakings to carry out a comprehensive alignment exercise, not only against the Guidance, but also against other applicable regulatory requirements.

Other Regulatory Developments

In other regulatory developments, the Department of Finance (the “Department”) issued its ‘Public Consultation on the Development of a National Resolution Framework for (re)Insurers Feedback Statement’ (here). The feedback statement notes that since the publication of the Department’s consultation in September 2021, the European Commission has issued a proposal for an insurance recovery and resolution directive3. As such, the Department now intends to focus its efforts on influencing the development of the European resolution framework, rather than develop a ‘standalone’ domestic resolution framework.

Undertakings should also note that the integration of sustainability and ESG considerations into the insurance sector, through amendments to the IDD4 and Solvency II5 (which came into force in August 2021), will apply from August 2022.

Comment and Next Steps

Undertakings should review and assess the CBI’s expectations, as highlighted above, with a view to ensuring compliance with same.

In addition, where relevant, Undertakings should take note and work towards the application dates of:

  • 1 July 2022 - in respect of the Regulations relating to price walking;
  • 2 August 2022 - in respect of the integration of sustainability and ESG considerations into processes and systems; and
  • 31 January 2023 - in respect of the implementation of the Guidance on Staffing Arrangements.