1. EUROPEAN INSURANCE AND OCCUPATIONAL PENSIONS AUTHORITY (EIOPA)

1.1 EIOPA publishes Consumer Trends Report 2022

On 11 January 2023, the European Insurance and Occupational Pensions Authority (EIOPA) published its Consumer Trends Report 2022 (Report). The Report examines the financial health of consumers and small businesses through their use of insurance and pension savings products.

The Report's key conclusions include:

  • As of June 2022, access to insurance and pensions products remained low.
  • Current disruptions are having a direct impact on consumers' and SMEs' financial health with the macro-economic environment affecting both negatively, while some opportunities are offered by digitalisation.
  • Adequate and consumer-centric product design and distribution processes can significantly contribute to consumers' financial health.
  • Ensuring sustainability claims are substantiated to avoid loss of trust and broader societal impact is important to contribute to consumers' and society's financial health.
  • The increase in systemic events has led to an increase in un-insurable risks and/or risks which can only be insured at high prices impacting consumers' and SMEs' financial health. Lack of clarity in terms and conditions leads to further consumer detriment when systemic events materialise.

The Report can be accessed here.

1.2 EIOPA publishes Supervisory Convergence Plan for 2023

On 1 February 2023, EIOPA published its Supervisory Convergence Plan for 2023, in line with its mandate to foster a common supervisory culture and build consistent supervisory practices within the EU (Plan).

In its Plan, EIOPA identifies the following three priorities to enhance supervisory convergence:

  • The implementation of the common supervisory culture and the development of supervisory convergence tools by working on the risk assessment framework and its supervisory approach to sustainability risks, amongst other actions.
  • Alleviating risks to the internal market by continuing to focus on supervisory convergence, for example by promoting benchmark studies on internal models and addressing lack of convergence in the way national competent authorities (NCAs) treat reinsurance undertakings with the head office in third countries.
  • The supervision of emerging risks, including IT security, cyber and governance-related risks, cyber underwriting, digital transformation, and digital business model analysis.

The Plan can be accessed here.

1.3 EIOPA publishes Supervisory Statement on the use of governance arrangements in third countries

On 2 February 2023, EIOPA published a Supervisory Statement on the use of governance arrangements in third countries (Supervisory Statement).

The aim of the Supervisory Statement is to ensure appropriate supervision and monitoring of the compliance of insurance undertakings and intermediaries with the requirements of the relevant EU legislation in relation to their governance arrangements in third countries.

EIOPA has reiterated that EU-based undertakings or intermediaries should not resemble empty-shell companies that do not have an appropriate level of corporate substance within the EU. EIOPA notes that such governance arrangements may lead to poor risk management, ineffective decision-making and pose operational, reputational, and financial risks which ultimately impair policyholder protection.

EIOPA is of the opinion that the purpose of an undertaking or an intermediary should be primarily to serve the market in which it is established and any operation of third country branches should not materially impair the system of governance, increase operational risk or undermine policyholder protection. Furthermore, regulated functions or activities should not be structured or conducted in such a way so as to impair the ability of supervisory authorities to monitor the compliance of the undertaking or intermediary with its legal and regulatory obligations.

EIOPA and the Central Bank of Ireland (Central Bank) will closely monitor market developments regarding the use of third country governance arrangements following the publication of the Supervisory Statement.

The Supervisory Statement can be accessed here.

1.4 EIOPA publishes report on the implementation of climate-related adaptation measures in non-life underwriting practices

On 6 February 2023, EIOPA published a report on the implementation of climate-related adaptation measures in non-life underwriting practices (Report).

The Report follows completion of a pilot exercise on impact underwriting conducted by EIOPA in 2022. The Report provides an overview of the main findings of the pilot exercise regarding current underwriting practices and challenges mentioned by the participating insurance undertakings.

The pilot exercise particularly aims to better understand the industry's current underwriting practices regarding climate change adaptation and to assess their prudential treatment under Solvency II, against the backdrop of expected rises in climate related insurance claims. The Report considered whether the prudential framework introduces any obstacles potentially hindering the incorporation of adaptation measures in insurance products.

The Report concludes that the EU insurance market is at an "early stage" regarding non-life insurance products implementing climate-related adaptation measures, particularly in the context of the retail insurance business. This is due to a variety of challenges the industry faces regarding the implementation of adaptation measures. For example, the lack of awareness of climate change and related adaptation measures by policyholders is naturally limiting the market demand for corresponding insurance products.

EIOPA notes that it will continue its work on impact underwriting to foster climate change adaptation in non-life insurance in the EU, and will contribute with its work programme for 2023 to help overcoming some of the challenges arising from the pilot exercise.

The Report can be accessed here.

1.5 EIOPA publishes Supervisory Statement on differential pricing practices in non-life insurance lines of business

On 16 March 2023, EIOPA published a supervisory statement, addressed to NCAs, setting out its expectations regarding differential pricing practices in non-life insurance lines of business (Supervisory Statement).

Differential pricing practices occur when customers with a similar underwriting risk and cost of service are charged different premiums for the same insurance product.

EIOPA, in publishing the Supervisory Statement, aims to clarify supervisory expectations with regards to the existing requirements in the Insurance Distribution Directive ((EU) 2016/97) (IDD) legislative framework and promote a convergent approach amongst NCAs in the supervision of Product Oversight and Governance (POG) and fair treatment of customers and disclosure requirements, with a view to preventing unfair differential pricing practices that lead to customer detriment.

The Supervisory Statement can be accessed here.

1.6 EIOPA publishes Staff Paper on nature-related risks and impacts for insurance

On 29 March 2023, EIOPA published a Staff Paper on nature-related risks and impacts for insurance (Staff Paper).

The Staff Paper explores how nature-related risks can affect (re)insurers and examines ways in which the insurance sector can meaningfully contribute to the conservation and restoration of nature through investments and underwriting activity.

The Staff Paper forms part of EIOPA's sustainable finance strategy, which aims to establish supervisory expectations for the management of nature-related risks and their potential impacts on the insurance sector.

The Staff Paper can be accessed here.

Click here to continue reading . . .

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.