Ireland: Insurance Regulatory Update - March 2014

Last Updated: 7 April 2014
Article by Elizabeth Bothwell and Jennifer McCarthy

CENTRAL BANK PUBLISHES SUMMARY REPORT OF PAYMENT PROTECTION REVIEW

On 7 March 2014, the Central Bank published a Summary Report in respect of a review of payment protection insurance (PPI) together with a Q&A for Consumers on PPI and information on the review undertaken. Inspections by the Central Bank in 2011 raised concerns that 11 credit institutions had not complied with the Consumer Protection Code (the CPC) during the PPI sales process. The purpose of the review was to identify where the CPC had not been complied with in respect of the sale of PPI (or where the credit institution could not demonstrate such compliance).

An independent third party was engaged to oversee each of the reviews in the 11 credit institutions. The results of the review indicated that 22% of the PPI sales reviewed were not proved to be in compliance with the CPC. This resulted in €67.4 million (including interest of €4.9 million) being identified for refund to approximately 77,000 policyholders who were sold PPI since 1 July 2007.

A link to the summary report is here.

CENTRAL BANK CONSULTS ON ITS HANDLING OF PROTECTED DISCLOSURES

On 19 March 2014, the Central Bank published a consultation paper (CP79) on its Handling of Protected Disclosures following on from the enactment of the Central Bank (Supervision and Enforcement) Act 2013 (the Act). The Act provides for individual "whistleblowers" to report alleged breaches of financial services legislation to the Central Bank. The Act also places a positive obligation on certain persons occupying pre-approval controlled function roles within regulated financial service providers to report on any contraventions of the Act. Such reports are referred to as "protected disclosures" in the Act.

The purpose of CP79 is to seek views in relation to the policies and procedures which the Central Bank intends to put in place regarding the receipt and handling of protected disclosures. CP79 proposes establishing a central "Whistleblower Desk" to deal with protected disclosures which will include a dedicated email and telephone line. The desk will serve as the primary point of contact for whistleblowers wishing to make a disclosure. The Central Bank will record all calls to this line. Protection will be offered to those who make a disclosure. Whilst the Central Bank will accept anonymous disclosures, it encourages any person who makes a report to provide their name and contact details. The Central Bank does not intend to inform whistleblowers of what action, if any, has been taken as a result of their disclosure to protect the rights of all parties involved in line with statutory requirements. The closing date for submissions is 19 June 2014.

A link to the Consultation Paper is here.

INSURANCE IRELAND AND THE OPW SIGN MEMORANDUM OF UNDERSTANDING ON FLOOD DEFENCE DATA

On 24 March 2014, Insurance Ireland and the Office of Public Works (OPW) announced the details of their Memorandum of Understanding (MOU) on the exchange of information on flood defence works. The MOU outlines the principles of agreement between these two bodies regarding how information on how flood defence works would be provided and used by the insurance industry from 1 June 2014. Kevin Thompson, CEO of Insurance Europe, stated that the MOU is the start of a process which will help insurers make flood insurance more widely available in areas benefitting from flood defences built to the desired standard of 1:100 years. The sharing of information between the OPW and insurers will allow insurers to take this data into account when assessing flood risk. The announcement of signing the MOU follows on from Insurance Ireland's "surprise and disappointment" in relation to a government proposal to introduce a levy on non-life insurance policies to create a distress fund to help the Irish consumers who cannot buy flood insurance cover. The additional levy on home, motor and other policies would bring total levies on non-life insurance products to 6%.

IN EUROPEAN AND INTERNATIONAL NEWS...

UK FCA TO INVESTIGATE FAIR TREAMENT OF CUSTOMERS IN CLOSED LIFE INSURANCE FUNDS

The Financial Conduct Authority (FCA) has announced its intention to investigate the treatment of long standing customers in closed funds of UK life insurers. The regulator has stressed that its probe is "discovery work" which means it has not found problems yet. However, it is concerned that insurers may have taken advantage of long standing customers (some of whose investments date back to the 1970s) by imposing high charges and inflexible contracts on old products. The FCA estimates that thirty million policies may be involved including personal pensions, endowments and whole-of-life policies. It will also look at information given to customers, service levels and whether the investment is still appropriate to a particular customer's circumstances. This review, which was widely reported in the media on 28 March last, is part of the FCA's 2014 Business Plan, where it states that it will focus much more regulatory attention on the treatment of customers in the area of life insurance generally.

A link to the FCA statement is here.

UK FCA TACKLES "ADD-ON" INSURANCE INDUSTRY

On 11 March 2014, the UK FCA published the result of its first market study into general insurance "add-on" products.

The FCA announced that it was undertaking a market investigation in July 2013 after previous work highlighted consumer concerns in relation to whether add-ons represented value for money and a general lack of understanding as to what add-on insurance policies covered. The focus of the study was on the state of competition in the market focusing on five distinct add-on markets namely: (1) travel; (2) gadget; (3) Guaranteed Asset Protection (GAP); (4) Home Emergency; and (5) Personal Accident Cover. The FCA analysed a range of information about firms, intermediaries and consumers in these five distinct markets.

The study concluded that there is a lack of competition in these five markets for general insurance add-ons and this can lead to poor customer outcomes. The FCA stated that there is a "clear" case for intervention and proposed a number of remedies including the prevention of the sale of GAP as an add-on at the same time as the sale of the primary product banning pre-ticked boxes for the sale of add-ons and a requirement that firms publish claims ratios. The Association of British Insurers (ABI) has criticised the methodology used by the FCA and disagreed with the FCA's conclusions. The ABI did however welcome the renewed focus on price comparison websites in providing consumers with good information about the add-ons offered.

Interested parties have until 8 April 2014 to submit comments on the FCA's provisional findings and proposed remedies. The FCA aims to publish its consultation on remedies before end of 2014.

A link to the study is here.

EUROPEAN PARLIAMENT ADOPTS OMNIBUS II

On 11 March 2014, the European Parliament adopted the Omnibus II Directive. The text adopted by Parliament was published on 18 March. The European Council must now formally adopt Omnibus II which will enter into force after publication in the Official Journal. When it voted on 11 March 2014, the Parliament adopted the "trilogue text" of Omnibus II, agreed on 13 November 2013 (the features of which were reported in the November 2013 bulletin).

In the January bulletin, we also reported on the Central Bank's publication of "key dates" for the implementation of Solvency II. The decision of Parliament on Omnibus II demonstrates the Solvency II implementation date of 1 January 2016 is on track. The next step is the Commission's adoption of the Delegated Acts, which will set a large number of the detailed implementing rules for Solvency II, scheduled for summer 2014.

A link to the Commission's press release is here.

INSURANCE EUROPE – "DRAFT SOLVENCY II DELEGATED ACTS DILUTE THE AIMS OF EU LEGISLATORS"

Insurance Europe has issued a press release in response to the Parliament's approval of the Omnibus II Directive. Insurance Europe welcomed the adoption of Omnibus II as an important step towards implementing Solvency II. However, it raised concerns with the current draft Commission Delegated Acts. Insurance Europe believes the (as yet unpublished) Delegated Acts that are currently being drafted are inconsistent with the intention of the law-makers of Solvency II. In the press release, Insurance Europe highlighted eight priority areas of concern with the current draft of the Delegated Acts, including (1) the method for setting the level of the credit risk adjustment; (2) the manner in which the volatility adjustment is applied to portfolios; and (3) the level of the risk charges for long term investments. However, Insurance Europe emphasised that workable solutions exist without delaying the implementation date for Solvency II.

A link to the relevant press release is here.

EBA, ESMA AND EIOPA PUBLISH JOINT CONSULTATION PAPER ON SUPERVISORY PRACTICES FOR FINANCIAL CONGLOMORATES

On 12 March 2014, the EBA, ESMA and EIOPA published a joint consultation paper in respect of the draft Guidelines on the convergence of supervisory practices relating to the consistency of supervisory coordination arrangements for financial conglomerates. The guidelines are addressed to competent authorities as defined by the Financial Conglomerates Directive. Financial conglomerates are subject to additional supervision to that of banking or insurance groups in order to address two main concerns, firstly double gearing of capital and secondly, to allow for better monitoring of complex group risks. The purpose of the draft Guidelines is to ensure a greater level of consistency and cooperation on a cross-border and crosssectoral basis between the competent authorities throughout the EU for such financial conglomerates. The public consultation will run until 12 June 2014. The draft Guidelines cover the activities where close co-operation is needed in order to achieve the objectives of supplementary supervision.

The draft Guidelines cover the following areas: (1) mapping the conglomerate structure and written agreements; (2) coordination of information exchange in going concern and emergency situations; (3) supervisory assessment of financial conglomerates; (4) supervisory planning and coordination of supervisory activities in going concern and emergency situations; and (5) other decision making processes among the competent authorities.

A link to the Consultation Paper is here.

EIOPA UPDATES Q&A ON SOLVENCY II GUIDELINES

During March, EIOPA updated its Questions and Answers template on the Guidelines for preparation for Solvency II. Again, a number of answers have been provided to questions raised in relation to the Submission of Information to National Competent Authorities, particularly addressing confusion around the information to be provided in certain cells of the template documents. In addition, a new set of Questions and Answers has been published on the Forward Looking Assessment of Own Risks (FLAOR). The two questions raised so far focus on national guideline commentary and FLAOR reporting.

A link to the Questions and Answers is here.

EIOPA PUBLISHES "ONE MINUTE GUIDE" TO COMPLAINTS HANDLING BY INSURANCE INTERMEDIARIES

In late November, EIOPA published Guidelines on Complaints Handling by Insurance Intermediaries, attaching a report on Best Practice in the area. The Guidelines were addressed to the national authorities responsible for supervising complaints handling by insurance intermediaries. This new Guide is intended as an illustrative guide only for insurance intermediaries to understand what the Guidelines mean for them.

The particular focus of the Guide is to ensure a proportionate approach is taken towards compliance by smaller insurance intermediaries, and in particular sole traders. The Guide sets out EIOPA's view on a number of elements of the Guidelines including what a complaint management policy is and how a complaints management function should be implemented.

The Guide also explains EIOPA's view of how intermediaries should register complaints and how intermediaries should report to national competent authorities/national ombudsmen on complaints. The Guide also explains EIOPA's expectation regarding the information that should be provided to complainants and the nature and provision of that information and also, how intermediaries should follow up on internal complaints from a process perspective.

ENGLISH AND SCOTTISH LAW COMMISSIONS (THE LAW COMMISSIONS) CONDUCT FURTHER LIMITED CONSULTATION ON DRAFT CLAUSES FOR INSURANCE CONTRACTS BILL

In the February bulletin, it was noted that the Law Commissions were carrying out a limited public consultation on the initial draft clauses for the proposed Insurance Contracts Bill. This four week public consultation ended on 21 February 2014. On foot of this, the Law Commissions carried out an additional limited consultation on further draft clauses: (1) warranties; (2) insurers' remedies for fraudulent claims by members of group insurance schemes; and (3) contracting out. This second consultation closed on 21 March 2014.

The draft warranties clause has the effect of abolishing 'basis of contract' clauses in non-consumer contracts meaning that it will no longer be possible to convert all representations by a proposed insured during the placement process into warranties and in order to be effective parties must agree warranties in relation to particular matters. Furthermore, it is proposed that the existing rule that breach of warranty discharges an insurer's liability will be abolished and a new remedy suspending liability for breach of warranty is proposed for both express and implied warranties. The draft clauses on group insurance schemes provide that where a fraudulent claim is made by a group member there are only consequences for that group member rather than the group as a whole. The draft contracting out clauses propose that the default provisions embodied in the draft Bill will be mandatory for consumer contracts. In the case of non-consumer contracts it is proposed that non-consumers can contract out of the reforms and substitute their agreed terms, subject to the insurer complying with the transparency requirements proposed in the draft clauses. In addition, there are two exceptions which will continue to be mandatory for non-consumer contracts and which cannot be contracted out of namely, the rule prohibiting basis of contract clauses and any provision whereby an insurer attempts to contract out of liability for a deliberate or reckless breach of the implied term to pay insurance monies within a reasonable time period. A draft bill is expected by Summer 2014.

A link to the consultation is here.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.

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