On 12 November 2020, Domhnall Cullinan, the Central Bank of Ireland's (CBI) Director of Insurance Supervision, gave the opening remarks at the CBI's 2020 Insurance Industry Briefing (Industry Briefing).
Mr Cullinan's speech focused on (i) the role of insurance in the Irish economy; (ii) the CBI's perspective on why the insurance industry is negatively perceived in Ireland; and (iii) areas of future supervisory focus by the CBI. We look at item (iii) in more detail below. Mr Cullinan also reminded firms of the urgent need to finalise their Brexit preparations and be ready to implement appropriate contingency plans before the end of the UK's transition period at 11 p.m. on 31 December 2020.
The Industry Briefing, which followed Mr Cullinan's opening remarks, included a highly informative panel discussion on the impact of climate change risk and how the insurance industry can build on its existing efforts to better prepare for the impact of this risk. Panellists included the Director General of Ireland's Environmental Protection Agency, and representatives from industry, EIOPA and the CBI.
Future Areas of supervisory focus for the CBI
Mr Cullinan highlighted three key future areas of supervisory focus for the insurance industry:
- cultural change;
- disruptive change for firms; and
- financial and operational resilience of firms.
The CBI believes cultural change, combined with greater transparency and individual accountability within firms, will be key to rebuilding consumer trust in the insurance industry.
In 2021, the CBI's work will focus on introducing a cross sectoral Senior Executive Accountability Regime (SEAR); developing a Behavioural and Cultural Framework; and building on the CBI's 2019 Thematic Assessment of Diversity and Inclusion in the industry.
SEAR, which is part of the CBI's wider focus on fitness and probity (see our briefing on the CBIs "Dear CEO Letter" on the Fitness and Probity Regime here), is currently at an advance stage of drafting.
Mr Cullinan noted that the CBI are mindful of the effects of broader future trends on the insurance industry; the growth of cyber risk, changes in technology and shifting demographics and their capacity to disrupt the insurance industry. Several specific future risks were highlighted, including the potential impact of:
- Sláintecare on the Private health insurance industry;
- auto enrolment on the unit-linked pension industry; and
- climate change and the move towards a lower carbon economy on the stability of the financial system.
Mr Cullinan outlined the CBI's actions in relation to climate change, including, the recent issuance of its Climate & Emerging Risk Survey which sought to (i) capture the level of awareness of firms regarding climate change risks; (ii) identify firms exposure to these risks; and (iii) collate possible actions to mitigate the risks. The CBI's feedback on the survey is expected in early 2021.
The CBI called on all firms to take further action on climate change and focus on developing technical capabilities for assessing the impact of climate change on their business model. Systems, processes and controls should reflect the integration of such risks within risk management frameworks (including the ORSA). The assessment of climate change risks must have a longer-term focus and should include input from across the entirety of a firm's organisation (including at Board level). While some firms have begun to consider the implications of climate change for their investment and underwriting activities, the CBI considers more work is required.
Financial and Operational Resilience
Firms must ensure they remain financially and operationally resilient and the CBI expects firms' financial and risk management standards to focus on:
- the ORSA as a fundamental part of every firm's business planning and decision-making process (with greater engagement by Boards on the ORSA).
- enhancing stress and scenario testing within the ORSA including greater focus on group dependencies as a result of inter-group lending, parental support and/or intra-group reinsurance.
- assessing technical provisions to ensure they are set at an appropriate level.
In early 2021, the CBI proposes implementing new regulations to require all (re)insurers to prepare and maintain pre-emptive recovery plans. Our submission on the CBI's related Consultation Paper 131 is available here.
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