On 7 March 2024, the Central Bank of Ireland (Central Bank) published its consultation paper (CP 158) on the revised draft Consumer Protection Code (Revised Code) and connected areas.
Given the cross-sectoral nature of much of the Revised Code, readers are addressed to William Fry's broader overview of the regime changes prepared by our Financial Regulation Unit here.
In Part 1 of our article, we dealt with some themes affecting the insurance industry. In this Part 2, we elaborate in more detail on areas for importance for (re)insurers and intermediaries.
Insurance and Reinsurance
For those in the insurance sector, there is extensive reading on getting on top of the new regime. This will include regard to the cross-sectoral dimensions that must be complied with by all financial services firms as well as the specific pieces under the Revised Code, including the Business Standards, applicable to insurers (and, in some cases, reinsurers) and intermediaries. The assessments, gap analyses and related adjustments will need to be done between now and 2025/2026.
Business Standards – 'securing customers' interests' and 'acting in the best interests of customers' for (re)insurers and intermediaries – B2B and B2C consequences
- As referenced in Part 1 of this article, the 'best
interests of customers' obligation, a bedrock of the existing
Consumer Protection Code, is to be retained, but the obligation on
firms will now be found in the Business Standards. A distinction
will then be drawn in cases where firms deal with
'customers' who are or are not also 'consumers.'
- Where dealing with 'consumers' is concerned, firms will now have both the existing 'acting in the best interests' obligation and, in addition, a separate Standard for Business of always 'securing customers' interests'. It looks very similar to the UK's recent adoption of the 'consumer duty' obligation. It is a material change and means therefore, for those conducting consumer business, that likely outcomes for customers must always be carefully assessed.
- Note that this 'appropriate outcomes' obligation in the Standards for Business is not applied to B2B. That is assuming a firm does not transact with consumers. However, importantly, all the rest of the Standards for Business will apply, i.e. regardless of whether a (re)insurer or intermediary is B2B or B2C.
- Insurance industry participants will need to determine whether they are counterparties to activities with 'consumers' as well as 'customers'. Under the new Business Standards, the definition of 'consumer' is updated to include more small businesses that transact with financial services firms. This is done by increasing the annual turnover threshold of incorporated bodies from €3m to €5m.
- When dealing with a B2B or B2C customer, the new Business Standards will mean that firms must always 'act in the interests of customers and treat them fairly and professionally'. What this means for B2B will be especially interesting to see as the area evolves.
- For 'consumers' it gets bolstered by the provision in the Standards for Business of also 'securing customers' interests'. The new Supporting Standards for Business describe and provide further context, by way of a non-exhaustive list, of what positive actions the Central Bank expects regulated firms to take to achieve positive outcomes for customers. This will be another interesting area to watch for the insurance industry.
- The new guidance accompanying the Revised Code and the Business Standards articulates how regulated firms can implement the obligations into their conduct, culture, strategy, business model and decision making. It uses examples under headings such as digital delivery, use of incentives in product design, appropriate target markets and delivery channels, avoiding greenwashing and others. The exercise of proportionality in the discharge of the obligations is described.
General Requirements – non-life / life business
Beyond the Business Standards, the insurance sector requirements outlined in Part 4 of the proposed General Requirements will repeat many existing features of the current Consumer Protection Code. This will include, with minor updates, areas such as the giving information identifying a regulated party connected to the financial product, the obligation to provide receipts, premium handling and client premium accounts requirements.
A new section on differential pricing and automatic renewals incorporates separate requirements introduced in this area in 2022. New provisions also include requiring regulated firms to provide customers with clear definitions and details when providing quotations on certain insurance products identified in the General Requirements. That includes, for example, products relating to permanent health insurance or serious or critical illness insurance.
Some other more noteworthy points specifically for insurance firms under Part 4 are as follows:
- Auto-renewals: Under the existing Consumer Protection Code, auto-renewal is the default position for insurance contracts including home, motor, health, travel, dental, pet and gadget insurance. Under the Revised Code, this default position will continue for home, motor and health insurance policies, which will continue to renew automatically from year to year, and customers can choose to opt out of automatic renewal at any time. However, the Revised Code proposes that for travel, dental, pet and gadget insurance, the new default for these policies will be not to auto-renew and the consumer will have to expressly consent.
- Warranties and endorsements on policies: These must be included now in sufficient clarity, e.g. in the insurance quotation in the same font size as all other details provided.
- Pre-contract / renewals: The consumer must be informed of the premium quotation details in the written pre-contract quotation and the renewal notification. This includes explaining any difference in cost between paying the premium in lump sum or instalments.
- Quotes via digital means: Where an insurance quote is provided to a consumer on a digital platform or website, the insurance undertaking or intermediary cannot follow up with the consumer to discuss the quote unless the customer has provided explicit consent.
- Insurance switching: The current minimum renewal notice period for non-life insurance contracts is 20 working days. If implemented as currently drafted, the Revised Code will require insurers to issue an additional 'pre-renewal' notification to consumers a further 20 working days prior to the issuance of the standard 20 working days (i.e. 40 days minimum now in aggregate, it appears).
- Queries: An insurance firm must be available to discuss aspects of a claim with a claimant during normal working hours, which are proposed to be defined as 09.00 – 17.00. The ability to agree hours outside of normal working hours is proposed to be removed.
- Claim settlements: The introduction of a non-exhaustive list of factors to be considered to ensure that a claim settlement offer is the best estimate.
- Appeals: A new obligation on insurance undertakings to publish details of appeals mechanisms on their websites.
- Life business: Again, the regime is being updated here, but for certain types of life business, there is a recognition under the General Requirements and the Revised Code that there might end up being overlaps with other regulations. Items will be disapplied to avoid duplication, for example, in pre-contractual or other policyholder information that must be shared. Elements already catered for relating to IBIPS and PRIIPS may thus fall outside scope.
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.
