Wednesday, 16 October 2019

EIOPA identifies consumer protection issues in travel insurance and issues a warning to the travel insurance industry

The European Insurance and Occupational Pensions Authority (EIOPA) published  its  Thematic Review on Consumer Protection Issues in Travel Insurance.
With economic recovery, in the aftermath of the financial crisis, coupled with decreasing travel costs, travellers' numbers have been growing each year. This has led to growth in the travel insurance market.
Travel insurance is mostly a 'small-ticket' business, but it can be critical for consumers, since the impact of insufficient cover or denied claims – in particular for medical expenses while travelling – can be extensive at the individual level. It has been already in the spotlight of supervisors in some European countries given the specific conduct risks it entails, related to conflicts of interest arising from mis-aligned incentives in distribution channels, consumer behaviour issues arising in so-called 'add-on' markets, and consequential risks of poor value at the level of the product offer.
Furthermore, stakeholders highlighted in their dialogue with EIOPA issues around coverage, denied claims, unclear and conflicting terms and condition similar to the input gathered by EIOPA in the context of consumer trends reporting.
The travel insurance sector is facing important changes with new opportunities but at the same time with heightening existing problems and new risks. Insurance undertakings have been integrating new technologies into their business models leading to changes across the entire value chain, while new kinds of distributors have entered the market. Particular concerns arise with regard to rising commissions, the exploitation of behavioural biases when selling online travel insurance policies, and the potential erosion of product value and features.
To understand better travel insurance products, to identify sources potential of conduct risk and consumer detriment and to take possibly required relevant supervisory actions, EIOPA launched this Thematic Review. EIOPA issued a questionnaire to 201 insurance undertakings operating in 29 European countries to collect evidence. The national competent authorities (NCAs) distributed the questionnaire to undertakings representing approximately 60% of the total gross written premiums of the travel insurance line of business in the national market. In addition, EIOPA collected input from industry and consumer associations, as well as its Insurance and Re-Insurance Stakeholder Group.
The key findings are:
  • The travel insurance market as a whole does not appear to face a general market failure, and travel insurance products remain valuable for consumers. However, heightened conduct risks leading to consumer detriment due to problematic business models with remuneration structures based on extremely high commission levels carrying.
  • Strong potential of poor value for money for consumers due to some insurers paying extremely high commissions to distributors, in some cases significantly more than 50% of the premium. For example in one case, the insurer paid 5.5 times more in commissions to distributors than consumers received back in claims, with commission level of 77% of the premium paid by consumers. Although the average commissions in travel insurance are around 24% of the gross written premium (GWP).
  • Strong potential of poor value for money for consumers due to very wide variations in claims ratio. Some insurers have claims ratios below 20% of the GWP compared to the average claims ratio of 40% of the GWP regardless of the distribution channel.
  • Increased conduct risks due to new market players entering the market and selling travel insurance products online as an ancillary activity (airline and ferry companies, price comparison websites, aggregators, banks and supermarkets).
  • Potential risks of low quality products and services for consumers due to newly established partnerships with distributors via international tenders. In some cases, these partnerships are based solely on commissions paid to the distributors.
  • High degree of consumer detriment due to the potential high degree of dismissed claims through no pre-contractual medical screening and around 70% of insurers excluding pre-existing medical conditions from the coverage of travel insurance products.
  • Potential increased costs for consumers as in most cases assessment of overlaps in cover only conducted at the claim stage and not already during the sales process. Insurers assess only at the claim stage, which policy will cover the incident and split costs between insurers.
Given these findings, EIOPA issued today a  Warning to the Travel Insurance Industry as a supervisory response on the issues identified by the  Thematic Review. The issues addressed are in particular those problematic business models with remuneration structures based on extremely high commission levels and the business models that combine high commission with extremely low claims ratios, offering poor value for money to consumers.

EIOPA considers that such business models are not consistent with the fundamental regulatory principles set out in Directive (EU) 2016/97 of the European Parliament and of the Council of 14 December 2016 on Insurance Distribution (IDD), such as acting in the best interests of the customer and obligations on product oversight and governance.

EIOPA expects all market participants to comply fully with the IDD.

Notwithstanding that insurance undertakings remain free to set premiums or prices, they should nevertheless assess their product offering and approval process, including their identification of target markets, to ensure that their products offer fair value to customers and are fully capable of meeting the needs of their customers.

Insurance undertakings and insurance intermediaries should assess their distribution agreements to ensure that they are able to act always honestly, fairly and professionally in accordance with the best interest of their customers.

To ensure better outcomes for consumers in the insurance market, EIOPA and NCAs will closely monitoring how effectively consumers' needs are taken into account in product development and testing as well as during distribution.

In this regard, insurance manufacturers and intermediaries should be aware that EIOPA and NCAs will intensify their risk-based supervision of insurance undertakings and insurance intermediaries, notably in the national markets where risks are identified, including monitoring the market for ancillary insurance products.

NCAs will, where necessary, exercise their supervisory powers, including investigatory powers and powers to impose sanctions for failures to comply with the conduct of business requirements set out in the IDD, including:
  • The duty to act in the best interest of customers and not to pay or receive remuneration that conflicts with this duty
  • The requirement not to enter into arrangements by way of remuneration, sales targets or otherwise that could provide incentives for the recommendation of a particular insurance product to a customer
  • The obligation to maintain, operate and review the approval process for each insurance product, specifying an identified target market and assessing all relevant risks to that target market
Where risks are identified and other supervisory measures are not successful, taking into account the principle of proportionality and in line with national law, NCAs will exercise their powers to impose administrative sanctions and other measures such as:
  • Requiring the insurance distributor to cease the conduct and to desist from a repetition of that conduct
  • As measure of last resort, in the case of an insurance or ancillary insurance intermediary, withdrawal from the national register
NCAs will share with EIOPA supervisory measures taken to address the business models highlighted by the Thematic Review.

New insight briefing: Insuring mobility — today and tomorrow

Insurance Europe has today published an insight briefing that examines the liability questions raised by light electric vehicles and automated vehicles, as well as the issue of access to the data of connected and automated vehicles. The briefing will also be discussed at an event today on insuring future mobility.
The increased use of light electric vehicles — such as electric bicycles, segways and electric scooters — has led to questions being raised about liability for accidents and whether motor third-party liability (MTPL) insurance should be mandatory for such vehicles. Insurance Europe believes that the defining factor in deciding this should stem from existing rules, ie that compulsory insurance should only apply at EU level to vehicles that can exceed 25 km/h.
Liability and insurance are also an issue at the heart of the debate around automated vehicles. While these vehicles are expected to make roads safer in the long run, accidents will still happen. Here, compulsory insurance is indeed needed, in the same way as it is for traditional vehicles, and there is, in fact, already a solid regulatory framework in place at European level that is fit for purpose: the Motor Insurance Directive, complemented by the Product Liability Directive.

Insurance Europe argues that, for insurers to be able carry out their core function of providing compensation, they need to have access to any relevant data generated by the vehicles involved before, during and after an accident or incident has occurred. This enables insurers to understand what went wrong and apportion liability correctly. Furthermore, access to the data from automated vehicles will also help insurers to better understand the risks they present and to insure them accordingly.

The data generated by modern vehicles also provides an opportunity for drivers to access a wide range of innovative products and services: insurance policies specifically tailored to driving style (“pay how you drive” and “pay as you drive” policies) or that incentivise better driving (driver feedback and/or coaching). These not only create potential savings for consumers, but could also improve road safety.

However, some regulatory action is needed at EU level in order to ensure consumers — and society more generally — benefit from these technological developments. Drivers must remain in control of their vehicle data and be free to share it with the service providers of their choice, without having to go through the vehicle manufacturer. This can only be achieved through EU regulatory intervention.

Tuesday, 15 October 2019

Insurers should be exempt from pillar one of OECD digital tax proposals

Insurance Europe has today published its views on the Organisation for Economic Co-operation and Development's (OECD) proposals for the so-called “pillar one” of its programme of work to develop a consensus solution to the taxation challenges arising from the digitalisation of the economy. 
Pillar one deals with the allocation of taxing rights and will review profit allocation and nexus rules. A second pillar will focus on a global anti-base erosion (GloBE) proposal, which aims to ensure that multinationals pay a minimum amount of tax independent of how they organise their business geographically.
As part of its pillar one work, the OECD aims to define the scope of its proposals, including whether some sectors of the economy should be carved out. In this context, the OECD mentions financial services specifically.

In its response, Insurance Europe explained why the insurance business model means that pillar one proposals are not relevant for the sector and why insurers must be excluded from its scope. The insurance industry will continue to assess the possible implications of pillar two proposals and will respond during the OECD consultation process.

Wednesday, 9 October 2019

New publication examines insurers’ role in increasing EU cyber resilience

Insurance Europe has today launched a new publication entitled “Insurers’ role in EU cyber resilience”, which highlights the key role insurers play in assisting the EU in its efforts to increase cyber resilience and competitiveness.
Insurers’ contributions include:
  • Ensuring business continuity by helping companies swiftly recover from cyber-attacks.
  • Increasing citizens’ and companies’ awareness of the cyber risks to which they are exposed and offering effective protection against them.
  • Advising European and national policymakers on cyber risks and how they can be better managed and mitigated.
The publication also outlines ways to encourage the growth of the European cyber insurance market. It calls on policymakers to:
  • Promote awareness-raising, which is key to increasing cyber resilience.
  • Support public-private cooperation on catastrophic risks.
  • Urge member states to act to increase cybersecurity.
  • Support efforts to make cyber-incident data available.
At the same time, policymakers should avoid:
  • Introducing premature standardisation, which can harm both customers and insurers.
  • Introducing mandatory insurance for cyber risks, which would be counterproductive.

Tuesday, 8 October 2019

Time to rethink proposed ePrivacy Regulation, say pan-industry associations

A group of industry associations — representing interests as varied as ICT, automotive, medical technology, construction equipment, consumer electronics, home appliances, retail, banking and insurance — have called on the Council of the EU to ask the European Commission to fundamentally reassess its proposal for the ePrivacy Regulation.

While the Council has considered ways to improve the text, too many important questions remain unaddressed and amendments continue to create more confusion than clarity. The current ePrivacy proposal has generated great uncertainty across all of these industries, whose efforts to comply with the General Data Protection Regulation (GDPR) risk being jeopardised by an incoherent ePrivacy text.
Without a major overhaul of the text, Europe’s digital transformation will be severely hampered as a result of the legal uncertainty and rigidity brought about by the ePrivacy Regulation. Europe’s artificial intelligence (AI) ambitions will also be frustrated at a time when specific AI legislation is being considered.

The signatories therefore urged member states to ask the Commission to reconsider its proposal. While they fully support the worthy objectives of the proposal, only a fresh new attempt will serve the Regulation’s purpose in line with the principles of better regulation.

Monday, 7 October 2019

EU insurers call for flexibility on implementation timeline for EIOPA cloud outsourcing guidelines

European insurers say they will likely need additional time to implement proposed guidelines on outsourcing to cloud service providers, which the European Insurance and Occupational Pensions Authority (EIOPA) is currently developing. Based on past industry experience, this will be necessary to facilitate a smooth transition from current operational practices.
Insurance Europe said that the guidelines should be limited to instances of material outsourcing: ie, outsourcing that encompasses critical and important operational functions or activities only to ensure legal certainty and consistency with Solvency II. Non-material outsourcing to the cloud should fall outside of their scope.
Cloud services should only be regarded as outsourcing if there are certain risks associated with cloud services that may have a material impact on either the insurer’s ability to comply with regulatory requirements or its customers. Insurance Europe added that clear definitions are necessary to ensure that the scope of application is sufficiently precise.
In the context of access and audit rights, Insurance Europe called on EIOPA to encourage and allow greater reliance on the use of third-party certification.

Wednesday, 2 October 2019

EU insurers paid out almost 3 billion euro per day in 2018

European insurers paid out €1 069bn in claims and benefits to insureds in 2018. That is equivalent to 2.9bn per day and represents a 3.1% increase on 2017, according to the latest edition of Insurance Europe’s Key Facts booklet, which has just been published.
According to the booklet, which contains preliminary figures for the European insurance market in 2018, life insurers paid out €705bn — a 2.6% increase — in benefits to insureds, providing them with capital and/or annuities. Property and casualty (P&C) claims paid increased by 5.6% to €253bn and health claims paid increased by 4.0% to €111bn.
European direct gross written premiums amounted to €1 311bn in 2018, of which €764bn were life premiums, €407bn were P&C and €140bn were health. Total premiums increased 6.2% on 2017, with life premiums growing 6.7%, P&C 5.7% and health 4.8%.
In addition, European insurers’ investments remained broadly stable, at €10.3 trillion.

Monday, 30 September 2019

Solvency II proportionality principle key for avoiding excessive burden, but doesn’t work in practice

Insurance Europe and AMICE have issued a joint call for the EC to improve Solvency II proportionality rules to ensure that insurers are not disproportionately burdened by the regulatory framework.
While Solvency II and, in particular, its risk-based approach is supported by the EU insurance industry, changes are needed to rules on proportionality. This is because currently the sheer volume of rules imposed on companies can be disproportionate and unnecessarily burdensome relative to their activities and risks.
Proportionality is a vital element of Solvency II that was included to enable national supervisory authorities (NSAs) to exercise a proportionate application of regulatory requirements imposed on insurers, in relation to the scale, nature and complexity of their activity. As such, it can help all insurers to avoid unnecessary costs and can avoid smaller insurers being driven out of business due to regulatory requirements which are excessive relative to their activity.
EU insurers have warned that the principle of proportionality is, in practice, hardly ever applied under Solvency II and have jointly called on the European Commission to make changes. The industry’s proposed improvements would help to ensure that the principle of proportionality is applied effectively and consistently across all member states and across all three pillars of Solvency II. 

Thursday, 26 September 2019

ABI (Association of British Insurers) advice on Thomas Cook collapse

Mark Shepherd, Assistant Director, Head of General Insurance Policy, Association of British Insurers, said:
“At this worrying time for Thomas Cook customers, people who were due to travel with the company should contact the Civil Aviation Authority, their credit card provider, or bank first to discuss any refund. People currently abroad on a package holiday will be protected, with the ATOL scheme paying accommodation costs, and flights back to the UK. In addition, the Government has said that it will assist those who only booked flights with Thomas Cook to get back to the UK.
“Travel insurance policies can provide back up if compensation cannot be accessed from ATOL cover, ABTA cover, banks or credit card providers. In the first instance, customers should check their policies on what cover they have. Those with scheduled airline failure or end supplier failure should be able to get compensation for the cost of the flight. Where travel disruption is included, they may be covered for extra costs, such as additional hotel accommodation or the cost of new flights, where these are not recoverable from any other source.”

If  you have booked to travel with Thomas Cook

Q: What cover is there under travel insurance for events like this?

The ATOL scheme is the first port of call for people on a Thomas Cook package holiday.  If you have a flight only booking through Thomas Cook this will not be covered by the ATOL scheme, but you may be able to get compensation from your credit or debit card provider. If you cannot get compensation from another source check your travel insurance policy for the cover that may apply. Policies may include scheduled airline failure insurance that can cover cancelled flight costs. Policies may also cover travel disruption that can pay for additional costs like accommodation.

Q: Where can I get details of the ATOL protection scheme?

You should contact the Civil Aviation Authority (CAA) 24-hour helpline: 0300 303 2800 from the UK and Ireland and +44 1753 330 330 from overseas.

Q: Should customers be contacting their travel insurer?

It is worth first checking whether your travel insurance policy provides cover for events like this. Where cover is provided, it will usually be on the basis that refunds on flights and accommodation costs are not available from any other source i.e ATOL or your bank/credit card provider. If anything is unclear, speak to your insurer.

Q: I've booked travel insurance as part of my Thomas Cook holiday, is this still valid?

Travel insurance with Thomas Cook is provided by White Horse Insurance Ireland DAC who are not ABI members and are regulated by the Central Bank of Ireland. As far as we are aware White Horse Insurance Ireland DAC is still operational.

Q: Will travel insurance cover me if I booked a flight only, as this is not covered by the ATOL arrangements?

If you booked a flight only with Thomas Cook and paid by credit card or debit card, then contact your card provider as you should be entitled to a refund. 

Q: If I make alternative travel arrangements, can I transfer my holiday insurance to cover the new destination?

Yes, your travel insurance can be transferred to cover your new arrangements.

Q: Will insurance cover additional costs of any alternative flight?

Insurance may cover the cost of the original flight, and the difference in the cost of a new a flight, but it is important you check what your cover includes as not all policies will include this.

If already overseas

Q: If I booked a flight only with Thomas Cook (meaning I am not protected by ATOL arrangements) will my travel insurer pay for a flight back to the UK?

The government has said it will provide flights for people in this situation. It said that “…given the extent of the disruption the government is stepping in to assist impacted passengers and get people home.” Travel disruption cover can pay for additional overseas accommodation costs incurred if you decide to arrange a return flight home yourself

Q: Will any additional costs not covered by ATOL, such as pre booked excursions, be covered by travel insurance?

If your policy includes travel disruption, then this may cover costs like this that are not recoverable from any other source.

Q: If I only booked my hotel accommodation through Thomas Cook will this be covered by the ATOL scheme?

Yes, the ATOL scheme will cover your accommodation costs.

Q: What about any additional costs, such as accommodation charges incurred while waiting to get back to the UK under the ATOL repatriation?

ATOL scheme should cover these costs. If you have travel disruption or scheduled airline failure cover, then you may be able to reclaim from your travel insurer, if these are not recoverable from another source.