Saturday, 2 November 2019

National competent authorities comply or intend to comply with EIOPA’s recommendations to the insurance sector on UK withdrawal from EU

The European Insurance and Occupational Pensions Authority (EIOPA) has today published the responses from national competent authorities on their compliance, intention to comply  or non-compliance with the recommendations set out in EIOPA's 'Recommendations for the insurance sector in light of the United Kingdom withdrawing from the European Union.'
According to the information received, all national competent authorities comply or intend to comply with almost all recommendations.
The recommendations were addressed to national competent authorities of European Economic Area countries except the United Kingdom with the goal of minimising detriment to policyholders in the event of no withdrawal agreement between the United Kingdom and the European Union.
The recommendations covered nine different areas including orderly run-off, portfolio transfer, change in the habitual residence or establishment of the policyholder, authorisation of third country branches, lapse of authorisation, cooperation between national competent authorities, communication to policyholders and beneficiaries, and distribution activities.

Wednesday, 30 October 2019

Joint response provided to EIOPA stress testing discussion paper published

Insurance Europe has today published a joint response with the CFO and CRO Fora to a consultation by the European Insurance and Occupational Pensions Authority (EIOPA) on its discussion paper on methodological principles of insurance stress testing.
The industry called on EIOPA to ensure that the objectives of future stress testing exercises are clearly defined and articulated. In particular, the industry highlighted that stress testing must not be used as a parallel to Solvency II and should not be designed or used in a manner which leads to an amplification of capital requirements.
The industry further called for the approach, scope and specifications of future exercises to be proportionate to its objective. It requested a reduced frequency of exercises and improvements in the planning and timelines to alleviate the burden on industry. Further standardisation of some operational aspects and extended use of insurers' existing tools and expertise were also suggested as improvements.
Finally, the industry reiterated that the calculation of the post-stress solvency capital requirement is not necessary to achieve EIOPA's financial stability mandate and that the results of stress test exercises should continue, as in previous years, to be published at aggregate level.

Tuesday, 29 October 2019

Joint response to EIOPA reporting and disclosures consultation published

Insurance Europe has today published a joint response with the CFO and CRO Fora to a consultation by the European Insurance and Occupational Pensions Authority (EIOPA) on its proposals for the Solvency II 2020 review package on supervisory reporting and public disclosure, which themselves come in response to a call for advice by the European Commission.
The industry said it fully supports EIOPA’s intention to propose "a material reduction in the scope of quarterly reporting" and for "an increased proportionality of supervisory reporting and public disclosure". However, while EIOPA’s proposals include some potentially helpful concepts, it will not achieve its intentions because EIOPA has also introduced significant additional reporting and proposed changes to existing templates. This means that EIOPA’s current proposals would in fact lead to an increase in the overall burden. Furthermore, it provided no evidence that the costs of all the new reporting or changes are justified by sufficient benefits.
Therefore, EIOPA’s proposed changes need improving to: ensure any new reporting is useful and proportionate and avoid proposals that would lead to an overall increase rather than decrease in both the cost and the burden of reporting. The industry also urged EIOPA to consider the cost/benefit of increased reporting requirements and of making changes to existing templates.

Tuesday, 22 October 2019

Insurers oppose EU wide initiative on insurance guarantee schemes

Insurance Europe has said it opposes an EU initiative on insurance guarantee schemes (IGS), in response to a consultation by the European Insurance and Occupational Pensions Authority (EIOPA) on the topic.
IGS at member state level currently vary significantly across Europe, but generally work well within their local context and laws. Insurance Europe warned that even a minimum level of harmonisation would create significant costs and involve complex challenges for which there may not be acceptable solutions.
The priority for policymakers should instead be to ensure that Solvency II is applied appropriately in all member states and that there is coordinated supervision of insurers working cross border under the principles of Freedom of Services (FoS) and Freedom of Establishment (FoE).
National authorities should be allowed significant flexibility to choose the features for IGS that best suit their market, to reflect the important differences between member states regarding social welfare systems, winding-up process for insurers and insurance product lines. In addition, the issue of failures of insurers operating under FoS/FoE should be addressed in such a way as to make the home national supervisory authorities accountable for the failure.
Insurance Europe also said that, if after considering all elements provided, the European Commission can provide evidence that a minimum harmonisation is necessary, the preference would be for a home approach combined with host elements. This is where the home country provides all the funding to align with how companies are supervised and the host country provides the “front office” customer interface to facilitate customer, policy and claim identification as well as communication in local language. However, Insurance Europe warned that there would be significant, and potentially intractable challenges at the operational level in applying this, or indeed any harmonised approach, across the EU.

Friday, 18 October 2019

Munich Re achieves a strong result in Q3 and will likely surpass the 2019 forecast

Munich Re achieves a strong result in Q3 and will likely surpass the 2019 forecast
Munich Re generated a consolidated result of approximately €850m in the third quarter, despite high major-loss expenditure. The Q3 result is due to good operational performance, strong currency gains, and a very good investment result.

Munich Re expects to beat its target for the consolidated result of €2.5bn for 2019, despite typically considerable uncertainties about developments in major losses and the capital markets during the rest of the year.

As always, the figures are subject to the outcome of the ongoing quarterly closing, and will be published by Munich Re as planned on 7 November 2019.

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.