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EY Malta is delighted to share another quarterly Insurance Industry Regulatory Compliance Newsletters. In this newsletter, we will be providing a snapshot of publications, updates to legislation and consultations issued in the last quarter of 2022 around the insurance regulatory compliance framework.
Insurance protection gap for natural catastrophes
EIOPA has recently issued a dashboard on insurance protection gaps for natural catastrophes. The aim is to present the driver of a climate-related insurance protection gap to identify measures that will help in decreasing society’s losses in the event of natural catastrophes. The dashboard brings together data on economic and insured losses, risk estimations as well as insurance coverage. The data presented is in four different views, which are the current, historical, country and country insurance view. The dashboard, the demo, the technical document, the dashboard in a nutshell and the input data used for the dashboard can be accessed through here.
Progress on Solvency II data quality
On the 6 September 2022, EIOPA published its report on data quality in Solvency II reporting, where it takes stock of the improvements made in data quality over the years. The report demonstrates that the automated data quality processing solutions and advanced analytic tools together with built-in validations in the XBRL taxonomy have been effective in raising the quality of data. It also describes the intensive and wide usage of Solvency II data by EIOPA for analyses, statistics, impact assessments, supporting national supervisory authorities, technical advice and various other publications.
Warning issued by EIOPA to insurers and banks on Credit Protection Insurance (CPI) products
On the 30 September 2022, EIOPA issued a warning to ensure CPI products offer fair value to consumers by taking action to address issues with high remuneration paid by insurance manufacturers to insurance distributors for the sale of credit protection insurance products and preventing detrimental conflicts of interest in the context of bancassurance business models form arising.
Following this warning, a thematic review which took place in October 2022, where EIOPA together with National Competent Authorities looked at the functioning of the EU market for CPI products sold via banks (acting as insurance intermediaries) and how well it succeeds in delivering good consumer outcomes. The thematic review focused on identifying potential sources of conduct risk and consumer detriment in order to allow EIOPA and NCAs to take relevant policy and supervisory measures if needed. More generally it sought to assess whether consumers are being treated fairly and being placed at the heart of ‘bancassurance’ business models.
A short version of the thematic review can be accessed through this link and the key findings of EIOPA’s thematic review can be found here.
Assessing value for money in the unit-linked market
A methodology was published by EIOPA on the 31 October 2022 for assessing value for money in the unit-linked market. This methodology outlines a common European approach on how to identify unit-linked products which may offer poor or no value for money and require a close monitoring by national competent authorities (NCAs) to ensure risks are sufficiently identified, monitored and mitigated. The process is bases on three layers of analysis:
- a market wide assessment;
- an enhanced product analysis and an assessment of the product oversight; and
- governance (POG) process and documentation.
For each layer, the methodology indicates different tools and provides information on how to perform the analysis.
The objective of the methodology is to ensure a minimum common approach and more clarity to insurance manufacturers and distributors regarding the supervisory expectations when addressing value for money.
Insurance Recovery and Resolution Directive (IRRD)
Prior to the Technical Seminar taken place by EIOPA on the 18 November 2022, the European Insurance and Occupational Pensions Authority issued a staff paper, which provides an overview of the most relevant aspects of the proposal for the IRRD. In order to continue increasing the understanding of the proposal, EIOPA staff drafted a document aiming at providing answers to some frequently asked questions by a number of different stakeholders.
These frequently asked questions can be viewed from the link here.
Consulting on the cyber component in its insurance stress testing framework
On the 24 November 2022, EIOPA published a discussion paper on methodological principles of insurance stress testing with focus on cyber risk. This paper contains a set of theoretical and practical approaches to support the design phase of potential future insurance stress tests with a focus on cyber risks. EIOPAs aim is to lay the groundwork for an assessment of insurers’ financial resilience under sever but plausible cyber incident scenarios.
Sustainability Risks
As long-term investors and society’s risk managers, insurance undertakings have a central role in driving sustainable finance. Since sustainability risks can have material implications on the investment and underwriting activities of insurance undertakings, EIOPA consider it important to ensure that Solvency II as a risk-based and forward-looking framework reflects sustainability risks appropriately.
In this respect on the 5 December 2022, EIOPA issued its discussion paper on the prudential treatment of sustainability risks, which outlines the intended scope, methodologies and data sources for this assessment exercise and focuses on three distinct areas of analysis:
- Assets and transition risk exposures;
- Underwriting risk and climate change adaption; and
- Social risks and objectives
Stakeholders are invited to provide their feedback on the discussion paper until 5 March 2023 by responding to the questions via the online survey.
Contact us
Karl Mercieca
EY Malta Financial Services Regulatory Compliance
Partner
karl.mercieca@mt.ey.com
Leanne Haber
EY Malta Financial Services Regulatory Compliance
Senior
leanne.haber@mt.ey.com
