Central Bank of Ireland Supervisory Priorities for the Insurance Sector

On 23 June 2021, the Director of Insurance Supervision, Domhnall Cullinan, spoke about the Central Bank of Ireland's ("CBI's") expectations for insurance firms and key challenges the industry faces, which have shaped supervisory priorities.  The CBI's priorities focus on the fundamentals of effective supervision; strengthening regulatory and supervisory frameworks in line with leading practices and identified vulnerabilities and acknowledging the evolving business model and strategies of the insurance sector in response to systemic change.  

Effective Supervision

The CBI's key areas of focus here are the firms' capital adequacy, own risk and solvency assessment ("ORSA") and operational resilience.  It will monitor the adequacy of capital by employing regular stress and scenario analysis and testing.  Solvency II data will be incorporated on both a macro and micro-prudential level and insights gained from work by the European Insurance and Occupational Pensions Authority ("EIOPA") or the International Monetary Fund will supplement this to ensure appropriate monitoring. 

The ORSA must be embedded at the core of the firm's risk, capital and business planning, and not merely focus on compliance aspects. The CBI expects to see active engagement from boards, and firms should be prepared to show evidence of assessing their own vulnerabilities, specific actions in cases of adverse events that impact their financial strength or liquidity, and record past events to influence their future responses.  Boards and senior management are required to adopt measures to improve their operational resilience frameworks and firms should not only address vulnerabilities in this area but be able to evidence the specific actions taken within two years of the CBI's “Cross Industry Guidance on Operational Resilience” being issued. 

For more information, see our recent client update on the new cross-industry operational resilience guidance. 

Strengthening Regulatory Frameworks

Under the CBI's Recovery Framework Regulations³, insurance firms are required to develop and maintain pre-emptive recovery plans, the first of which has to be prepared by 31 March 2022, as part of a recovery framework to protect policyholders.  In addition, firms should be monitoring and enforcing their compliance with their fitness & probity obligations and should anticipate the introduction of the Senior Executive Accountability Regime ("SEAR").  SEAR will introduce a standard of conduct for individuals in regulated firms and oblige firms to clearly delineate where responsibility and decision-making powers lie within it.  Under this, senior executives will be held directly accountable for misconducts.  Firms should also be aware of obligations under the various other CBI regulatory frameworks such as the Probability Risk and Impact System ("PRISM"); the incoming Behavioural and Cultural Framework and Diversity and Inclusion. 


Key Challenges

The CBI continuously stresses the importance of firms identifying future changes and challenges, and adopting appropriate measures early.

• Non-Life Sector: The issues of differential pricing in the private car and home insurance sectors and the business interruption insurance, could pose significant risks to consumers and will therefore be closely monitored by the CBI. It expects to publish its findings on differential pricing in July 2021.  It also expects firms to periodically review their policy terms, limits and exclusions to avoid ambiguous policy wording and ensure product offerings are in line with the firm's intention and risk appetite. 
• Life Sector: The effect of 'long' COVID must be considered in the life and health business, and how this will impact on the business and risk profile.  The CBI also encourages firms to engage in the EIOPA consultation on the framework to address value for money risk in the European unit-linked market, which closes on 16 July 2021. Due to the fact that unit-linked insurance products are coming under pressure from numerous alternative retail investment products, the CBI stresses the importance of having robust product oversight and governance processes and offering value for money for policyholders. 
• Climate Change: The CBI has identified climate change and the associated risks as a key challenge. Climate change litigation, in particular, is identified as a challenge that all firms need to address, as climate considerations begin to form a recognised part of directors’ legal obligations and duties.  It advocates firms to adopt measures to limit their exposure through, for example, professional indemnity insurance products.  The CBI will formally communicate its expectations to firms on this shortly but has expressed concern that more than half of surveyed firms had not integrated climate policies in their risk management frameworks.  It indicated that it expects relevant climate risk scenarios to be integrated as part of the ORSA.  Lastly, insurance firms must be aware of their role in supporting the transition to net zero and balancing out economic and insured losses. 
• Digitalisation: The CBI is supportive of technological innovations that can automate and improve processes in the financial services sector.  However, firms must remember the risks associated with this and implement robust IT controls, consumer data protection measures and oversee any outsourcing arrangements. 

Further Information on our Irish Financial Services Regulatory Group, and the services we provide is available on our website page and in our brochure.

If you would like further information, please liaise with your usual Maples Group contact or one of the members of our Irish Financial Services Regulatory Group.

^{3 Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Recovery Plan Requirements for Insurers) Regulations 2021.}