Insurance updater - Europe

2 May 2012

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Introduction

Welcome to our insurance updater. We will highlight key legislative and regulatory developments. We will also review court judgments and insurance market publications that are likely to be of interest to you.  

European Commission to extend Solvency II implementation deadline

On 26 April 2012, the Financial Times reported that the European Commission intends to extend the deadline for European Member States to implement the Solvency II Directive (2009/138/EC) into national law by nine months. The implementation date will now require Member States to introduce the Directive into national law by 30 June 2013. However, the deadline for firms to comply with the new rules remains unchanged, and the regime is still expected to come into force on 1 January 2014.

The Commission has blamed the change in the timetable on delays in the legislative process. In a quote from the Financial Times article, the Commission stated: “The quick adoption of the full Solvency II regime remains a major priority.”

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FSA’s newsletter for wholesale insurance intermediaries highlights supervisory focus for FCA

On 27 April 2012, the Financial Services Authority (FSA) published its newsletter for smaller wholesale intermediaries. The newsletter focuses on particular regulatory issues which the FSA wishes to bring to the attention of regulated firms. This latest edition is particularly interesting as it provides wholesale intermediaries with an indication of the initial priorities of the new Financial Conduct Authority (FCA) which will succeed the FSA next year.

Gender equality is evidently going to be on the agenda for the FCA as the newsletter highlights both the proposals to amend the Equality Act 2010 to reflect the Test Achats decision on gender neutral pricing, and also the need for firms to increase gender diversity at senior levels of their business.  

Following the decision of the Court of Justice of the European Union (ECJ) last year (for further information please refer to our briefing Gender based insurance pricing - European Commission issues guidelines on the Gender Directive in the light of the Test-Achats decision), HM Treasury published a Consultation Paper acknowledging that UK legislation will be amended to ensure that contracts entered into after 21 December 2012 are not priced according to gender. In their newsletter the FSA make it clear that it will be the responsibility of firms to make appropriate and timely changes to their systems and controls to ensure that product pricing meets the new requirements. Intermediaries should be conscious of all the implications of these changes and may wish to carry out their own review of compliance with the new law.

The FSA are also considering the gender diversity of senior management in regulated firms. The regulator is under a statutory obligation in the Equality Act 2010 to have due regard to eliminating discrimination and advancing equal opportunities. Furthermore, the Davies Report on Women on Boards has brought board diversity in financial services firms into focus. The FSA has undertaken an anonymous survey of firms in order to generate diversity benchmarks. Initial findings from this survey suggest that the financial services sector needs to improve the career development and retention of female staff.  Various proposals to improve diversity at senior levels in firms are being considered but the inclusion of this issue in the newsletter should send a message that firms should anticipate greater supervisory interest in the gender balance of their boards.

The newsletter also identifies problems with firms failing to provide timely reports on breaches of capital resource and solvency requirements, as required under Chapter 15 of the Supervision Handbook (SUP 15.3.1 R).  The FSA reminds firms that where they have breached capital resource and solvency requirements it is likely that they will also be in breach of the Threshold Conditions. SUP 15.3.1 R requires notification as soon as a firm becomes aware of the following: a failure to satisfy the threshold conditions; any matter that might have a significant adverse affect on the firm’s reputation; any matter which could affect the firm’s ability to continue to provide adequate services to its customers; and any matter which might result in serious financial consequences to the UK financial system or to other firms.  According to the FSA, firms failing to meet their solvency or capital requirements have been waiting until the submission of their Retail Mediation Activities Return (RMAR) to notify the FSA of breaches.  Firms in breach of MIPRU requirements should notify the FSA as soon as possible, as required by the Handbook.

The newsletter also reminds firms of the developments concerning director certification and independent assurance of insurers' Employers' Liability Registers (ELRs), including those made available through the Employers’ Liability Tracing Office (ELTO).  Intermediary firms that place (or who have previously placed) employer liability business may be asked to supply additional information to insurers to assist them in their information requirements.

In addition to the matters considered above, the newsletter considers: the key conduct issues identified in the Retail Conduct Risk Outlook 2012; the publication of the annual fees and levies Consultation Paper (CP12/3); improving standards in consumer contracts; and, the accuracy of information supplied by firms in their RMAR.

For further information: FSA publishes Smaller Wholesale Insurance Intermediaries Newsletter

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FSA publishes finalised guidance on trading life policy investments

On 28 November 2011, the FSA published guidance stating that Traded Life Policy Investments (TLPIs) are high risk products and strongly recommended that they should not reach retail investors in the UK (for further information, please refer to Insurance updater 30 November 2011). The FSA confirmed this recommendation in the finalised guidance published on 25 April 2012.

The finalised guidance is an interim measure and the FSA will shortly be consulting on new rules imposing significant restrictions on the promotion of non-mainstream investments, including TLPIs, to retail investors. The FSA has found evidence of significant problems with the way in which TLPIs are designed, marketed and sold to UK retail investors. TLPIs cannot lawfully be promoted to retail investors in most cases, but nevertheless have often been marketed inappropriately to retail customers.

Peter Smith, FSA Head of Investment Policy explained that, at the time of publishing the guidance, the growth of the TLPI retail market had prompted concern regarding unsuitable sales followed by significant customer detriment in the TLPI market. Smith confirmed that the FSA will be publishing proposals soon to prevent TLPIs, and all unregulated collective investment schemes, being promoted except in rare circumstances.

For further information: FSA confirms traded life policy investments should not generally be promoted to UK investors

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Italy: ISVAP issues a circular letter on the new provisions regulating the motor TPL insurance market

In January 2012, the Italian Government enacted a set of new legislative provisions relating to compulsory motor insurance. The rules are aimed at reducing the cost of Italian motor third party liability (TPL) insurance policies, which in recent years have become increasingly more expensive for policyholders.

The new rules include a provision that introduces the possibility of installing black boxes (or "telematics") in vehicles. If an insured party agrees to install a black box, or equivalent device capable of recording the activities of the vehicle, the insurer is obliged to provide a substantial discount on the premium at the time the policy is taken out or when subsequently renewed. The discount will apply provided that certain parameters set out in the insurance contract (e.g., compliance with relevant speed limits) are complied with by the insured. In addition, any installing, un-installing, replacing, running, and portability costs relating to a black box or equivalent device shall be borne by the insurer.

The Italian insurance market supervisory authority (ISVAP) has been granted authority to issue implementing provisions regulating use of the data collected by the black boxes for the purposes of calculating insurance tariffs and determining liability in road accidents.

On 19 April 2012, ISVAP issued a circular letter to provide the insurance market with some preliminary guidance in relation to the new provisions for TPL insurance markets. According to ISVAP, the provision on black boxes imposes an obligation on insurers operating in Italy to offer motor TPL insurance policies with a black box option as well as standard policies. ISVAP therefore contradicts the main association of Italian insurers (ANIA), which previously stated that the offer of "policies with black box" is optional under the new provisions. However, ISVAP has clarified the position stating that the obligation shall only become mandatory following the adoption of the aforementioned implementing measures.

The provision on black boxes was inserted into the new provisions due to the widely held belief that data collected by such devices will contribute significantly to reducing the risk of fraud in motor TPL insurance claims and promoting responsible driving.

For further information, please contact Nicolò Juvara in Milan.

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