Insurance Regulation & Accounting
Coming your way…
IR&A
’s timetable is regularly updated to cover as many new developments as possible while also keeping an eye on events as they unfold. The first table is dedicated to the FSA’s agenda for consultations, discussion documents, thematic work or events of interest to insurers for the year ahead. A second table lists developments elsewhere in the UK, Europe and internationally.
| Development | International Financial Reporting Standards |
| Date | Q2 2008 – delayed |
| Detail | The FSA has delayed its review of the practical application of IFRS and the implications to its prudential regimes. Originally due to be published at the end of 2007, the FSA said it will release a consultation in the second quarter of this year, which it said would give it more time to consider “current accounting issues”. |
| Development | Solvency II discussion paper |
| Date | H2 2008 |
| Detail | Sally Dewar, managing director of wholesale markets at the FSA, has said it plans to publish a discussion paper on Solvency II later this year that will present “initial thinking on what implications the Directive might have for systems of governance, reporting, internal models, standard formula and other elements of ‘Pillar 1’, based on the Directive proposal”. In addition, the paper will include suggestions for firms’ priorities over the next 12 to 18 months to help prepare for implementation of the new regime. “Although ICAS and Solvency 2 have some similarities, they are not the same. There are differences that you will need to understand and prepare for”, Ms Dewar said. |
| Development | Disclosure – discussion paper deadline for responses |
| Date | 29 August 2008 |
| Detail | In October 2007, David Kenmir, managing director of regulatory services at the FSA, revealed that the FSA is interested in “the extent to which we could better achieve our statutory objectives by disclosing more about what we know or think about individual firms”. On publishing its paper in May 2008, the FSA looked at how increasing disclosures could improve regulatory outcomes across authorisation, supervision and enforcement. In particular, it is seeking views on the principle of using transparency as a regulatory tool and how to take forward some of its proposals which include publishing complaints data and in effect naming the companies with the highest number of complaints from consumers. The FSA said it was aware that many of these issues are controversial and said “we will be seeking to reach areas of agreement in the middle ground” while offering assurances that it will not propose anything that requires changes to the rulebook. Comments should reach the FSA by 29 August 2008. |
| Development | Insurance Risk Management – Discussion paper |
| Date | September 2008 |
| Detail | The FSA is planning to publish a discussion paper on insurance risk management “the path to Solvency II”. The consultation will last for three months and the FSA will publish its feedback in the first quarter of 2009. |
| Development | Regulatory reporting – Discussion paper |
| Date | September 2008 |
| Detail | The FSA plans to publish a discussion paper on “IRR – Regulatory reporting by insurance companies” before the end of September. |
| Development | Commercial insurance commission disclosure – thematic work and feedback to discussion paper |
| Date | Third and fourth quarter 2008 |
| Detail | The FSA confirmed in December 2007 that it will not introduce mandatory rules to require brokers to disclose commission received to its clients for now, but said further work in 2008 could lead to stricter rules. In the first half of this year the FSA conducted thematic work to consider the extent and nature of conflicts of interest arising from remuneration and contractual agreements between insurers and brokers. The FSA expects to publish its findings during the third quarter of 2008. In a discussion paper published in March 2008, which closed in 25 June 2008, the regulator said mandatory disclosure is still an option, alongside an enhanced on request regime and more rigorous supervision and enforcement of existing rules. Independent analysis by CRA International in December last year found that the costs of mandating for commission disclosure exceeded the benefits. The regulator said it will consult on any changes to the handbook in Q4 2008 with a view to publishing final rules in Q1 2009. |
| Development | Payment Protection Insurance |
| Date | Third quarter 2008 |
| Detail | As part of its treating customers fairly initiative, the FSA is targeting poor sales practice in PPI. An update on its work in this area – known as Phase III after several earlier work streams – is due in the third quarter of this year. The FSA is conducting site visits, mystery shopping and analysis of peer group data to identify the worst performing firms and address the major issues. |
| Development | Retail Distribution Review – Feedback statement |
| Date | November 2008 |
| Detail | After a small delay, the FSA will publish a full feedback statement on its discussion paper “A Review of Retail Distribution”. An interim statement was published in April following a six-month consultation with the market in 2007. |
| Development | Travel insurance – application deadline |
| Date | 15 November 2008 |
| Detail | The FSA published its final rules for travel agents selling insurance in May 2008 having made several amendments (extending the transitional period for introducer appointed representatives for a further six months and applying the same PI requirements as met by general insurers). From 30 June 2008, firms that want to continue selling travel insurance along with holidays have been able to apply for FSA authorisation. Early applications, received before 30 September 2008 will benefit from a 30% reduction in application fees. In any case, applications must be received before 15 November to qualify for interim authorisation when the new regime begins on 1 January 2009. |
| Development | Treating Customers Fairly |
| Date | December 2008 |
| Detail | The FSA has set two deadlines for retail insurance firms to comply with its Treating Customers Fairly requirements under Principle 6. By March 2008, retail firms selling policies to customers must have the appropriate management information in place to test whether they are treating customers fairly (an update report on market progress is due in the second quarter of 2008) and by December 2008 firms must be able to demonstrate that they are consistently treating customers fairly. |
| Development | Travel insurance regulation |
| Date | 1 January 2009 |
| Detail | HM Treasury has requested that the FSA authorise and regulate travel agents selling insurance as part of its general insurance regime from the beginning of 2009. |
| Development | European Commission - Insurance Guarantee Schemes |
| Date | 7 July 2008 |
| Detail | The EC has launched a public consultation on the findings of an independent report on the feasibility of mandating for insurance guarantee schemes across Europe with a response date of 7 July 2008. A public hearing took place on 2 June 2008. The Oxera study, published in January 2008, said it is “unlikely” that an EU-wide insurance guarantee scheme will be proposed but said it had identified areas where some of the differences between existing guarantee schemes could be minimized to improve consumer protection. The EC put a decision on whether to raise new legislation (due in the first half of 2006) on hold until the study was completed. In its latest consultation, the EC has not proposed a preferred approach but has listed the options as no change (leaving the decision over safety net schemes to member states), mandatory requirements for guarantee schemes or case-by-case intervention in the event of an insurance company failure. |
| Development | Competition Commission - Inquiry into Payment Protection Insurance |
| Date | August/September 2008 |
| Detail | The Competition Commission opened a case on PPI at the beginning of 2007, looking at whether any features of the PPI market have an adverse effect on competition, following a referral by the OFT. A provisional report of its findings in June 2008 questioned whether PPI customers were receiving value for money. The report said that there is little competition for the sale of PPI when it is sold with the credit it insures and policies are “highly profitable”. In its final report, due in August or September 2008, the Competition Commission said it will look at whether there are countervailing benefits to consumers that outweigh the adverse effects on competition identified in the provisional report. “If we do not find benefits which fully compensate consumers, we would be very concerned that consumers are receiving poor value from the sector and would need to impose remedies”, the Commission warned. |
| Development | English and Scottish Law Commissions reform of Insurance Contract Law |
| Date | Autumn 2008 |
| Detail | After several consultations and issues papers to reform insurance contract law, the Commissions’ have said that a further issues paper – this time on post-contractual good faith and whether insurers should be liable in damages for the late payment of claims – will be published in the Autumn. In June 2008, the Commissions published a response to its consultation paper “Insurance Contract Law: misrepresentation, non-disclosure and breach of warranty by the insured” – limiting the responses to consumer issues which it said were in “urgent need of reform”. It said a response paper on the business issues will follow shortly. In the meantime it is planning for a draft bill scheduled for Summer 2009 that will change pre-contractual information for consumer insurance – namely removing the legal duty on consumers to disclose information and requiring insurers to ask relevant questions on application of an insurance policy. |
| Development | European Commission’s Principles of European Insurance Contract Law |
| Date | By end 2008 |
| Detail | At the end of last year, the European Commission published “Principles of European Insurance Contract Law”, its latest effort in a long line of issue papers to move towards greater harmonization of insurance contract law throughout Europe. The draft PEICL is intended to be a voluntary set of principles, but for those member states that chose to use PEICL, it must be applied in full and none of the clauses can be excluded although derogations are allowed in certain circumstances. PEICL proposes a comprehensive framework from the initial insurance contract to the handling of claims. The final version of the principles should be ready by the end of this year. |
| Development | European Commission – Framework directive for Solvency II |
| Date | 2008 |
| Detail | The EC published its framework directive for Solvency II in July 2007, kick-starting the political process that will now ensue. The Council of Ministers and the European Parliament will look at the framework, and the timetable for now estimates about 12-18 months (from mid-2007) before the project hands back to Ceiops to develop implementing measures which the Commission hopes will be in place by 2010 to give firms until 2012 before the measures become effective. There are several difficult issues to iron out, namely group supervision proposals, but the Commission has said it is confident that these issues can be worked out by the end of 2008. |
| Development | HM Treasury High Level City Group on Competitiveness |
| Date | During 2008 |
| Detail | The London Insurance Market Review Group, set up as part of the Treasury’s High Level City Group and headed by Lloyd’s chairman Lord Levene, updated the Treasury on its work on the modernisation of the wholesale insurance sector at a special Insurance Summit in November 2007. The High Level Group met for the third time and economic secretary Kitty Ussher said she will hold another meeting with MPs in 2008 to discuss the UK’s principles-based regulatory approach. |
| Development | EC Single retail market review |
| Date | 2008 |
| Detail | The results of the EC’s review of the retail market in Europe revealed a lack of integration for pan-European products, including retail insurance. The EC said it intends to look at the use of national general good provisions, and in particular whether they are creating obstacles to cross-border business. The EC said it will make an inventory of national general good requirements and possible cases of “abusive or excessive” enforcement will be taken up with individual member states. The EC said it will also look at the reasons for “relatively large price differences” charged in different member states for the largest classes of retail insurance: home and motor policies. The EC said it may develop best practice guidance to reduce the cost of claims as a result of its work. |
| Development | European Commission – Insurance Block Exemption Regulation consultation |
| Date | By 31 March 2009 |
| Detail | The Insurance Block Exemption Regulation – which allows insurers to co-operate in the issue of standard policy wordings and create insurance pools without breaching competition laws – is due to expire on 31 March 2010. The Commission launched a public consultation in April that will lead to a decision on whether the exemption should be renewed or abolished. The Commission said it wants to find out how the exemption is used. Responses to the consultation closed on 17 July 2008, after which the Commission will draft a report. On publishing the findings of a sector inquiry into business insurance last year, the Commission suggested that a specific industry block exemption is no longer necessary adding that the industry had not presented “compelling reasons” why the exemption should continue after 2010. The Commission said it will finalise a report on the block exemption by 31 March 2009. |
| Development | IASB - Phase II of IFRS accounting for insurance |
| Date | 2009 |
| Detail | Work on Phase II started in 2004 and after several delays a discussion paper was published in May 2007, the first output from the IASB on Phase II. The IASB was left to consider the responses during the first quarter of 2008 and an exposure draft is expected to follow in 2009 and an insurance standard is not on the cards until at least 2010. |