Brian Morrissey, Head of Insurance, and our insurance team have compiled a collection of KPMG's latest publications and articles which focus on developments in, and issues facing the insurance industry. Also included are recent publications from the CBI, EIOPA, and other European bodies.
KPMG updates
Modernizing the actuarial function
In this report (PDF, 2.2 MB), KPMG Insurance professionals (led by Erik Van Camp, Partner, Risk & Regulatory - KPMG Belgium) explore some of the drivers for actuarial transformation in today’s market, identify the opportunities and barriers, and share key considerations to help insurance organizations on their transformation journey. The actuarial function is central to the insurance proposition.
KPMG Global CCO Survey
This KPMG report (PDF, 1.2 MB) (led by Mark Miller, Global Forensic Leader - KPMG International and US Partner and Annabel Reoch, Global Head of Ethics and Compliance and Partner - KPMG UK) delves into the survey results which centres on the anticipated pressures of heightened regulatory expectations and scrutiny over the next two years. These pressures underscore a strategic awareness within the compliance domain, acknowledging the need for adaptability in the face of evolving regulatory frameworks.
COP28: Voices & Perspectives from Ireland’s Future Leaders
In this report (PDF, 6.3 MB), KPMG insurance professionals (led by Tim Keenan and Caoibhe Gralton, Co-Chairs of the 2050 Ireland Leaders Committee) explore the drivers for finance transformation, identify the potential opportunities and barriers, and share key considerations to help insurance organisations on transformation journey. It outlines key themes that Ireland’s leaders think should be prioritised by leadership during deliberations at COP28.
Enhancing resilience and thriving amidst challenges
In this report (PDF, 10.9 MB), KPMG insurance professionals (led by Tim Keenan and Caoibhe Gralton, Co-Chairs of the 2050 Ireland Leaders Committee) explore the drivers for finance transformation, identify the potential opportunities and barriers, and share key considerations to help insurance organisations on transformation journey. It outlines key themes that Ireland’s leaders think should be prioritised by leadership during deliberations at COP28.
2024 financial services regulatory priorities
In this article, KPMG EMA Financial Services Regulatory Insight Centre (RIC) specialists (led by Philip Deek, Head of KPMG’s EMA RIC and Kate Dawson, Capital Markets and Digital Finance Sector Head for KPMG’s EMA RIC) share high level views on the key regulatory themes and likely developments in 2024. In 2024, elections in the UK and EU will result in efforts to finalise existing policy work before activity slows and politicians turn their attention to campaigning.
Global economic outlook
The KPMG report (PDF, 4.7 MB) offers a sense of what lies ahead, with the clear health warning once again that we’re in deeply uncertain times, and therefore our predictions are just that a forecast based on the few certainties that exist right now and the long term trends that can help us piece together a complex future. In this report, economists based around the world, offer their view on the economic landscape in the coming months and years.
The impact of the artificial intelligence act
This publication (PDF, 1.2 MB) (led by Sander van der Meijs, Director Artificial Intelligence (AI) strategy & Transformation and Peter Kits, Partner Digital Law – KPMG Netherlands) delves into AI encompassing an evolving range of technologies that are increasingly used to tackle societal and industry problems. While AI offers obvious values in a multitude of sectors, the technologies that drive these advantages also entail certain risks and potential negative consequences.
Transforming the customer experience with AI
This report (PDF, 6.3 MB) (led by Guillaume Sachet, KPMG Singapore Partner, Advisory) uncovers the sentiments behind the changing expectations, preferences and needs of consumers, and how leading brands continue to excel even during continuous change and disruption. With the growing adoption of generative AI in the coming year, It also explores what this means for both companies and their customers.
Preparing your board for generative AI
This paper (PDF, 465 KB) (led by Zoe Willis, KPMG Canada - Partner, National Digital and Data Leader and Kareem Sadek, Partner, Technology Risk Consulting) highlights a focused overview of how generative AI affects responsibilities and help set you on the path towards operationalizing trusted AI. By adopting the approaches proposed in this paper, organizations can step forward with the tools to emerge as leaders of responsible innovation, fostering trust, and paving the way for AI.
Central Bank of Ireland updates
December Quarterly Bulletin
The Central Bank (Central Bank of Ireland) has published its December Quarterly Bulletin.
Retail Intermediary Roadshow
On 23 and 24 November, the Central Bank held its annual Retail Intermediary Roadshow in Dublin and Galway. The Central Bank presented on a number of topics namely:
- Expectations on Consumer Protection;
- Authorisations & Supervision;
- Policy Updates – Consumer Protection Code Review; and
- Fitness & Probity Standards.
Financial Stability Review 2023 II
The Central Bank has published the Financial Stability Review 2023 II. The financial stability outlook continues to be shaped by the adjustment of the global economy to higher interest rates. Global inflation has proven persistent, and policy interest rates remain restrictive. Higher long-term interest rates and tighter financial conditions leave financial markets vulnerable to disorderly corrections. The global economy is subject to the risk of further inflationary shocks, while uncertainty remains about the ultimate magnitude of the effects of tighter monetary policy on the global real economy.
EIOPA updates
Recommendation to the Registrar of IORP
On 21 December 2023, EIOPA issued its recommendation to the Registrar of Institutions of Occupational Retirement Provision (Registrar) responsible for supervising Institutions for Occupational Retirement Provision (IORPs) in Cyprus on actions necessary to restore compliance with the IORP II Directive.
Supervisory Convergence Plan for 2024
On 21 December 2023, EIOPA published its Supervisory Convergence Plan for 2024. The Supervisory Convergence Plan identifies EIOPA’s priorities to enhance supervisory convergence of 2024. The plan focuses on the following main areas:
- the practical implementation of the common supervisory culture and the development of supervisory convergence tools;
- the risks to the internal market and the level playing field; and
- the supervision of emerging risks.
Analysis on internal models for non-life underwriting risk
On 4 January 2024, EIOPA published the results of a Europe wide comparative study on non-life underwriting risk in internal models. The study reviewed non-life underwriting of 75 European Insurers belonging to 31 insurance groups. The aim of the study was to evaluate the differences between internal models to understand whether and to what extent these capture similar risks in a consistent manner. The study showed the conclusions on the following topics:
- Capital Intensity;
- Differences in risk measurement;
- Standard formula comparison;
- Reporting; and
- Inflation.
Update of the symmetric adjustment of the equity capital charge
On 5 January 2024, EIOPA published its most recent technical information on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of December 2023.
Monthly technical information for Solvency II
On 5 January 2024, EIOPA published its most recent technical information relating to risk-free interest rate (RFR) term structures with reference to the end of December 2023.
ESAs consultation on draft implementing technical standards
On January 8 2024, the ESAs (EBA, EIOPA and ESMA – the ESAs) published a consultation paper on the draft implementing technical standards (ITSs) regarding the tasks of the collection bodies and the functionalities of the European Single Access Point (ESAP). The purpose of the consultation was to give interested parties’ opportunities to provide their views until 8 March on the proposed rules with regard to:
- Task of collection bodies; and
- Functionalities of the ESAP.
Second report on the application of the Insurance Distribution Directive
On 15 January 2024, EIOPA published its second report on the application of the IDD. The purpose of the report, which covers the years 2022 and 2023, is to consider how the IDD has been applied in EU member states by the insurance industry and by national competent authorities (NCAs). In the report, EIOPA considers:
- Changes in the structure of the EU insurance distribution market: EIOPA notes that there has been a further decrease in the number of registered intermediaries in the EU, including a significant drop in the number of intermediaries registered as natural persons.
- Impact of the new regulatory framework: EIOPA highlights challenges for the industry and NCAs relating to digitalisation and the application of the IDD to new technologies, such as AI, as well as the integration of sustainability factors, risks and preferences into the IDD.
- Impact on the supervisory framework: EIOPA highlights shortcomings in the application of the IDD concerning conflicts of interest arising from remuneration arrangements and cross-selling practices causing detriment for consumers. It also calls for more guidance on the application of the product oversight and governance (POG) framework and adequate resources for NCAs to ensure effective supervision of the POG framework.
Annual report on sanctions under the Insurance Distribution Directive in 2022
On 17 January 2024, EIOPA published its fourth annual report on sanctions under the Insurance Distribution Directive in 2022. In total NCAs across 21 member states imposed 2,762 sanctions in 2022. The administrative pecuniary sanctions imposed had an aggregated value of €528,807. The main takeaways from the report included:
- ·The majority of sanctions were for breaches of the professional and organisational requirements in Article 10 of the IDD. This feature has been driven by a high number of such sanctions in a small number of member states. EIOPA has concluded that the substantial differences in figures between member states are likely to be due to differences in national legal or procedural aspects rather than, for example, the actual level of non-compliance in terms of professionalism and competence.
- Since 2018, and in particular between 2021 and 2022, there has been a rise in the number of sanctions imposed for breaches of the information and conduct of business requirements in Chapters V and VI of the IDD. These can be characterised as the most substantive consumer protection requirements within the IDD, which were not present in the previous legal framework, the Insurance Mediation Directive (2002/92/EC) (IMD). This includes developments in the number of sanctions concerning product oversight and governance requirements, following no sanctions being imposed in this area before 2021.
After four years, the sanctions data is considered to no longer represent a transitional phase between the IMD and the IDD but rather the ongoing application of the IDD. Sanctions have now been imposed in all but three member states and in most member states a pattern seems to be emerging of a broadly similar number of sanctions being imposed each year, with relatively limited fluctuations.
New rules under DORA for ICT and third-party risk management and incident classification.
On 17 January 2024, the ESAs published its final set of draft technical standards under the DORA with the aim of enhancing the digital operational resilience of the EU financial sector by strengthening financial entities’ information and Communication Technology (‘ICT’) and third-party risk management and incident reporting frameworks. The joint final draft technical standards include the following:
- Regulatory Technical Standards (‘RTS’) on ICT risk management framework and on simplified ICT risk management framework;
- RTS on criteria for the classification of ICT-related incidents;
- RTS to specify the policy on ICT services supporting critical or important functions provided by ICT third-party service providers (‘TPPs’); and
- Implementing Technical Standards (‘ITS’) to establish the templates for the register of information.
Consumer treatment and financial well-being amid cost-of-living crisis
On 23 January 2024, EIOPA released its Consumer Trends Report for 2023. The report explores the financial well-being of consumers in the midst of the ongoing cost-of-living crisis and explores whether all consumers are being treated fairly. The analysis found that the ongoing cost-of-living crisis is affecting insurance/pension consumers and their relationship with financial products and services. The report found a third of EU consumers experienced an increase in their insurance premiums for selected business while the amount policyholders must have to pay before insurers cover claims also increased for a cohort of consumers. As a result EIOPA found that increases have lead to consumers suspending, surrendering or cancelling their insurance and pension products leaving some underinsured and exposed to future risks.
Other updates
IE: New EU corporate due diligence rules
On 15 December 2023, Insurance Europe (‘IE’) published its support welcoming the new corporate sustainability due diligence directive (‘CSDDD’) which will hold large companies responsible for human rights and environmental violations along their value chains.
UK updates
FCA: Smarter Regulatory Framework: The Insurance Distribution Directive
On 15 December 2023, the Financial Conduct Authority (FCA) published an article setting out the final rules for insurance firms that transfer and replace retained EU law provisions from the Insurance Distribution Directive.
PRA: Letter from Dan Curtis: 2023 Thematic review of expected underwriting profit allowed for in Internal Models for General Insurance firms
On 08 December 2023, the Prudential Regulation Authority (PRA) published a letter to chief risk officers of general insurance firms regulated by the PRA.
PRA: Implementation of the Basel 3.1 standards (near-final part 1)
On 12 December 2023, the PRA published a near-final policy statement which sets out proposals to implement the parts of the Basel III standards that remain to be implemented in the UK.
EIOPA Q&As
Please see below for EIOPA’s response to recent queries which have been raised by the public for further clarification on the Solvency II requirements. The Solvency II requirements may change or become more prescriptive over time.
21 December: QRT S.14.01
EIOPA clarified in Q&A (#2923) that the value provided in C0280 needs to be linked to the guaranteed rate in C0261. The monetary value is therefore the value to which the guaranteed rate is applied. Conceptually, the percentage in C0261 multiplied with the value in C0280 is the amount that the undertaking needs to allocate to the product in the next year to fulfil its guaranteed interest.
21 December: QRT S.06.02
EIOPA clarified in Q&A (#2828) that if ECAI is not listed by ESMA, it is not Nominated ECAI as per definition of this field. If the ECAI is a subsidiary of any of the ones mentioned in the list, then the parent company in the list is to be used. Otherwise, C0320 shall be left blank.
21 December: QRT S.06.04
EIOPA clarified in Q&A (#2822) that if right of use properties should be included in the definition of property for the physical risk KPI.
21 December: QRT S.14.03
EIOPA clarified in Q&A (#2809) that the description of how to report multiple-choice lists, along with an example, can be found in EIOPA XBRL Filling rules section 'V.5 Multi value elements reporting is applicable'
21 December: QRT S.06.04
EIOPA clarified in Q&A (#2789) that to compute the value for the KPI on climate change-related transition risk and physical risk, undertakings can apply their own methodologies for performing the risk assessment, using reasonable proxies and assumptions. Potential approaches for conducting a materiality assessment of the risk are included in the Application guidance on running climate change materiality assessment and using climate change scenarios in the ORSA (europa.eu) (PDF, 5MB)
07 December: QRT S.05.01
EIOPA clarified in Q&A (#2792) that under IFRS 17 undertakings are expected to still be able to report claims management expenses on incurred basis. The amount reported should be equal to claims management expenses paid plus the movement in the liability for incurred claims related to claims management expenses.
06 December: QRT S.05.01
EIOPA clarified in Q&A (#2813) that the LOG requires all changes to the liability of claims incurred to be considered to report claims in S.05.01. This also includes the changes through Other Comprehensive Income (OCI) as the LOG does not recognise any exceptions.
06 December: QRT S.05.01
EIOPA clarified in Q&A (#2811) that payments for investment components should be included in claims as the LOG does not recognise any exception based on whether they are recognised in profit and loss. It should be noted that reporting payments for investment components in claims ensures consistency with the amount of premiums reported.
Further information
For more on any of the items above, or any Insurance-related queries, contact Brian Morrissey, Head of Insurance.
