Insurance Insights January 2025

KPMG (led by Liam Cotter, Partner and Technology Practice Lead) charts the road ahead as Irish organisations prepare for the AI revolution.

Ireland has established itself as a global hub for data centres, attracting substantial investment from both international and domestic players. While the spotlight often falls on the large players like Amazon, Google, and Digital Realty, the Irish data centre ecosystem encompasses a wide range of companies involved in the construction, value chain, and supply chain. KPMG (led by Christopher Brown (Partner, Head of Strategy) and Morgan Mullooly (Associate Director)) explore the flurry of acquisitions which occurred over the past year, highlighting the sector's growth and potential.

Fair value measurement has emerged as a fundamental aspect of contemporary financial reporting, providing a clear and uniform method for evaluating the value of assets and liabilities in the current dynamic economic landscape.

The primary challenges in determining fair value include addressing structural complexities alongside market fluctuations, and ensuring the accuracy and reliability of input parameters. KPMG, under the leadership of Francisco Jimenez (Principal, Financial Instruments Lead), explores these challenges and best practices in greater detail here.

New research from KPMG (led by Keith Stafford, Audit Partner) reveals the extent to which artificial intelligence (AI) is being deployed in Irish organisations’ finance operations – with compelling levels of ROI and a wide range of benefits including better data and decisions, lower costs, and greater ability to predict trends. Over half of organisations in Ireland (54%) are now using AI across their finance function, and over two-thirds (66%) are implementing some level of workflow automation in financial reporting. The report covers 2,900 organisations across 23 countries and includes 100 responses from Ireland.

Companies worldwide are preparing for the advent of mandatory reporting on sustainability, according to the 2024 edition of KPMG’s Survey of Sustainability Reporting. The research (led by Thomas Ball and Dr Barry O’Dwyer, Directors of Sustainable Futures) shows that sustainability reporting has become part of business as usual for almost all the world’s largest 250 companies, and a large majority of the top 100 companies in each country, territory or jurisdiction.

The last two years have seen significant increases in the proportion of companies publishing carbon reduction targets. The proportion of companies reporting on biodiversity remains lower but has similarly increased since 2022.

On 18 December, the Joint Committee of the European Supervisory Authorities (ESAs) published a report on the key findings from the 2024 ESAs’(EBA, EIOPA, and ESMA) dry run exercise on the Register of Information (RoI) for contractual arrangements with ICT third-party service providers, as required under the Digital Operational Resilience Act (DORA). The exercise, conducted in 2024, aimed to help financial entities align their RoI with the implementing technical standards (ITS). Over 1,000 entities, primarily credit institutions, insurance/reinsurance undertakings, and investment firms, participated, testing reporting processes in a near-official environment. The ESAs provided individual feedback to competent authorities, which was shared with participants. Stakeholders are advised to review the findings to prepare for official reporting in 2025.

EIOPA has published its 2024 EU-wide insurance sector stress test findings, available with related materials on EIOPA’s stress test webpage. The test assessed 48 insurers from 20 EEA member states, representing 75% of the EEA market by total assets, on their resilience to geopolitical tensions.

EIOPA concluded that insurers are well-capitalized and meet Solvency II requirements even under severe but plausible stress scenarios involving supply-chain disruptions, low growth, and inflationary pressures. EIOPA Chair Petra Hielkema expressed confidence in insurers’ preparedness for geopolitical shocks but emphasized the substantial capital and liquidity required to manage such risks. She called for prudent risk management and close supervision, noting with concern the limited transparency due to participants' reluctance to disclose individual results. The results will inform supervisory work at EU and national levels, and EIOPA may issue recommendations to address identified risks.

EIOPA has published a press release announcing its decision to revoke the Guidelines on ICT Security and Governance and the Guidelines on Outsourcing to Cloud Service Providers and amend the Opinion on Operational Risk for IORPs to avoid duplication and overlaps with on DORA for the EU financial sector. These changes aim to eliminate overlaps and ensure a unified regulatory framework for digital resilience in the EU insurance and occupational pension sectors.

EIOPA justifies these actions by stating that DORA fully addresses the objectives of the withdrawn guidelines and the amended opinion. The changes take effect on 17 January 2025, and national supervisors across the EEA are expected to adjust their frameworks accordingly

EIOPA published its 2024 Consumer Trends Report on 15 January. The report highlights the transformative impact of digitalisation on insurance and pension services. The report identifies four key areas:

Digitalisation's Role: Consumers are increasingly using digital tools to engage with insurance and pension products, facilitating easier comparison of offers and faster claims processing. However, challenges such as digital exclusion and misinformation persist.

Artificial Intelligence (AI) in Insurance: The adoption of AI-based tools is transforming the insurance industry by streamlining claims processing and potentially reducing costs. Nevertheless, concerns regarding privacy, security, and ethical considerations remain.

Supplementary Pensions: Despite a widening pension gap, participation in supplementary pensions remains low, particularly among women. Only 42% of EU consumers are confident about their financial comfort during retirement, with barriers including lack of financial resources, high costs, and perceived product complexity.

Value for Money: While many consumers feel their insurance and pension products offer good value, issues persist, especially with certain unit-linked and hybrid insurance products. Supervisory actions have been taken to address concerns related to high commissions, complexity, and poor performance.

EIOPA notes the report underscores the need for continued efforts to ensure that digitalisation benefits all consumers and that products offer genuine value.

On January 17, the ESAs released a joint report examining the feasibility of further centralising the reporting of major ICT-related incidents by financial entities, as mandated by Article 21 of the DORA. The report evaluates three models:

1. Baseline Model: Maintaining the current decentralised reporting structure.
2. Enhanced Data Sharing Model: Improving data sharing arrangements among competent authorities.
3. Fully Centralised Model: Establishing a single, centralised reporting mechanism for all major ICT-related incidents.

The assessment considers potential reductions in burden and costs, as well as gains in efficiency and effectiveness for cross-sector supervisory practices. The report has been submitted to the European Parliament, the European Council, and the European Commission for consideration in future developments regarding ICT incident reporting in the financial sector.

Insurance Europe (IE) has published their response to EIOPA’s consultation on supervising the liquidity risk management of IORPs. IE agrees with the overarching objective of EIOPA's draft opinion on supervising IORP liquidity risk management but believes existing regulations sufficiently address the identified risks. It advocates for a proportionate approach, tailored to each IORP's specific risk profile. Insurance Europe also opposes certain proposals such as the need for IORPs to set a new specific liquidity risk tolerance level deeming it unnecessary.

The European Systemic Risk Board (ESRB) has published its advice to EIOPA on the criteria for identification of exceptional sector-wide shocks as required by Article 144c(7) of the Solvency II Directive, as introduced by amending Directive 2025/2. These shocks would allow supervisory authorities to impose measures on bonuses and dividends to stabilise insurers' financial positions.

EIOPA, which consulted on a draft RTS in October 2024, must finalise and submit the RTS to the European Commission within 12 months of the Amending Directive's entry into force. Directive 2025/2 amending the Solvency II Directive, was published in the Official Journal of the European Union on 27 November 2024 and entered into force in January 2025. 

The Official Journal of the European Union (OJEU) has published the following pieces of legislation:

• Insurance Recovery and Resolution Directive (IRRD).
• Directive amending the Solvency II Directive (Solvency II Amending Directive).

Both the IRRD and the Solvency II Amending Directive will enter into force on 28 January 2025. Member states are required to adopt and publish the measures necessary to comply with Articles 1 to 91, 96 and 97 of the IRRD by 29 January 2027. Articles 92 to 95 shall apply from 30 January 2027. Member states are required to adopt and publish the measures necessary to comply with the Solvency II Amending Directive by 29 January 2027. These measures shall apply from 30 January 2027. The European Parliament approved this legislation under the corrigendum procedure on 8 October 2024. After that, the Council of the European Union adopted the legislation on 5 November 2024.

For more on any of the items above, or any Insurance-related queries, contact Brian Morrissey, Head of Insurance. We'd be delighted to hear from you.