Insurance regulatory news, 29 March 2021

Contents

• Download the full regulatory news bulletin
• Settling RTA whiplash-related injuries without a medical report
• COVID-19: FCA updated statement on non-damage BI settlements and deductions
• COVID-19: FCA update on BI insurance test case
• General insurance pricing practices: FCA extends implementation dates for Handbook changes
• Macroprudential supervision: IAIS consults on draft application paper

Settling RTA whiplash-related injuries without a medical report

The Civil Liability (Specification of Authorised Persons) Regulations 2021 (SI 2021/326) have been published, together with an explanatory memorandum. The Regulations have been made under section 9(1) of the Civil Liability Act 2018. They relate to section 6 of the Act, which restricts the settlement of road traffic accident (RTA) whiplash-related injury claims without a medical report (known as a ban on "pre-medical offers").

The Regulations specify which authorised persons are subject to the Financial Conduct Authority's (FCA's) enforcement of the ban. All persons authorised under the Financial Services and Markets Act 2000 (FSMA) dealing with whiplash claims are subject to the FCA's powers in this area. The explanatory memorandum states that this affects mainly regulated claims management companies (CMCs) and defendant insurers.

The Regulations were made on 15 March 2021 and come into force on 31 May 2021. They will apply in England and Wales.

Separately, a draft of the Civil Liability Act 2018 (Financial Conduct Authority) (Whiplash) Regulations 2021 was published, together with a draft explanatory memorandum. These draft Regulations are being made under section 8 of the Civil Liability Act 2018. They will enable the FCA to use its supervisory and enforcement powers under FSMA to monitor and enforce compliance with the requirements of section 6 of the Civil Liability Act 2018. The draft Regulations will also enable the FCA to impose financial penalties and charge fees in connection with fulfilling its functions under the Civil Liability Act 2018.

The draft Regulations state that they come into force on 31 May 2021. They will apply in England and Wales.

COVID-19: FCA updated statement on non-damage BI settlements and deductions

On 24 March 2021, the FCA published an updated statement on non-damage business interruption (BI) settlements and deductions made for government support to set out the FCA's expectations of firms. The FCA states that it expects firms to take the following into account when assessing whether it is appropriate to make deductions from BI insurance claim payouts:

• the exact type and nature of the government support;
• how the policyholder used this support; and
• the type of policy and its precise terms, including any set methodology for calculating the value of a claim set out under the relevant section of the policy.

In addition, the FCA expects firms to reflect the above matters appropriately in their communications with policyholders when making settlement offers and reaching settlement on relevant business interruption claims.

The FCA also refers firms to its September 2020 Dear CEO letter. Among other things, the letter confirmed the FCA's expectation that firms explicitly consider the treatment of the various forms of government support at board level and appropriately document their consideration and conclusions.

The FCA also explains that, on 25 September 2020, in discussions between the Association of British Insurers (ABI) and the Economic Secretary to HM Treasury, the ABI confirmed that a number of insurers have agreed not to deduct certain grants (set out in the statement) from COVID-19 claim payments. The FCA states that even if an insurer's policy is with a different insurer to those listed in the statement, its views about the appropriateness of deducting small business grants still apply.

The FCA will consider how firms treat their policyholders regarding non-damage BI claims as part of its usual supervisory activities. It may intervene and take further actions where firms do not appear to be meeting its expectations and treating their customers fairly on these points.

COVID-19: FCA update on BI insurance test case

On 22 March 2021, the FCA updated its webpage on its business interruption insurance test case to publish claims data for the first time. The data published is based on insurer submissions to the FCA as at 3 March 2021. The FCA intends to publish the data on a monthly basis.

General insurance pricing practices: FCA extends implementation dates for Handbook changes

In its consultation on general insurance pricing practices, CP20/19, the FCA proposed that firms would have four months to implement any rule changes that it might make. Following responses to this consultation, the FCA has published a statement proposing to extend the timetable for implementing such changes. The FCA proposes to give until the end of September 2021 for the systems and controls rules and the product governance rules, and until the end of 2021 for the pricing, auto-renewal and reporting requirements. In reaching this decision, the FCA states it has sought to balance ensuring firms have enough time to put the changes into effect and acting quickly to address consumer harm.

The FCA states that it has not yet reached a final decision on the details of any rules it might introduce, but it is making this announcement now so firms can plan their change programmes effectively. The FCA intends to publish the policy statement, and any rules it makes, at the end of May 2021. The implementation period will start from this point.

Macroprudential supervision: IAIS consults on draft application paper

The International Association of Insurance Supervisors (IAIS) has published for consultation a draft application paper on macroprudential supervision.

The IAIS adopted its "holistic framework" in November 2019, which is designed for assessing and mitigating systemic risk in the insurance sector. As part of the holistic framework, the IAIS revised Insurance Core Principle (ICP) 24 (macroprudential surveillance and insurance supervision) to more explicitly address, among other things, the build-up and transmission of systemic risk at the individual insurer and sector-wide level.

The draft application paper aims to help with practical application of the supervisory material related to macroprudential supervision in ICP 24. It does not establish new standards or expectations for supervisor's implementation of a macroprudential supervision framework. Instead, it provides guidance and examples of good practice on:

• considerations on developing and applying a macroprudential supervision framework in a proportionate way;
• ways that supervisors may tailor requirements of data collection according to jurisdictional circumstances and market structure; and
• the practical application of the elements included under ICP 24.

The consultation closes on 7 May 2021. Feedback received will be used by the IAIS to further develop the application paper before it is finalised.

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Authored by Yvonne Clapham