Insurance regulatory news, 9 November 2020

Contents 

• Download the full regulatory news bulletin
• COVID-19: FCA update on business interruption insurance test case
• COVID-19: FCA reminds insurance firms to assess value of insurance products
• COVID-19: FCA confirms additional guidance for insurance and premium finance firms on customers in financial difficulty
• Lloyd's & London market intermediaries and managing general agents: FCA Dear CEO letter
• Solvency II Review – second time round
• Solvency II: EEA Joint Committee Decision incorporating into EEA Agreement Implementing Regulation on calculation of technical provisions and basic own funds

COVID-19: FCA update on business interruption insurance test case

The UK Financial Conduct Authority (FCA) has updated its webpage on its business interruption insurance test case to confirm that an appeal of the case will be heard by the Supreme Court. The appeal will be heard via video link starting from 16 November and is expected to last four days.

Royal & Sun Alliance Insurance Plc has confirmed it will not be appealing the High Court's judgment in respect of the RSA4 wording, and Hospitality Insurance Group Action has confirmed that it will not be seeking to intervene in the Supreme Court appeal.

COVID-19: FCA reminds insurance firms to assess value of insurance products

On 30 October 2020, the FCA published a statement reminding insurance firms and intermediaries to review the value of their products in the light of the exceptional circumstances arising from COVID-19, and decide what action to take by 3 December 2020.

The FCA also confirms that it has reviewed its guidance and does not intend to update it. However, the effects of COVID-19 could continue to affect the value of insurance products and cause harm to customers, so the FCA asks firms to monitor this risk as part of their normal product governance processes. This includes the ongoing monitoring and regular review of insurance products and acting where necessary.

COVID-19: FCA confirms additional guidance for insurance and premium finance firms on customers in financial difficulty

The FCA has published finalised guidance on how firms should continue to support customers who hold insurance and premium finance products and may be facing financial difficulty, due to the COVID-19 pandemic, after 31 October 2020. The new guidance supplements the FCA's previous August 2020 guidance, and outlines the tailored support firms should provide to consumers who have already had a payment deferral and those newly in financial difficulty due to changed circumstances.

The FCA has published a feedback statement, FS20/16, summarising feedback received to its consultation on this new guidance, together with the FCA's response. In the light of feedback, the FCA has made one change to its guidance. This relates to an example where a firm might contravene Principle 6 in relation to dealing with customers in default or in arrears.

The guidance came into force on 1 November 2020. Although the August guidance expired on 31 October 2020, certain provisions relating to customers granted payment deferrals under the guidance that came to an end after 31 October 2020, will remain in force.

Lloyd's & London market intermediaries and managing general agents: FCA Dear CEO letter

The FCA has sent a Dear CEO letter to Lloyd's & London market intermediaries (LLMI) and managing general agents. The letter sets out the FCA's view of the key risks of harm to customers or the markets firms operate in, which are posed by firms in the FCA's LLMI portfolio, and outlines the FCA's expectations.

The FCA states that firms' business models should remain financially resilient during this difficult economic period and should continue to meet the regulatory prudential requirements and threshold conditions.

The FCA expects firms to consider the Wholesale Insurance Broker Market Study (published in February 2020) and take suitable steps to ensure that concerns raised in the study are addressed. Areas raised in this study include conflicts of interest emanating from remuneration practices and the need to modernise the market. Firms need to innovate to create healthy competition, efficient distribution chains, good claims services and better use of data. Of equal importance is a healthy market culture in which non-financial misconduct is reduced and diversity and inclusion improved.

In its letter, the FCA identifies four common themes it wishes to prioritise. These are explored in more detail in the body of the letter. The themes are:

• financial resilience and orderly wind-down;
• ineffective governance and oversight of businesses;
• culture and non-financial misconduct; and
• business models which provide poor oversight of distribution chains.

Other areas of risk identified by the FCA include the hardening insurance market, exposure to cyber risks and the end of the Brexit transition period.

The supervision strategy in the letter covers the period to November 2021.

Solvency II Review – second time round

Earlier this summer, the UK government announced that it would review the impact of the Solvency II regime on the UK insurance industry.  On 19 October 2020, HM Treasury published a Call for Evidence.  This is the first stage of the review. Read our separate briefing here.

Solvency II: EEA Joint Committee Decision incorporating into EEA Agreement Implementing Regulation on calculation of technical provisions and basic own funds

Decision 111/2018 of the EEA Joint Committee has been published in the Official Journal of the European Union. The Decision concerns incorporating Commission Implementing Regulation (EU) 2018/165 laying down technical information for the calculation of technical provisions and basic own funds for reporting with reference dates from 31 December 2017 until 30 March 2018 under the Solvency II Directive into Annex IX (Financial Services) to the EEA Agreement.

The Decision was made on 31 May 2018. Its date of entry into force is specified as 1 June 2018, provided that all notifications under Article 103(1) of the EEA Agreement have been made.

Download the full regulatory news bulletin 

Authored by Yvonne Clapham