Insurance regulatory news, July 2020

Hogan Lovells

Hogan Lovells

Recent regulatory developments of interest to insurers and their intermediaries. Includes updates relating to COVID-19, Solvency II, and more.


  • COVID-19: FCA expectations on travel insurance, handling of consumer claims and refund requests
  • COVID-19: FCA updates expectations of motor insurers
  • COVID-19: FCA update on business interruption insurance test case
  • UK Solvency II technical provisions: PRA CP5/20
  • Solvency II 2020 review: European Commission consultation
  • Liquidity risk management: IAIS consultation

COVID-19: FCA expectations on travel insurance, handling of consumer claims and refund requests

On 29 June 2020, the UK Financial Conduct Authority (FCA) updated its webpage on information for firms in light of COVID-19 with its expectations of insurers when handling consumer complaints and refund requests.

The FCA reminds insurers that, when handling claims, they must treat customers fairly. In part, this means providing reasonable guidance to help a policyholder make a claim, not unreasonably rejecting a claim and settling claims promptly.

The FCA states that this includes insurers taking into account, when dealing with claims, that the pandemic is a stressful time for customers.

Some customers submitting a travel insurance claim might also have a right to claim the cost of cancelled travel arrangements from their credit card provider. Where this is the case, the FCA states that insurers should consider how best to handle the claim to ensure that the customer is treated fairly and not raise unreasonable barriers to making a claim.

The FCA notes that where consumers have two potentially valid avenues of redress against regulated firms (for example, from an insurer and credit provider) it is possible for one regulated firm to settle the claim in full (so long as there is no disadvantage to the consumer in this) and, where appropriate, seek to claim back from the other regulated firm involved. Firms can also agree a convention with the other provider as to how these sorts of arrangements might work efficiently without having a negative impact on consumers. Regulated firms may need to consider issues such as any limits on recovery, for example, limits on insurance cover in these arrangements and how those can be addressed to minimise harm to consumers.

The FCA explains that, while this has not been a significant issue for consumers historically, given the current strain on the travel market, the complexity involved in obtaining a refund has become clearer. In view of this, it plans to consult in the coming weeks on guidelines to make its expectations of firms clearer in the future.

The FCA has also updated the travel insurance section of its webpage on insurance and COVID-19. In particular, it explains that, when selling an insurance policy, firms are required to only propose cover that is consistent with a customer's demands and needs, and states that it expects firms to ask customers questions to establish an individual customer's demands and match the products they are offered to these.

COVID-19: FCA updates expectations of motor insurers

On 30 June 2020, the FCA updated its guidance for insurers on its expectations of firms in light of COVID-19 to add a section on MOTs.

The FCA notes that the Department of Transport (DoT) has granted a six months extension of the MOT expiry date for cars, vans and motorcycles where the MOT was due between 30 March 2020 and 31 July 2020. An MOT certificate will not be extended if a vehicle's MOT expires on or after 1 August 2020, and an MOT must be booked as usual.

Given the DoT's guidance, the FCA expects motor insurers to continue to provide cover for consumers' car, motorcycle or van insurance due to their temporary situation. This includes at renewal, to ensure customers are able to shop around for their insurance.

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

On 30 June 2020, the FCA updated its webpage on the High Court test case concerning business interruption insurance. The update summarises the directions on how the case is to proceed following the second case management conference hearing on 26 June 2020 and provides:

UK Solvency II technical provisions: PRA CP5/20

The Prudential Regulation Authority (PRA) has published a consultation paper, CP5/20, on its proposed approach to the publication of Solvency II technical information after the end of the Brexit transition period.

Until the end of the transition period, UK insurers are required to use technical information published by the European Insurance and Occupational Pension Authority (EIOPA) to calculate their regulatory technical provisions under the Solvency II Directive. However, after that, the PRA is required to publish technical information for each relevant currency, referred to as "PRA relevant currencies".

In CP5/20, the PRA proposes:

  • its published technical information would be derived by adopting the same technical methodologies embodied within EIOPA's technical information as at the end of the transitional period, with some limited exceptions set out in an accompanying draft Statement of Practice at Appendix 1 to CP5/20;
  • the criteria that it would use to determine the PRA relevant currencies to publish would be based on the relative materiality of technical provisions denominated in each currency, and the currencies for which firms have volatility adjustment (VA) or matching adjustment authorisation;
  • the PRA's approach to determining the VA reference portfolios (which would inform the calculation of the VA) in light of the loss of sharing of regulatory returns data between the PRA and EIOPA; and
  • the publication of technical information on its website and, where there is a deviation in the future from EIOPA's technical methodology, a PRA publication that describes this deviation.

The consultation ends on 30 September 2020. The proposals would come into effect from the end of the transition period.

The PRA intends to issue a separate consultation paper later on in 2020 on its proposals with regard to how LIBOR transition would impact the design and production of technical information. The PRA may issue another consultation to propose further changes, once the UK's trading relationship with the EU becomes clearer.

Solvency II 2020 review: European Commission consultation

The European Commission is consulting on the 2020 review of the Solvency II Directive and a related inception impact assessment. The consultation on the review is split into the following chapter headings:

  • long-termism and sustainability of insurers' activities and priorities of the EU framework;
  • proportionality of the European framework and transparency towards the public;
  • improving trust and deepening the single market in insurance services; and
  • new emerging risks and opportunities.

The deadline for responses to the consultation paper is 21 October 2020 and 26 August 2020 for the inception impact assessment.

The consultation will complement the work currently being undertaken by EIOPA on technical advice relating to the Solvency II review.

The Commission aims to adopt a legislative proposal in Q2-Q3 2021.

Liquidity risk management: IAIS consultation

The International Association of Insurance Supervisors (IAIS) has published an application paper on liquidity risk management. It provides guidance on the supervisory material related to liquidity risk management in the Insurance Core Principles (ICPs) and the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame). In particular, it is related to the material in ICP Standards 16.8 and 16.9 (ICP 16 Enterprise Risk Management (ERM) for Solvency Purposes) and ComFrame 16.9.a – 16.9.d.

The paper provides guidance and examples on:

  • considerations on applying liquidity risk management measures in a proportionate way and the ways that supervisors may tailor requirements;
  • detailed components of the four elements for “more detailed risk management processes” contained in ICP Standard 16.9:
    • liquidity stress testing;
    • maintenance of a portfolio of unencumbered highly liquid assets in appropriate locations;
    • a contingency funding plan; and
    • the submission of a liquidity risk management report to the supervisor; and
  • integration of liquidity risk into insurers' ERM frameworks.

Alongside the final version of the paper, the IAIS has published a resolutions document that contains the responses it received to its consultation, together with its comments on those responses.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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