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

Contents

• COVID-19: FCA FS20/7 and final guidance on assessing value of insurance products
• COVID-19: FCA update and guidance consultation on business insurance interruption test case
• COVID-19: IAIS 2020/21 work programme and roadmap adjustments
• Solvency II: Commission Implementing Regulation amending ITS on mapping credit assessments of ECAIs

COVID-19: FCA FS20/7 and final guidance on assessing value of insurance products

Following consultation, on 3 June 2020, the UK Financial Conduct Authority (FCA) published a feedback statement, FS20/7, and final guidance for insurance firms on assessing the value of their insurance products in light of circumstances arising from COVID-19, "Product value and coronavirus: guidance for insurance firms". The guidance applies to all firms carrying on activities relating to general insurance and protection policies and, in particular, firms that manufacture these products, whether for retail or commercial customers (but not reinsurance products). It sets out what the FCA considers firms should be doing to identify any material issues that affect the value of the general insurance and protection products they offer, and their ability to deliver good customer outcomes, during this unprecedented time.

The FCA has made a small number of changes to the guidance, including changes to clarify that firms:

• should consider the value of products where, due to the impact of COVID-19, there has been a material reduction in risk so that they are providing little or no utility to customers, and not just where claims are no longer possible; and
• are not expected to assess value on an individual customer level, but should consider the FCA's guidance on helping customers in temporary financial difficulty.

The guidance came into effect on 3 June 2020. Firms should complete their review of product lines and have decided on resulting actions by no later than 3 December 2020. Firms can also assess the longer term impacts of COVID-19 on their insurance products on an ongoing basis beyond the 6-month period. When firms identify issues, the FCA expects them to take appropriate action. It will monitor the steps that firms take through its contact with them, but is not requiring firms to publish the outcomes of their reviews at this time.

The FCA will review the guidance within the next six months in the light of COVID-19 developments and may revise the guidance if appropriate.

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

On 1 June 2020, the FCA published an update on the progress of its court action on business interruption (BI) insurance policies in light of COVID-19. It has also published for consultation (that ended on 5 June) draft guidance on its expectations for insurers and insurance intermediaries when handling claims and complaints for BI policies during the test case. The FCA intends for the guidance to come into force when it issues the claim form to start the test case, or shortly thereafter.

The FCA:

• identifies a representative sample of policy wordings that it considers capture the majority of the key issues that could be in dispute;
• lists those insurers that use these wordings and which of those insurers it has invited, and have agreed, to participate in the proceedings and a framework agreement they have entered into;
• gives an estimated timeline for how the various stages of the test case will proceed, subject to the court's consent. The FCA intends to file the claim form and particulars on 9 June 2020, with a view to a five to ten-day court hearing in the second half of July; and
• also published proposed assumed facts (for example, the types of business and how they responded to the pandemic), a proposed issues matrix and proposed questions for determination by the court.

The FCA expects to publish in early July 2020 a comprehensive list of other insurers and many other BI policies in the market that it expects the test case to affect, based on firm submissions. It notes that it expects the test case to provide guidance for the interpretation of many other BI policies that are not in the representative sample, which means that other insurers will also be affected by the test case and its conclusions.

COVID-19: IAIS 2020/21 work programme and roadmap adjustments

The International Association of Insurance Supervisors (IAIS) has published its newsletter for April/May 2020, in which it outlines further adjustments to its 2020/2021 work programme to address the impact of the coronavirus (COVID-19) pandemic on the insurance industry. The IAIS has also updated its roadmap for 2020/2021 to reflect the changes to its work programme and other adjusted timelines.

Solvency II: Commission Implementing Regulation amending ITS on mapping credit assessments of ECAIs

Commission Implementing Regulation (EU) 2020/744, which amends Commission Implementing Regulation (EU) 2016/1800 laying down implementing technical standards (ITS) with regard to the allocation of credit assessments of external credit assessment institutions (ECAIs) to an objective scale of credit quality steps in accordance with the Solvency II Directive, has been published in the Official Journal of the EU (OJ).

The Amending Regulation will enter into force on 25 June 2020.

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