Regulators respond to the crisis: impacts for insurers

Financial regulators around the world have recognised that the rapid escalation of the crisis caused by the Covid-19 pandemic will require specific regulatory responses. For insurers, many of these have been quite prescriptive, especially on products and the need to ensure customers are treated fairly.

When it comes to reporting, filing returns heavily dependent on generating detailed data or meeting licensing deadlines greater flexibility is being applied.

The European Insurance and Occupational Pensions Authority (EIOPA) has led the way.

It has, not surprisingly, stressed that all insurers have obligations under the Solvency II regime to maintain “sufficient eligible own funds on an on-going basis to cover their Solvency Capital Requirement. The risk-based Solvency Capital Requirement enables insurance undertakings to absorb significant losses and give confidence to policyholders and beneficiaries that payments will be made as they fall due” and has reminded national regulators they have extensive powers to intervene if they believe these obligations cannot be met.

EIOPA has now added weekly updates on its website of Risk free interest rate term structures (RFR) and Symmetric Adjustment to Equity Risk (EDA) which report its own “extraordinary calculations” on a weekly basis to monitor the evolution of RFR and EDA. EIOPA website

When it comes to reporting obligations, it moved quickly to relax some of its requirements

“In order to offer operational relief in reaction to coronavirus, national competent authorities (NCAs) should be flexible regarding the timing of supervisory reporting and public disclosure regarding end 2019. EIOPA will coordinate the specifics of the approach. 

“Furthermore, in the short term, EIOPA will limit its requests of information and the consultations to the industry to essential elements needed to assess and monitor the impact of the current situation in the market.”

It is also extending the deadline of the Holistic Impact Assessment for the 2020 Solvency II Review by two months, to 1 June 2020, although it is very likely this will move back even further.

In the United Kingdom, similar flexibility is being offered by the financial regulators.

The Financial Conduct Authority is delaying activity which is not critical to protecting consumers and market integrity in the short-term. This includes extending the closing date for responses to consultation papers and Calls for Input until 1 October 2020, as well as postponing publications and other non-essential activities.

It has, however, issued very clear guidance to insurers about how it expects them to deal with policyholders during the crisis, some of which will have significant impacts on loss ratios. The pressure on insurers has been further ramped up by the UK Parliament’s Treasury Select Committee which has sent a letter to the Association of British Insurers challenging what it sees as the industry’s poor response to the crisis so far and asking for detailed response on several sensitive issues

One change UK regulators are not relenting on at this stage are the plans for transitioning away from LIBOR.

“The central assumption that firms cannot rely on LIBOR being published after the end of 2012 has not changed and should remain the target date for all firms to meet … There has, however, been an impact on the timing of some aspects of the transition programmes of many firms. Particularly in segments of the UK market that have made less progress in transition and are therefore still more reliant on LIBOR, such as the loan market, it is likely to affect some of the transition milestones”, said the FCA.

Amid all the announcements from other bodies was one that will be especially welcome for many insurers. The International Accounting Standards Board has decided to delay the implementation of IFRS17 by two years to 1 January 2023. The Board did not link this directly to the Covid-19 pandemic but said it wanted to create an opportunity for all insurers around the world to adopt it at the same time.

Data protection and compliance with the General Data Protection Regulations (GDPR) during the pandemic will be a major concern for many senior managers as they are obliged to let people work for home accessing sensitive information.

The Information Commissioner’s Office (ICO) has been helpful in quickly making it clear that it will be as flexible as it possibly can within its statutory obligations: “We understand that resources, whether they are finance or people, might be diverted away from usually compliance or information governance work. We won’t penalise organisations that we know need to prioritise other areas or adapt their using approach during this extraordinary period”, said the ICO.

Regulators around the world are similarly moving to show flexibility in suspending deadlines for filing returns or making applications for re-licensing. In the United States, according to the National Association of Insurance Commissioners (NAIC) 18 states have already lifted important reporting requirements, including Wisconsin, Rhode island and Pennsylvania, and most others can be expected to follow suit.

Like the UK, US regulators are battling to focus insurers’ attention on the need to respond to the needs of policyholders. As in the UK, the scope of business interuption cover has quickly become a pressure point between regulators, policyholders and the insurance industry. In the US health insurance is an especially sensitive issue and the industry is coming under intensive pressure to be both efficient and generous in paying claims.

David Worsfold