Insurance: “Outlook 2022”

Sustainable financing remains an absolute priority in 2022.

On 7 December 2021, EIOPA published its priorities in the field of sustainable financing for the next three years[1].  It formulates the following key areas of activity:

• Integrate ESG risks in the prudential framework of insurers and pension funds
• Consolidate of macro-/micro-prudential risk assessment of ESG risks in tools and methodologies
• Promote sustainability disclosures and a sustainable conduct of business framework 
• Support the supervision of ESG risks and supervisory convergence in the EU
• Address protection gaps by completing the dashboard for gaps in protection against natural disasters
• Promote the use of open source modelling and -data in relation to climate change risks
• Contribute to the international convergence for the assessment and management of sustainability risks through international dialogues and fora on sustainability

On 9 December 2021, the Commission's Delegated Regulation (EU) 2021/2139[2] of 4 June 2021 supplementing the Taxonomy Regulation establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation and for determining whether that economic activity causes no significant harm to any of the other environmental objectives, was published in the Official Journal of the EU. The Delegated Regulation entered into force on 1 January 2022.

On 10 December 2021, the Commission’s Delegated Regulation (EU) 2021/2178[3] of 6 July 2021 supplementing Regulation (EU) 2020/852[4]  by specifying the content and presentation of information to be disclosed by undertakings subject to Articles 19a or 29a of Directive 2013/34/EU concerning environmentally sustainable economic activities, and specifying the methodology to comply with that disclosure obligation, was published in the Official Journal of the EU. The European Commission published the FAQs on Article 8 of the Delegated Regulation in December 2021. This provides non-binding guidance from the Commission on the implementation of the obligations.[5]

The entry into force of the regulatory technical standards ("RTS") elaborating some of the obligations of the Sustainable Finance Disclosure Regulation ("SFDR" or "Transparency Regulation"[6]) was postponed until 1 January 2023.[7]

The impact of these developments will not be limited to regulatory compliance, but will extend more broadly to the insurer's operational activities, such as its investment policy, underwriting policy and the impact on the performance of the insurance portfolio.

2.1 TERMINATION OF THE INSURANCE CONTRACT

There are currently two legislative proposals pending in the Chamber of Representatives relating to modifying the regime of cancellation of insurance contracts, as currently stipulated in Article 85 of the Insurance Act of 4 April 2014.

A first legislative proposal dates back to 2019 and aims to make it possible for consumers to terminate an insurance contract after a term of one year, without any costs or penalties, without taking the expiry date into account. Some recent amendments from December 2021 may have reinvigorated the legislative proposal.[8]

The second legislative proposal is more recent and was submitted in December 2021. This proposal specifically relates to the car insurance[9] and aims to introduce a so-called 'uniform cancellation service', whereby the new insurer with whom the insured wishes to conclude a contract would arrange the cancellation of the current insurance contract on behalf of the insured. The new insurer would also have to guarantee the continuity of the insurance cover for the benefit of the insured.

It should also be noted that the coalition agreement of the De Croo government also states that efforts will be made to create an 'insurance industry that is transparent to the consumer', whereby it will become 'easier for the consumer to compare products and potentially switch to another insurance company'.

These recent legislative proposals and the intentions of the government and the competent Minister Dermagne already indicate that for the coming period, possible changes to the cancellation regime should be taken into account.

2.3 INSURANCE ON CIVIL LIABILITY FOR MOTOR VEHICLES 

On 2 December 2021, the new Directive relating to insurance against civil liability in respect of the use of motor vehicles (Directive (EU) 2021/2118)[10] was published in the Official Journal of the European Union. This Directive must be transposed into Belgian law by 23 December 2023 at the latest. The Directive provides for, among other things, a new definition of the term 'motor vehicle', taking into account the emergence of all kinds of new (electric) vehicles such as steps and e-bikes. The new definition uses a lower limit in terms of weight and speed to delineate the scope of the Directive. However, Member States are explicitly given the freedom to still require motor vehicle insurance for 'any motorised equipment used on land'. It is therefore necessary to wait and see which direction the Belgian legislator take.

The Directive also takes the possibility of an insolvent insurer into account, and provides for legal protection measures for the compensation of injured parties in the event of the insolvency of an insurance undertaking.

Finally, we note that according to the Directive, EU Member States 'must be able to choose to certify tools that enable consumers to compare prices, rates and coverage of policies for insurances on civil liability for motor vehicles’. This last aspect is part of the evolutions regarding digitalization and simplification of insurance for consumers, and is also in line with an objective in the coalition agreement to ensure that 'consumers can compare financial products more easily'. It is therefore to be expected that the Belgian transposition of the Directive will indeed opt for the introduction and organisation of such comparison modules.  

2.4 EXTENSION OF THE RIGHT TO BE FORGOTTEN

Articles 61/1 to 61/4 of the Insurance Act already provide a right to be forgotten for outstanding-balance life insurance policies for residential loans and for professional loans, among others, for people affected by a cancerous disease.

There are currently several legislative proposals pending in the Chamber of Representatives to further extend this right to be forgotten. The most recent proposal aims to:[11]

• exempt the candidate insured from the reporting obligation once the period for being forgotten has expired. Under the current regulation, candidate insured persons still have to fulfill the obligation to report in accordance with Article 58 of the Insurance Act, but the insurance undertaking is prohibited from taking this into account in the risk assessment after the expiry of a period of 10 years after successful completion of the treatment;
• lowering the standard term for exercising the right to be forgotten from the current 10 years to 5 years for under 21-year-olds;
• extending the right to be forgotten to insurances against incapacity for work and travel cancellation insurances.

The Chamber's plenary session also adopted a resolution on 10 November 2021 which, among other things, states that the list of chronic diseases for which the right to be forgotten could be invoked should be further examined and, if necessary, expanded.
 

3.1 NEW PROPERTY LAW

The Act of 4 February 2020 inserting Book 3 'Goods' into the Civil Code came into force on 1 September 2021. Especially the legal anchoring and extension of the doctrine of neighbourly nuisance is of enormous importance for the insurance practice. Think, for example, of a civil liability-insurance of companies, an insurance of all construction site risks or fire insurance in which neighbourhood nuisance is regularly included as a covered risk.

Under the old property law, the victim of neighbourhood nuisance could claim appropriate and fair compensation. The new property law gives the victim the following three options: (i) monetary compensation; (ii) compensation for the costs of carrying out works on the obstructed real estate with the aim of reducing the nuisance to the normal level; and (iii) an order to cease the activity that disturbs the balance, or to take measures on the obstructed real estate that reduce the nuisance to the normal level. A combination of several options is possible. In addition, the new property law introduces the preventive action for serious and manifest risks of safety, health or pollution.

The new property law and especially the expanded doctrine of neighbourly nuisance may give rise to interpretation problems when applying existing insurance policies. Therefore, we expect the insurance industry to further adapt to the new practice in 2022.

3.2 NEW CONTRACTUAL AND EXTRA-CONTRACTUAL LIABILITY LAW

On 24 February 2021, a legislative proposal on the insertion of Book 5 'Obligations' into the new Civil Code, was submitted to the Chamber of Representatives.[12] In addition, the Commission for the reform of liability law prepared a preliminary draft of the law inserting the provisions on extra-contractual liability into the Civil Code[13] and an explanatory memorandum.[14]

The preliminary draft of the law on the new extra-contractual liability law provides for an insurance obligation for certain new or aggravated liabilities. This is particularly the case for the liability of (i) holders of custody of minors; (ii) persons charged with organising and controlling the way of life of another in an overall manner; and (iii) educational institutions.

Although the texts have not yet been approved by the Council of Ministers, we expect further progress in 2022.

4.1 SOLVENCY II REVIEW

On 22 September 2021, the European Commission published its comprehensive package of proposals and accompanying documentation relating to the revision of the Solvency II-Directive.

In particular, the European Commission has adopted two proposals for directives, one of which concerns the revision of the existing Solvency II-framework and the other the harmonisation of recovery and resolution procedures following (probable) failure of (re)insurance undertakings.

For an overview of the content of the European Commission's proposals, we refer to our e-zine dated 30 September 2021.[15]

The proposals are now pending before the European Parliament. Following the negotiation on, and adoption of the final texts, Member States must transpose the final directives into national law and apply the measures no later than 18 months after the entry into force of the final directives.

4.2 OUTSOURcING

For insurance undertakings, the EIOPA Guidelines on outsourcing to cloud service providers apply from 1 January 2021.[16] These Guidelines apply from 1 January 2021 to all outsourcing agreements concerning cloud services that enter into force or are amended on or after that date. 

As regards existing outsourcing agreements concerning cloud services related to critical or important operational functions or activities, insurance undertakings should ensure that they comply with the EIOPA Guidelines by 31 December 2022 at the latest. If the review of outsourcing agreements concerning cloud services related to critical or important functions or activities has not been completed by 31 December 2022, the undertaking must notify its supervisory authority, specifying the measures she planned to complete the review or the possible exit strategy. The supervisory authority may, where appropriate, agree with the undertaking on an extended term for the completion of that review.

The peer review on outsourcing from EIOPA is expected in the first quarter of 2022.[17] The aim of the peer review will be to assess the application of the relevant provisions of the Solvency II-framework in relation to outsourcing, to exchange experiences and information on the extent of outsourcing in the EEA and to identify best practices. Under the scope of the peer review, the approach of national competition authorities towards outsourcing and the supervision of outsourced functions and activities will be assessed.

Digital innovation in the insurance sector increased in 2021. Insurers innovate by applying digital techniques for the distribution of their insurance policies (e.g. smart phone apps), by partnering with (supporting) insurance intermediaries with innovative distribution models, by implementing advanced internal processes (e.g. cloud computing) and by developing new insurance products (e.g. cyber cover). This trend will undoubtedly continue in 2022.

The regulatory authority pays particular attention to the monitoring of new technologies. The regulatory authority regularly issues specific guidelines. For instance, the National Bank of Belgium has published guidelines on outsourcing to cloud service providers and cloud computing.[18] There are detailed rules on cybersecurity, such as the communication of the Financial Services and Markets Authority (FSMA) on the basic principles of cyber risk management[19] and the National Bank of Belgium’s prudential expectations on cyber risk management.

Also in 2022, new products or distribution channels will be brought to the market by existing and new players and will receive due attention from the regulator. EIOPA also indicates in its annual work programme that it will support the market and regulators in the digital transformation in 2022.[20] EIOPA will also focus on preliminary works in the field of open insurances and on the development and the impact of platforms within the insurance value chain in 2022. Regarding the digital resilience of the insurance sector, EIOPA will focus on preparing the technical works needed to implement the new legislative proposal on the Digital Operational Resilience Act (DORA) which, once adopted, will ensure that all participants in the financial system have the necessary safeguards in place to mitigate cyber-attacks and other risks.

6.1 REVISION IDD

Following the planned revision of Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution ("IDD") by the Commission, EIOPA published a report on the application of the Directive in the various Member States.[21] Amongst other things, problems were identified with the implementation of the demands and needs test and with the form requirements of the information obligations in a digital context. However, EIOPA states that it is too early to draw any firm conclusions. EIOPA therefore plans to publish another report in two years' time, to help the Commission in its future review of the directive. The revision of the IDD may lead to proposals that further alter the existing framework of insurance regulation.

6.2 PROFessional Knowledge and further Training

From 1 January 2022, it will be possible to carry out an insurance or reinsurance distribution activity under the status of "trainee sub-agent".[22] This new status is the solution to start an activity of (re)insurance distribution under an independent status.

A 'trainee sub-agent' is an (re)insurance sub-agent who meets all the registration requirements, including the required theoretical knowledge, but who does not have 6 months of useful practical experience. He can gain this useful practical experience under the enhanced supervision of a (re)insurance broker or agent.

The exercise of the activity of 'trainee sub-agent' is subject to certain conditions that the FSMA will elaborate in a future newsletter. 

The FSMA also indicates that it will publish a regulation on the regulated further training in the near future. 

6.3 Prouduct oversight and goverance

In the fourth quarter of 2022, EIOPA plans a peer review on product oversight and governance. This peer review is intended to examine how national supervisors monitor the POG and its application in practice with regard to target market assessment, product testing and the monitoring and review phase for insurance-based investment products and related products.[23]