Newsletter Insurance Regulation: “2021 outlook for insurance regulation”
The year 2020 was turbulent for the insurance industry. In addition to the existing challenges the insurance market faces, such as low interest rates, insurers and intermediaries were faced with the impact and consequences of the COVID-19 pandemic as well as the uncertainty surrounding the Brexit.
However, this e-zine does not take stock of 2020 but looks ahead to what we can expect in 2021. What are the priorities for the insurance industry? What aspects are at the forefront of the agenda of regulators and supervisors?
1. Sustainable finance
With the European Green Deal on the agenda, sustainable finance will be an absolute priority in 2021. Its impact 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.
(See our June 20, 2020 e-zine of on ESG)
2. Consequences and impact of COVID-19
In 2020, COVID-19 mainly impacted the continuity and reporting of the insurance company. In 2021, when government measures may be discontinued, the true impact of the pandemic will become clear.
We expect that the regulator's priorities will focus on the insurance company's solvency position, policyholder protection and financial stability. (See also our April 10, 2020 e-zine on insurance supervision in the context of COVID-19).
Furthermore, the insurance industry will be able to map the impact in specific insurance lines, such as directors' liability, event and travel cancellation, credit insurance, life insurance, health insurance etc. (See also our webinar on COVID-19 related claims from July 9, 2020)
3. Aftermath of Brexit: renewed focus on run-off transactions, governance and reinsurance
Now that the uncertainty surrounding Brexit is off the table, the regulator will examine whether companies active in Belgium comply with the applicable prudential framework and insurance distribution rules. This priority will lead to a broader focus on the issues involved and possibly lead to reforms that are important for the entire market.
In particular, the regulator will pay attention to the insurance undertaking’s governance requirements, such as those related to corporate substance and conflicts of interest. With respect to outsourcing, we expect special attention from the regulator (e.g. internal control, effective supervision, outsourcing to third countries, etc.) and do not exclude another amendment to the NBB's Overarching Governance Circular.
Furthermore, the regulator will pay attention to the management of legacy portfolios and the structure of reinsurance schemes in order to assess whether prudential and conduct of business rules are sufficiently complied with, for example in the context of the requirement to exercise oversight over outsourced services and the supervisors’ ability to exercise effective supervision. (See also our e-zine of 25 September 2020 on portfolio transfers and other regulated transactions)
Finally, we look forward to developments at the European level, in particular regarding the UK equivalence decision and initiatives regarding supervisory cooperation.
4. Innovation, InsurTech and Cyber resilience
The insurance sector is in full development. Market consolidation pushes innovation and the occurrence of COVID-19 has accelerated the development of digital distribution channels.
Therefore, 2021 will be the year of innovation. Existing and new players will bring new products and distribution channels to the market and will receive due attention from the regulator.
Insurance undertakings and intermediaries must pay special attention to the applicable legal framework for these new products, distribution channels, internal processes and business models, as well as the risks they entail in terms of continuity and solvency.
Furthermore, the existing challenges regarding the digitalisation of the market and society will continue, especially in the areas of cyber litigation, directors' liability and (implicit?) cyber risks.
We particularly look forward to the further development of the broad initiatives taken at all policy levels (Belgium, EU and international).
(See also our e-zine of 18 December 2020 the impact of Digital Operational Resilience Act (DORA) on insurance)
5. Solvency II Review
On 17 December 2020, EIOPA published its opinion to the European Commission on the review of the Solvency II Directive. Although this opinion does not fundamentally change the prudential framework, it contains important changes nevertheless, for instance regarding the principle of proportionality, recovery and resolution and long-term investments.
The European Commission will publish its proposal for a European directive in 2021.
6. Insurance distribution
Finally, insurance distribution remains a major point of attention for the industry.
In particular, we expect the regulator to continue to prioritise the registration requirement for insurance intermediaries and to pay particular attention to entities based in the UK or working with affiliates in the UK.
As always, insurance distributors should continue to pay particular attention to conduct of business rules, such as those on conflicts of interest and (pre-) contractual disclosure requirements.
This newsletter is part of a series of seminars, webinars and newsletters provided by Lydian on insurance regulation.
Lydian is an accredited training institution for insurance distribution (FSMA n° 473627046). Participants of seminars and webinars automatically receive a certificate of attendance after participation. Please request further details on our in-house training program via email@example.comSend an e-mail to firstname.lastname@example.org