February 18, 2019

Ed Sibley, the Deputy Governor (Prudential Regulation) of the Central Bank of Ireland, spoke at the Central Bank Insurance Conference on “Thriving in Challenging Times” in Dublin. He detailed the five broad strategic priorities of the Central Bank of Ireland for the insurance sector, as outlined in the strategy for 2019 to 2021. The priorities are maintaining resilience of the system, dealing with Brexit-related issues, strengthening consumer protection, engaging and influencing, and enhancing organizational capability.

Mr. Sibley mentioned that insurers must operate in line with the domestic and international regulatory regime. The risk-based supervision of insurance firms is delivered in line with this regime, is anchored by the Probability Risk and Impact System (PRISM) methodology, and strives to ensure that the system and individual firms operating within it are appropriately resilient. In the recent years, volatility in the cost of insurance in Ireland has undoubtedly caused challenges for insurance customers. However, he stated that the boards and management of regulated firms are expected to ensure that their firms are sufficiently resilient. Mr. Sibley further noted that recovery and resolution planning for insurance firms also requires further work. He added that the regulatory regime for insurance is not sufficiently robust or consistent across Europe. This issue is accentuated by the inconsistency in insurance compensation schemes across Europe—an issue for both home and host supervisors. In addition to pushing for further developments at the European level, the Central Bank of Ireland is driving firms to improve how they execute recovery planning and to advance its own approach to resolving insurance firms.

He emphasized that the focus on culture and lack of diversity at senior levels in the financial system extends beyond the banking system and the Central Bank will work on this in the insurance sector in 2019. Mr. Sibley said, "We are only in the foothills of the potential testing of the resilience of the financial system that a hard Brexit will cause. It has short-term and long-term implications for the structure of the Irish economy and the Irish financial system. Any form of Brexit will be damaging for Ireland, with a hard Brexit especially so. Recognizing these risks, the Central Bank of Ireland has been focused on Brexit risks since before the 2016 UK referendum. In recent months, we have stepped up our work on mitigating the most material ‘cliff-edge’ risks of a hard Brexit." From a financial regulation perspective, work the Central Bank of Ireland has sought to ensure the financial system is resilient enough for a hard Brexit not to cause significant financial stability risks. A proportionate, robust, efficient, and effective authorization process is being delivered in line with European regulatory norms, for the firms seeking authorization in Ireland as a result of Brexit.

For insurance, the majority of firms covering the vast majority of policies written are taking appropriate action. The Central Bank of Ireland has worked with the Department of Finance to support the drafting of legislation to protect customers of insurance products in the event of a no-deal Brexit. Additional uncertainties faced by the insurance industry include the following:

  • More frequent and severe storms, floods, and droughts have already affected insurers. Further increases in the number and severity of disruptive climatic events look certain. Furthermore, as the Governor of the Central Bank of Ireland recently remarked, the financial system (including the insurance industry) has a crucial role to play in the transition to a lower carbon economy.
  • Insurance is also at the forefront of the opportunities and challenges that arise from disruptive technology change, both in how the services are provided and the services are needed.
  • Demographic changes across Europe are profound, with an increasingly aged population needing to be served for a longer period of time.

Finally, Mr. Sibley highlighted that the introduction of Solvency II represented a significant milestone for the insurance industry. To ensure that the Solvency II regime continues to develop, remain relevant, and appropriately protect policyholders and beneficiaries, the Solvency II review is scheduled for 2020. This review will provide the opportunity to examine the practical implementation of Solvency II and to ensure that it remains fit-for-purpose, adapts to changes in market conditions and evolving business models, and continues to meet its fundamental objectives. Input to the 2020 review of Solvency II will be a key area of focus for the Central Bank of Ireland this year.

 

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Keywords: Europe, Ireland, Insurance, Resolution Planning, Brexit, Solvency II, Financial Stability, Central Bank of Ireland, BIS

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