In September 2024, the Central Bank of Ireland (CBI) published its latest quarterly Insurance Newsletter covering various matters of interest for Irish (re)insurers (Newsletter).

In this article, we have highlighted the key points of interest including CBI updates on:

• Thematic Review of Climate Change Risk Materiality Assessments;
• Targeted Assessment of Consumer Protection Risk Management Frameworks;
• Workshop on the Responsible Use of Big Data and Related Technologies (BD&RT); and
• Personal Injuries Guidelines – Thematic Claims Inspection.

1) Thematic Review of Climate Change Risk Materiality Assessments

The CBI reinforced the fact that climate change risk is a strategic priority for it with the publication of its findings from its recent thematic review of the materiality assessments of 29 Irish (re)insurers from across the PRISM impact scale. In March 2023, the CBI published its Guidance for (Re)Insurance Undertakings on Climate Change Risk (CBI Guidance) to clarify its core expectations of how (re)insurers should consider climate change risk within their business. According to the CBI Guidance, the first step in understanding the potential impact of climate change risk on a (re)insurer’s business model is an assessment of the materiality of a (re)insurer’s exposure to climate change risk. The CBI had previously made clear that materiality assessments would, therefore, be a supervisory focus in 2024.

While acknowledging that most (re)insurers had made efforts to meet the CBI Guidance, the CBI’s key points of feedback focused on:

• the importance of a clearly explained and reasoned baseline scenario as this should form a coherent foundation for the materiality assessment;
• the analysis of potential exposures to climate change risk, considering the (re)insurer’s business model and strategy, in all risk categories and over all time horizons; and
• ensuring that clear conclusions on the materiality of climate change risks are reached, including first and second-order impacts.

In the Newsletter, the CBI also encourages (re)insurers to improve their efforts in terms of challenging the reasonableness of conclusions reached and their consideration of climate change risks in ongoing strategic decision-making and integration into their business models.

2) Targeted Assessment of Consumer Protection Risk Management Frameworks

The Newsletter highlights the recent Dear CEO Letter issued to insurers detailing the main findings from the CBI’s targeted assessment of Consumer Protection Risk Management Frameworks under its Consumer Protection Risk Assessment (CPRA) model. The findings showed that while insurers were at differing levels of maturity, the CPRA Guide 2017 (specifically module 1) has been a positive influence, particularly in terms of how insurers identify and manage consumer risks. However, the CBI observed that while progress had been made, some insurers have not yet reached the maturity level required to avoid and/or manage all risks to consumers, and to drive a culture of high standards.

The CBI’s supervisory focus on consumer protection risk management will continue over the coming months, especially given the new requirements relating to ‘securing customers’ interests’ proposed under the Consumer Protection Code Review. In particular, the Dear CEO Letter requires insurers to undertake the following specific follow-up actions:

• Gap analysis – the existing frameworks must be reviewed and any areas for improvement identified;
• Accountability – the name of an individual in a PCF role with accountability for delivery of the Dear CEO Letter’s expectations must be provided to the CBI by 30 September 2024; and
• Implementation – the updated plans must be presented to the Board of Directors by 30 November 2024, and full implementation is expected by 30 June 2025.

As a matter of good practice, the CBI also noted that insurers should consider including an assessment against the other modules in its CPRA Guide in their future audit and compliance plans.

3) Workshop on the Responsible Use of BD&RT

The Newsletter contains a useful summary of the key discussion points from the CBI’s workshop on the Responsible Use of BD&RT, which was attended by insurance industry stakeholders and senior CBI and European Insurance and Occupational Pensions Authority (EIOPA) representatives.

The key points emerging from the workshop discussions included:

• It was recognised that the existing governance and risk management framework within (re)insurers could be used, or adapted where relevant, for BD&RT purposes;
• There is a lack of a shared and consistent understanding within the insurance industry as to the definition of Big Data and AI. Notwithstanding that AI is a current hot topic, there seems to be varying levels of understanding as to the potential use and impacts of AI within (re)insurers;
• Careful consideration of customer consent to the use of data is needed, in addition to a shared understanding of the scope and type of data that insurers could collect from a policyholder in a responsible and ethical way; and
• Some concerns were raised that FinTechs who are unencumbered by legacy business and structures could enter the market and take a significant share of business via AI-enabled products or processes without being subject to the same degree of regulatory constraints as (re)insurers.

The CBI indicated that it will consider the main discussion points raised further and factor these into its policy work in this area going forward.

4) Personal Injuries Guidelines – Thematic Claims Inspection

The CBI recently conducted a thematic claims inspection on the impact of the Personal Injuries (PI) Guidelines and Claims Inflation (H2 2023) in a sample of domestic non-life insurance firms. The CBI observed that the full impact of the PI Guidelines on case reserves has yet to emerge but it emphasised that it is vital that insurers continue to monitor this closely. In particular, the CBI expects insurers to:

• Maintain a prudent approach following the implementation of the PI Guidelines;
• Utilise trend analysis and management information to monitor the changing awards trends;
• Regularly report such information to internal stakeholders, including the Board; and
• Support their claims staff with appropriate policies, guidance documentation, and training.

From the CBI’s inspection, insurers reported an overall reduction in awards for General Damages in cases under the PI Guidelines. However, insurers also reported that the level of litigation costs had not decreased in line with the overall reduction in awards.

Other Topics

In addition to the key takeaways outlined above, other topics of interest in the Newsletter include updates on the CBI’s first Authorisations and Gatekeeping Report (see our article here), some observations from the CBI’s recent inspection of life insurers’ compliance with Unclaimed Life Policies obligations, the latest EIOPA developments relevant to the (re)insurance sector (e.g. the Solvency II Review Consultations), as well as a brief recap of recent CBI activities.

To view the Newsletter in full, please click here. If you have any questions on any item covered in the Newsletter, please contact any member of the Insurance & Reinsurance team or your usual William Fry contact.

Contributed by Conor Beirth.