“Insurance firms require strong customer-focused cultures and Central Bank will intervene on practices unfair or potentially unfair to consumers” – Director General Derville Rowland

• Differential Pricing and Business Interruption Insurance demonstrate Central Bank’s focus on conduct, culture and customer treatment
• Over €130 million paid in business interruption insurance claims to date
• Insurance sector needs to be prepared for the challenges ahead including digitisation and climate change

Speaking at the Deloitte 2022 Insurance Industry Trends event Director General, Financial Conduct Derville Rowland discussed the position of the insurance sector in Ireland, the effect of the COVID-19 pandemic, and the Central Bank’s expectations of the sector into the future. She also discussed the Central Bank’s current regulatory priorities, including an emphasis on conduct, culture and customer treatment, particularly around Business Interruption Insurance and Differential Pricing.

In relation to Differential Pricing, the Director General emphasised the need for boards to have strong governance and oversight of their pricing practices and understand the impact of their practices on consumers. In addition, firms should have fully embedded conduct risk management frameworks in place promoting positive behaviours in firms and fair outcomes for consumers.

On the Central Bank’s system-wide examination of Business Interruption Insurance, the Director General said the Bank is monitoring closely to ensure insurers continue to meet their obligations in full where valid claims are submitted. Where notified claims are valid, firms are fully settling them, or making interim payments while awaiting the High Court’s ruling on quantum, expected later this year. To date, more than €130 million has been paid to 4,371 policyholders through settled claims and interim payments.

The examination commenced by identifying c. 140 firms that potentially provided business interruption insurance cover in the Irish domestic market, and 145,000 policies. Through further review, the Bank identified 27 firms that were actively providing business interruption insurance cover for infectious diseases across more than 200 individual policy wordings. Each individual policy wording was then analysed, leading to the identification of 31,000 policies that were responsive to the circumstances of business interruption, or interference related to the outbreak of COVID-19.

The Director General said: “We directed all the firms to contact the 31,000 policyholders who, in our view, held a policy which was responsive to business interruption, along with details of how they could make a claim if they believed their business suffered an interruption or interference related to the outbreak of COVID-19 in Ireland.

“While a policy may be responsive, it does not necessarily result in a claim. There will, accordingly, be a significant difference between the number of policies we confirmed through our analysis as being technically responsive, and the number of businesses who actually proceed to claim. Many policyholders will not make a claim as their business may not have been interrupted; they may not have been reliant on their premises to continue doing business; or they may not have suffered losses as a result of COVID-19. For example, a proportion of responsive policies are in respect of essential retail businesses, care and health facilities or residential property owners which were not subject to closure.”

She added that there are other policyholders who have made a claim but have not yet submitted the relevant information in order for the claim to be assessed, because after the hardships of the last 18 months, the priority for some businesses is simply reopening and ensuring they get back on their feet, before dealing with issues such as insurance claims. Equally, other businesses may be awaiting the High Court quantum ruling before progressing their claim. She encouraged policyholders to engage with their insurer on all claims. Where policyholders have submitted a claim, it is vitally important they provide all necessary information to ensure full and successful settlement of valid claims.

Looking to the future she addressed the challenges facing the sector in the years ahead, including climate change and increased digitisation. Noting that while Irish insurance sector has experienced a relatively lower level of technological disruption, the adoption of digitalisation in insurance appears likely to grow year on year. She said: “Whilst those able to adapt effectively to a new digital environment may gain a competitive advantage, firms must also recognise that some prudential and consumer risks will emerge or be exacerbated by digitalisation.”

In relation to climate change and sustainability, she noted that the Central Bank has engaged with firms to make them aware of our supervisory expectations regarding Environmental, Social and Governance risks. Firms will have to adopt a range of appropriate measures to strengthen and improve their financial and operational resilience, as well as ensuring that customers are treated fairly and that consumer and investor interests are protected, she said.