UK: 'Welcome News' As FCA Closes Insurance Broker Market Study (Pinsent Masons Insurance Briefing: 5 March 2019)

Last Updated: 6 March 2019
Article by Alexis Roberts, Nicholas Bradley and Colin Read

Latest fortnightly round-up of insurance, legal and business developments with analysis and commentary from the insurance team at Pinsent Masons.

The main topics we're focusing on this week are:

'Welcome news' as FCA closes insurance broker market study

The FCA has published its final report on the UK wholesale insurance broker market, finding no need for intrusive market intervention. The FCA's report identifies some areas where brokers could improve their practices, particularly around managing conflicts of interest and in some of their contractual agreements with insurers. However, it has taken the rare step of closing its market study without first publishing an interim report, after finding no evidence of "significant levels of harm that merit the introduction of intrusive remedies". Insurance law expert Iain Sawers of Pinsent Masons said that the report's conclusions would be welcome news for the UK broker market. "Brokers will be relieved to know that the overall conclusions from the report were positive and that the FCA has not found evidence of significant levels of harm to competition that will require intrusive regulatory remedies. There will have been considerable scrutiny over the past year and large UK brokers will be pleased that the FCA, while identifying discrete areas warranting further attention, has given their market a relatively clean bill of health. In particular, the regulator did not find evidence of excessive profitability in the market or that larger brokers were earning the highest remuneration rates. This was a factor that was causing some concern." Read more...

FCA flags 'inconsistent' application of MiFID II charges disclosure and PRIIPs rules

Firms have been urged to review their compliance with retail customer costs and charges disclosure rules and the EU's Packaged Retail and Insurance-Based Investment Products (PRIIPs) regulation following reviews by the FCA. The FCA said that firms' "inconsistent approaches" to the disclosure requirements set out in the PRIIPs regulation and recast Markets in Financial Instruments Directive (MiFID II), risked confusing customers. However, it said that it had found no evidence of deliberate non-compliance with the rules, which came into force in early 2018. Insurance and wealth management expert Tobin Ashby of Pinsent Masons, the law firm behind, said: "It is probably not surprising that the FCA has identified in these reviews some inconsistencies in approaches between firms, who will have had to develop compliant approaches that align with their particular business and background systems to regulatory deadlines that have come thick and fast over the last 18 months. For PRIIPs, there is the added complication of the acknowledged issues, which the FCA is discussing at an EU level. The regulator is considering further guidance to ensure firms understand how to apply these regulations, but is expecting firms to focus on improving their compliance with PRIIPs to avoid the need for the FCA to take its own action." Read more...

Mandatory cyber insurance backed to improve incident response

Making cyber insurance compulsory would help improve the way businesses respond to cyber attacks and data breaches, cyber risk expert, Freya Ollerearnshaw of Pinsent Masons has said, though a benchmarking exercise would need to be conducted before policy makers move to mandate take up. Ollerearnshaw was commenting after the idea of compulsory cyber insurance was mooted by Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority (EIOPA), at a fintech conference in Brussels on Tuesday. Bernardino said: "Cybersecurity and cyber risk are at the forefront of the concerns of economic operators and public authorities. The insurance sector has an important role to play in establishing good risk management practices and the associated coverage. The innovation and efficiency brought with the use of new technologies and high volumes of information will only become a reality if we find collective solutions to deal appropriately with cyber risk. As cyber-insurance markets mature, we should start to discuss if cyber insurance should also be mandatory. This would provide a further level of security for companies and consumers in the digital world." Read more..

Backing for GDPR-style penalties for consumer law breaches

EU law makers have endorsed plans to give regulators scope to issue GDPR-style fines against businesses that breach consumer law. Under the proposals backed by the Council of Minister's Permanent Representatives Committee (Coreper) late last week, businesses found responsible for breaching EU rules on unfair commercial practices, consumer rights and on unfair consumer contract terms could be hit with fines of at least up to 4% of their annual global turnover "for widespread cross-border infringements". Read more...

Businesses not ready for 'no deal' Brexit

Businesses are not prepared for the possibility of the UK leaving the EU without a withdrawal agreement, the UK government has said. In a new note detailing the government's take on the implications of a 'no deal' Brexit for business and trade, the government warned such a scenario "would have a range of significant impacts for the UK". Brexit expert Guy Lougher of Pinsent Masons said: "The paper doesn't contain any surprises. It instead highlights certain risks to UK businesses arising from a 'no deal' Brexit, which have been previously discussed, ranging from potential disruption to supply chains that depend on timely movements of goods on the short sea crossing between the UK and France, to the need for UK exporters to get their products tested with EU-based assessment bodies, which will increase their compliance costs. By now, businesses trading with the EU should have identified what the particular implications would be for them of a 'no deal' Brexit, and considered how such risks might be mitigated." Read more...

Irish no-deal Brexit bill proposes temporary insurance run-off regime

Plans for a temporary run-off regime, allowing UK insurers to continue to serve their Irish customers for a time-limited period after a no-deal Brexit, have been published by the Irish government. The Irish government has made provision for the temporary run-off regime as part of the Withdrawal of the United Kingdom from the European Union Bill ('Brexit Omnibus Bill'), which has just been published ahead of its introduction to the Dail next week. It has proposed that the regime would last for three years from the date of the UK's withdrawal from EU without an agreed withdrawal deal in place. In a 'no deal' Brexit scenario, the UK will become a 'third country' on 30 March 2019. UK insurers and distributors will therefore lose the right to conduct business freely in Ireland by virtue of EU law, on both a freedom of establishment (branch) basis and on a freedom to provide services basis. Insurance law expert Niall Campbell of Pinsent Masons said that the proposed run-off regime should provide at least some assistance to UK insurers which meet the relevant conditions, provided that they were able to wind up their Irish business within the three-year period specified by the legislation. "If an insurance contract underwritten by a UK insurer took longer than three years to runoff, the understanding is that any administration of that contract which is carried on outside of the proposed time period would not benefit from the regime." Read more...

EIOPA publishes no deal Brexit insurance continuity plans

The European Insurance and Occupational Pensions Authority (EIOPA) has published recommendations for national EU insurance regulators, aimed at minimising disruption to policyholders should the UK leave the EU without a withdrawal agreement. In a 'no deal' Brexit the UK will become a 'third country' on 30 March and UK insurers and distributors will lose the right to conduct business freely in the EU. EIOPA has said that, in principle, insurance contracts concluded in the EU by UK insurers will remain valid once the UK becomes a third country. However, the insurers would no longer be authorised to carry out insurance activities with regard to these cross-border contracts. Insurance law expert Alexis Roberts of Pinsent Masons said that the recommendations were rightly focused on policyholder protection in the event of a 'no deal' Brexit. "EIOPA cites 0.16% of insurance business in the EU27 as having no, or insufficient, contingency measures in place for the end of March 2019. While significant in terms of numbers of affected policyholders, this relatively low percentage is testament to the large amount of preparation work being carried out by UK insurers over the past 12-18 months." Read more...

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