Grant Thornton’s newest partner on the challenges of the insurance regulatory landscape

Nuala, an actuary with almost 20 years of experience in the insurance industry, previously worked within Irish and international companies as well as heading up the Insurance Supervision division in the Central Bank of Ireland. As a result, Nuala is well placed to understand insurance regulatory requirements and the practical implications of those requirements for firms.

Insurance executives heading back to the office this autumn after a long period of Covid-19 restrictions are facing a more complex work environment. We have witnessed how the global pandemic amplified the regulatory requirements and interventions triggered by the 2008 financial crisis and introduced some new risks including the controversy around business interruption insurance and the challenges of hybrid working. On top of that, the government’s Action Plan for Insurance Reform, designed to make the industry more competitive and consumer friendly, will keep the pressure on.

During my time at the Central Bank, culture within regulated financial services providers was a major focus. I expect this to continue. The Central Bank’s leadership views the behaviour of financial services professionals, from the C-suite down, to be as important as capital requirements and operating rules. Reflecting that, the Central Bank is developing a Behaviour and Culture Framework, building on the work of previous reviews. Regulatory inspections are sure to follow and some of the biggest firms in the sector are already seeking pre-emptive culture assessments to prepare for such scrutiny.

A major part of the Central Bank’s focus on culture will be the Individual Accountability Framework, which will require financial firms to identify where the buck stops when things go wrong. Under this new regime, the individual responsibilities of top managers will have to be clearly mapped out under the Senior Executive Accountability Regime (SEAR). The cover of ‘decision by committee’ will no longer apply and firms will have to make clear who is calling the shots within committee structures. A welter of new documentation will be required and companies must be ready to respond to information requirements. This will not just be about box-ticking: managers will have to show that these changes are embedded in how their company operates. Unsurprisingly, firms that are seeking to be best in class are already starting to benchmark their existing compliance with the Central Bank’s fitness and probity rules, conduct and HR frameworks. For the Irish implementation, we have the benefit of lessons learned from the rollout of similar regimes in the UK, Singapore and elsewhere. As Grant Thornton is a global firm, we have taken insights from our international colleagues as we work with clients here on their journey to embed SEAR into their everyday operations.

Business interruption cover and a spike in insurance premiums have put the spotlight on general insurers, but I expect the life insurance market to come increasingly into focus

Operational resilience – the ability to deliver critical operations through disruption – has clearly jumped up the Central Bank’s priority list during the Covid-19 crisis. The rollout of hybrid working models, complete work-from-home and full return-to-office in the wake of that crisis will bring different challenges and risks. Insurance companies which do not prepare for the forthcoming Central Bank Guidance on Operational Resilience risk falling foul of the regulator. Domhnall Cullinan, director of insurance in the Central Bank, has flagged that once the guidelines are introduced, firms must ensure they are compliant.

Outsourcing, including intragroup outsourcing, is another focus for the Central Bank as it reviews companies’ operational resilience. The regulator’s concerns centre around the dependency created by outsourcing. Companies are increasingly reliant on a third party, or sometimes a chain of third parties, to deliver their services, meaning they are exposed if things go wrong. The Guidance on Operational Resilience should be considered in conjunction with the Cross-Industry Guidance on Outsourcing, which outlines the Central Bank’s expectations on governance and management of outsourcing risk. This guidance also contains reminders for boards and senior management about their responsibility in overseeing and monitoring their outsourcing arrangements.

Business interruption cover and a spike in insurance premiums have put the spotlight on general insurers, but I expect the life insurance market to come increasingly into focus. The European Insurance and Occupational Pensions Authority is currently developing a framework on unit-linked products which will inevitably draw attention to the prices savers are charged and the returns they receive. Value for money is the key area of concern and we expect to see a focus within the framework on fees and, in particular, fee transparency.

The Own Risk and Solvency Assessment (ORSA) is a vital tool for companies but the Central Bank has recently signaled that some firms still see it as a compliance exercise. All companies should pause before their next ORSA submission to ensure that they can provide evidence of board engagement and challenge, and also demonstrate that the ORSA is at the core of everything they do. For example, companies should have updated the ORSA to show the potential impacts of Covid-19 on their businesses.

Finally, all insurers need to draw up and maintain pre-emptive recovery plans. Companies need to spend time and energy on these documents to ensure they are realistic and can stand up to regulatory scrutiny. Executives tell us that, like so many other regulatory requirements facing them, recovery planning is a drain on resources. That may be so, but the central bank will want to see evidence that the plan is thoughtful, comprehensive and fully embedded into the organisation.

The array of regulations, new and old, facing insurers is immense. Firms need to take a pro-active approach. Those who identify the opportunities as well as the challenges arising from the European and Irish regulatory regimes and factor them into their business plans will come out on top.

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