Insurance & Reinsurance 2023

• Jurisdiction: European Union
• Published date: 16 March 2023
• Subject Matter: Consumer Protection, Insurance, Reinsurance, Dodd-Frank, Consumer Protection Act
• Law Firm: Matheson
• Author: Mr Darren Maher, April McClements, Sharon Daly, Gr'inne Callanan and Karen Reynolds
• topic: Insurance Law,Tax Law,Mergers and Acquisitions,Consumer Law

1. Basis of Insurance and Reinsurance Law

1.1 Sources of Insurance and Reinsurance Law

Ireland has a common law legal system. The law in relation to insurance contracts is primarily governed by common law principles, the origins of which can be found in case law.

Following the enactment of the Consumer Insurance Contracts Act 2019 (CICA), the Marine Insurance Act 1906 (MIA) only applies to non-consumer contracts. There are some forms of insurance that are compulsory under statute in Ireland - for example, third-party motor insurance and professional indemnity cover for certain professionals.

There is no Irish equivalent to the UK Insurance Act 2015. However, CICA was signed into law in 2019, reforming the area of consumer insurance law. It commenced in two stages (on 1 September 2020 and 1 September 2021), following industry pressure to allow sufficient time for the insurance industry to account for the far-reaching changes imposed. In the case of consumer insurance contracts, CICA has replaced the duty of utmost good faith and the consumer's duty of disclosure with a duty to provide responses to questions asked by the insurer honestly and with reasonable care.

Consumers

There are some restrictions on insurers' freedom of contract - largely for the protection of consumers, as they are subject to the enactment of Irish legislation to comply with EU law. Consumer protection law, in particular, has undergone a number of changes as a result of the Unfair Terms in Consumer Contracts Directive 1993/13/EC and the Distance Marketing of Financial Services Directive 2002/65/EC.

When dealing with a "consumer", the insurer must also comply with the Central Bank of Ireland (CBI)'s Consumer Protection Code 2012 (CPC), the Consumer Protection Act 2007 and Consumer Rights Act 2022 (CRA). Under the CPC, "consumer" is quite broadly defined and includes individuals and small businesses with a turnover of less than EUR3 million. The same definition is applied for the purposes of the CICA. "Consumer" under the CRA is defined as "an individual acting for purposes that are wholly or mainly outside that individual's trade, business, craft or profession".

Insurance contracts, and the marketing and selling of insurance products to consumers, must also be compliant with the terms of the Sale of Goods and Supply of Services Act 1980 (as amended by the CRA).

2. Regulation of Insurance and Reinsurance

2.1 Insurance and Reinsurance Regulatory Bodies and Legislative Guidance

Ireland has a strong and efficient risk-based prudential regulatory framework, focusing on the application of the proportionality principle.

The Central Bank of Ireland

The CBI has primary responsibility for the prudential supervision and regulation of insurance and reinsurance undertakings in Ireland. It carries out its role through monitoring and ongoing supervision and issues standards, policies and guidance, with which (re)insurance undertakings are required to comply.

The CBI oversees corporate governance functions, risk management and internal control systems of (re)insurance undertakings without placing burdensome administrative requirements on their operators. Such undertakings are required to submit annual and quarterly returns on solvency margins and technical reserves for supervisory purposes. The CBI also conducts regular themed inspections across the (re)insurance sector.

The CBI operates a rigorous authorisation process and conducts fitness and probity assessments of individuals who are to hold certain designated management functions and positions within authorised firms. It also has responsibility for consumer protection issues.

Risks and risk ratings

An administrative sanctions regime provides the CBI with a credible enforcement tool and acts as an effective deterrent against breaches of financial services law. The CBI's supervisory framework, Probability Risk and Impact SysteM (PRISM), is a risk-based framework that categorises regulated firms by the potential impact of their failure on the economy and the consumer. Under PRISM, (re)insurance undertakings are allocated a risk rating on a scale of high (including ultra-high), medium-high, medium-low or low. PRISM recognises that the CBI does not have infinite resources, and selectively deploys supervisors according to a firm's risk rating.

Although relatively few in number, high-impact firms are recognised as the most important for ensuring financial and economic stability and are therefore subject to a higher level of supervision.

The CPRA

The CBI's Consumer Protection Risk Assessment (CPRA) model aims to enhance the manner in which regulated entities manage "the risks they pose to consumers and ensure they have appropriate risk management frameworks to deliver for their customers". (Re)insurance companies are required to implement a consumer protection risk management framework that is tailored to the nature, scale and complexity of their business. The CBI assesses the effectiveness of these internal management frameworks through targeted CPRAs, which are in addition and supplementary to the CBI's PRISM and regular thematic inspections.

II Code and the 2015 Regulations

The Insurance Institute's Code of Ethics and Conduct (the "II Code") is also relevant to the regulation of insurance and reinsurance undertakings. The II Code is a voluntary code of conduct aimed at protecting policyholders resident in Ireland. It has been adopted by members of Insurance Ireland, which is the representative body for (re)insurance undertakings in Ireland.

EU Directive 2009/138/EC ("Solvency II") introduced a common regulatory framework for EEA insurance and reinsurance undertakings and was transposed into Irish law by the European Union (Insurance and Reinsurance) Regulations 2015 (the "2015 Regulations"). The 2015 Regulations impose harmonised capital and solvency requirements, valuation techniques, and governance and reporting standards. They also impose certain restrictions on shareholders of (re)insurance undertakings, as the CBI will not grant an authorisation to an undertaking if it isn't satisfied as to the suitability, fitness and probity of "qualifying" shareholders.

For the purposes of the 2015 Regulations, a qualifying shareholding means a direct or indirect holding in an undertaking that:

• represents 10% or more of the capital or voting rights of the undertaking; or
• makes it possible to exercise a significant influence over the management of the undertaking.

The IDD

The European Union (Insurance Distribution) Regulations 2018 (IDR) transposed the Insurance Distribution Directive (EU) 2016/97 (IDD) into Irish law ? thereby harmonising the distribution of insurance and reinsurance products within the EU ? with the aim of facilitating market integration and enhancing consumer protection. The IDR were designed to:

• enhance consumer protection and ensure a level playing field across the sector by extending the scope of application to include all participants in the distribution of insurance products;
• identify and mitigate conflicts of interest, particularly in the area of remuneration; and
• introduce increased transparency and conduct of business requirements.

2.2 The Writing of Insurance and Reinsurance

See 2.1 Insurance and Reinsurance Regulatory Bodies and Legislative Guidance.

2.3 The Taxation of Premium

Insurance undertakings and intermediaries authorised by the CBI or in another EU/EEA member state carrying on business in Ireland are required to comply with certain Irish general good requirements, such as the CPC. The CPC contains general and specific provisions concerning insurance, including requirements relating to premium handling and contact with consumers - for example, information that must be provided to consumers before entering into a contract for a product or service, records, errors, rebates and claims processing.

Persons carrying out a "controlled function" on behalf of financial service providers are also expected to satisfy the minimum professional knowledge and competency requirements set out in the Minimum Competency Code and Regulations 2017 (MCC).

A range of taxes, levies and duties are applied to insurance policies, including:

• non-life insurance policies attract stamp duty of EUR1 per policy;
• non-life insurance policies also attract a levy of 3% on the gross amount received by an insurer in respect of certain non-life insurance premiums - an additional 2% contribution to the Insurance Compensation Fund applies to premiums received in relation to non-life insurance policies;
• life assurance premiums attract a levy of 1% of gross premiums and
• health insurance attracts levies that, depending on the cover range from:
  
  
  • EUR122 to EUR406 in respect of relevant contracts renewed or entered into on or after 1 April 2022 and on or before 31 March 2023; and
  • EUR109 to EUR438 in respect of relevant contracts renewed or entered into on or after 1 April 2023.

3. Overseas Firms Doing Business in the Jurisdiction

3.1 Overseas-Based Insurers or Reinsurers

Licensing of (Re)insurance Companies

Undertakings wishing to carry on (re)insurance business in Ireland must obtain authorisation from the CBI or another EU regulator through the "single passport" regime. The CBI has published a checklist for completing and submitting applications for authorisation under the 2015 Regulations (the "Checklist"), along with a guidance paper to assist applicants. The applicationcomprises the completed Checklist and a detailed business plan plus supporting documents (the "Business Plan") that is submitted after a preliminary meeting with the CBI.

The principal areas considered by the CBI in evaluating applications include:

• legal structure;
• ownership structure;
• overview of the group to which the applicant belongs (if relevant);
• scheme of operations;
• system of governance, including the fitness and probity of key personnel;
• risk management system;
• Own Risk and Solvency Assessment (ORSA);
• financial information and...