Insurance & Reinsurance: Laws And Regulations 2023

• Law Firm: Matheson
• Subject Matter: Consumer Protection, Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Arbitration & Dispute Resolution, Dodd-Frank, Consumer Protection Act
• Author: Mr Darren Maher and April McClements
• Published date: 05 May 2023

1. Regulatory

1.1 Which government bodies/agencies regulate insurance (and reinsurance) companies?

The Central Bank of Ireland (the "Central Bank") is responsible for the authorisation of and has primary responsibility for the prudential supervision and regulation of insurance and reinsurance undertakings in Ireland. This role is achieved through the monitoring and ongoing supervision of regulated firms and the issuing of standards, policies and guidance, with which (re)insurance undertakings are required to comply.

1.2 What are the requirements/procedures for setting up a new insurance (or reinsurance) company?

Undertakings wishing to set up a (re)insurance business in Ireland must obtain authorisation from the Central Bank.

The Central Bank has published both a checklist for completing and submitting applications for authorisation under the European Union (Insurance and Reinsurance) Regulations 2015 (the "2015 Regulations") (the "Checklist"), and a guidance paper to assist applicants. The application comprises the completed Checklist and a detailed business plan, together with supporting documents (the "Business Plan"), submitted after a preliminary meeting with the Central Bank.

The principal areas considered by the Central Bank 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 (the "ORSA");
• financial information and projections;
• capital requirements and solvency projections; and
• consumer issues (such as the Minimum Competency Code and the Consumer Protection Code 2012 (the "CPC")). A high-level overview of the application for authorisation process is as follows
  • arrange a preliminary meeting with the Central Bank to outline the proposals, at which the Central Bank will provide feedback in relation to the proposal and identify any areas of concern that should be addressed before the application is submitted;
  • prepare and submit the completed Checklist and Business Plan;
  • dialogue with the Central Bank - the application process is an iterative one. During the review process, it will typically request additional information and documentation, and is likely to have comments on certain features of the proposal. The Central Bank may seek additional meetings with the applicant as part of this process in order to discuss aspects of the proposal in further detail;
  • the authorisation committee of the Central Bank considers the application;
  • once the Central Bank is satisfied with the application, it will issue an "authorisation in principle" letter, which means that it is minded to grant its approval once certain conditions are satisfied; and
  • once all conditions are satisfied, the Central Bank will issue the final authorisation and the (re)insurer can commence writing business in Ireland.

The Central Bank will issue a formal authorisation once it is satisfied that the capital requirements and any pre-licensing requirements have been met. The authorisation process can take between four and six months. The Central Bank does not currently charge a fee for assessing such applications.

1.3 Are foreign insurers able to write business directly or must they write reinsurance of a domestic insurer?

(Re)insurance undertakings authorised in an EU/EEA Member State may carry on business in Ireland on a freedom of establishment basis, through a local branch or by operating in Ireland on a freedom of services basis, provided that their home state regulator notifies the Central Bank. The 2015 Regulations facilitate a non-EEA insurer establishing a branch in Ireland (a "Third-Country Branch"), subject to the fulfilment of specific regulatory requirements. Significantly, a Third-Country Branch that has been authorised by the Central Bank does not have the right to passport into other EU/EEA jurisdictions and, accordingly, is only permitted to write business in Ireland.

1.4 Are there any legal rules that restrict the parties' freedom of contract by implying extraneous terms into (all or some) contracts of insurance?

There are some restrictions on insurers' freedom of contract in Ireland. These restrictions are largely for the protection of consumers. As Ireland is an EU Member State, Irish authorised insurers are subject to EU law and the Irish implementing legislation is the basis of many of these restrictions. Examples include the Unfair Terms in Consumer Contracts Directive 1993/13/EC and the Distance Marketing of Financial Services Directive 2002/65/EC.

Insurers must also comply with the Central Bank's CPC and the Consumer Protection Act 2007 when dealing with consumers. The Consumer Insurance Contracts Act 2019 (the "2019 Act") provides increased protection to consumers. Under the CPC and the 2019 Act, the term "consumer" is quite broadly defined, including individuals and small businesses with a turnover of less than EUR 3 million.

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.

1.5 Are companies permitted to indemnify directors and officers under local company law?

Irish legislation prohibits a company from including in its constitutional document and contracts any provision which indemnifies its directors and officers from liability to the company in respect of negligence, breach of duty, default or breach of trust. However, there is one exception to this: a company may indemnify a director or officer from any liability incurred by that director or officer in successfully defending civil or criminal proceedings taken against him/her for action taken by him/her in their role as director or officer of that company.

However, a company is not precluded from purchasing directors' and officers' ("D&O") insurance in relation to the negligence, breach of duty, default or breach of trust of a director. D&O policies generally cover damages awarded against the director, legal costs in relation to an action and, in certain circumstances, the costs of the director in relation to any official investigation taken by the regulatory authorities in Ireland. However, D&O policies generally exclude cover for fraud and criminal fines that have been imposed.

1.6 Are there any forms of compulsory insurance?

There are some forms of insurance that are compulsory under statute in Ireland, such as third-party motor insurance and certain types of aircraft and shipping insurance. Certain professional bodies also require their members to maintain professional indemnity insurance (e.g., solicitors, liquidators and (re)insurance intermediaries).

2. (Re)insurance Claims

2.1 In general terms, is the substantive law relating to insurance more favourable to insurers or insureds?

The substantive law relating to insurance in Ireland is traditionally perceived as being more favourable to insurers.

However, the 2019 Act introduced significant changes to insurance law when an insurer is dealing with a consumer. The legislation is ultimately aimed at improving consumer protection, and it addresses some of the perceived imbalances between insurers and consumers in Irish insurance law. The following is a sample of some of those changes:

• The 2019 Act abolished the concept of an "Insurable Interest" as a requirement for a customer to make a claim except in the case of a contract of indemnity. Additionally, an insurer is not relieved of its liability under a contract simply because the name of the beneficiary is not specified in the policy document.
• The 2019 Act replaced warranties in consumer contracts with suspensive conditions. Basis-of-contract clauses, which effectively convert representations into warranties, have been abolished.
• The 2019 Act introduced a 14-working-day cooling-off period for consumers for all contracts.
• The principle of pre-contractual utmost good faith has been abolished for consumer contracts, and consumers are now only required to answer honestly and with reasonable care with respect to the specific questions posed to them by insurers. Insurers may not ask general questions but specific questions in a durable medium, in plain and intelligible language.
• Where a contract is cancelled the consumer must be provided with reasons for the cancellation, and the insurer must repay the balance of any unexpired term of the contract.

2.2 Can a third party bring a direct action against an insurer?

Under common law, a third party to an insurance contract has no general right to bring a direct action against an insurer. This is due to the operation of the principle of privity of contract, which provides...