After the intense activity of the Brexit period for both the UK and the EU, it was anticipated that there would be a relative period of calm in the regulation of the European insurance and reinsurance markets. However it has transpired that, partly for political reasons, there continues to be a flurry of further legislative and rule changes in both the UK and EU.
As the UK government seeks to highlight the advantages of the UK leaving the EU and aims to bolster investment in the UK economy, it has been progressing with some significant changes in the UK Solvency II based regime by seeking to free up capital in the insurance sector for investment in infrastructure, including certain “green” assets. Whilst also recognising the need for some reform of Solvency II, the UK prudential regulator (the PRA) is keen to ensure that changes do not expose policyholders to an unacceptable level of risk.
In addition, and unusually given that it is in the reinsurance sector, the PRA launched a consultation on funded reinsurance in November 2023, following earlier indications that it was looking closely at this type of arrangement. The consultation paper contains a variety of proposals, many of which appear to formalise procedures already familiar to insurers. Others however, could prove challenging to implement, particularly for larger firms engaged in complex reinsurance activities or for firms that use large reinsurers with complex business models.
In other areas, it appears that the UK government does not wish to diverge significantly from the current rules. Therefore, while the retained EU law relating to the Insurance Distribution Directive will be revoked from 5th April 2024, this follows proposals from the UK conduct regulator (the FCA) issued in September 2023, confirming that the current regime applying to the distribution of insurance products will not change substantively.
Both the UK and EU will continue to have a focus on operational resilience for 2024 as the UK regime will become fully applicable, making 2024 the last year for insurers to embed the new requirements. In particular, the FCA has notably raised concerns about insurers’ level of governance, oversight and contingency planning on outsourced services in its 2024 letters to property and casualty and wholesale firms.
Meanwhile, The Digital Operational Resilience Act in EU regulation will fully apply in January 2025. Similar to its UK counterpart, 2024 will also be the final implementation year, during which secondary standards providing key technical detail will be finalised.
The overall picture, therefore, is one of a continuing raft of changes in both the UK and EU. Thus, all participants in the market will need to maintain oversight of what is approaching on the regulatory horizon.
In our latest sector report, our experts delve into some of the key trends and themes we expect to influence the insurance sector during 2024.