Types of Insurer
There are separate schemes of authorisation and regulation for life and non-life insurance. The differences in the risks and nature of the business have justified separate legislation. Both are regulated by the Central Bank and contain many common features. In each case, Irish regulations made under the European Communities Act implement the EU Directives.
It is a feature of both schemes of regulation that entities are authorised for particular classes of insurance business, set out in their authorisation. The legislation divides various insurable risks into classes and an insurer is accordingly regulated, for the relevant class or classes.
A captive insurance company is generally established as an independent entity, to insure part or all of its group risks. The same broad regulatory regime applies.
Reinsurance business is regulated under EU legislation. Ann authorisation is required as a reinsurer. The authorisation period is broadly similar to that in respect of insurance companies.
A scheme of operations must be proposed setting out details of the risks to be insured, the kinds of reinsurance arrangements, certain business principles and strategies and the minimum guarantee fund. There are similar obligations in respect of reserves, guarantee fund and solvency margin.
An entity or undertaking which wishes to carry on an insurance business in Ireland must be authorised by the Central Bank. There are two separate schemes of regulation of insurers. One is primarily based on older domestic legislation and the other derives from European Union legislation. Where authorisation is required under both, the Central Bank treats the application as an application in respect of both.
Every Irish incorporated company carrying on insurance business requires to be authorised in Ireland, even if it insures risks which are wholly or primarily outside Ireland. It is a serious offence for an entity to carry on the requisite business without the appropriate authorisation.
The general financial services regulatory provisions, applicable to banks and other financial institutions, and described in other sections, apply to the insurers. In 2003/2004, most existing schemes of regulation of entities in the financial and insurance sectors were brought within the remit of the newly created Financial Regulator. A broadly common scheme or approach to regulation was applied. The functions of the Financial Regulator were transferred to the Central Bank in 2010.
The authorisation of an insurance company in the State requires a comprehensive application to the Central Bank. The Central Bank requires a wide range of information and must be satisfied with various matters including
- particulars of the directors, managers, and their professional qualifications, ability and competence to manage the business;
- proof of sufficient funds relative to the class of business;
- plans for income and expenditure in respect of operations over a three-year period;
- minimum prescribed capital;
- identity of qualifying shareholders (generally those holding more than 10%);
- details of legal and organisational structure, underwriting policies, premium calculations, claims experience, proposed management agencies;
- actuarial certificate.
Life insurance companies must maintain separate accounts and segregate life insurance business from non-life insurance and other business.
Reserves must be established in accordance with technical requirements. Assets must match liabilities over the long terms in terms of extent, the currency of exposure and other factors. There are provisions in relation to maintenance of sufficient margins of solvency. The relevant requirements are calculated mathematically in a matters provided by law and practice. Newly authorised entities must maintain sufficient reserves, including up to 200% of minimum margins.
Insurance companies must establish a minimum guarantee fund. This is the minimum level, below which the undertaking’s solvency may not fall. This applies irrespective of the scale of the entity.EU legislation prescribes the basis on which insurance undertakers must prepare their accounts.
If an entity fails to maintain the relevant technical solvency reserves, the Central Bank may intervene in its affairs and give directions in relation to it. It may be prohibited from making distributions. It may be subject to significant control, directions and prohibitions..
There are EU Directives on the authorisation of life insurance, non-life insurance business and in relation to insurance intermediation business, in order to facilitate a single insurance market. Entities are usually regulated by the home state in respect of prudential and equivalent requirements. However, they must comply with the doing business or Code of Conduct type rules, that apply in the host State.
An Irish based insurer may undertake insurance business in another EU State through a branch. It must give prior notification of a certain period to the Central Bank which must, in turn, inform the authorities in the host State. Those authorities can require certain confirmations and proofs, including particulars of its solvency margin from the domestic regulator.
If there are doubts regarding the financial or technical capacity of the proposed branch, the requirement to transmit documentation to the host state does not apply or is suspended. The host state has two months in which to respond to the notification. It may impose requirements in relation to doing business. The requirements will depend on the local law.
As under EU law generally, services may be provided in another EU state without establishing a branch. In this case, a similar procedure applies which is less onerous, and has shorter lime limits.
Insurance Intermediary and Mediations Authorisation
An applicant intermediary must apply to the Central Bank giving details of its shareholders and directors. It must show the structure, cash flow projections, arrangements to ensure compliance with its obligations under legislation and the Code, details of its compliance officers, minimum competence and necessary insurances. An authorisation may be subject to conditions and ongoing requirements.
A parallel authorisation which is wider in scope applies under the Insurance Mediation Regulations. This regulates a much wider category of entities involved in insurance provision or services.
Under the EU insurance mediation regulations, any person or undertaking engaged in an activity involving proposing, the undertaking of preparatory work in relation to entering insurance or reinsurance contracts or of assisting in the administration or performance of such contracts, including dealing in claims, must be authorised by the Central Bank as an intermediary. It is an offence to carry on any such business without authorisation.
Insurance mediation includes third-party administrators who are engaged by undertaking to provide administrative services in relation to insurance contracts and services. This may include service providers involved in fulfilling the terms of the policies. This does not apply to
- a mediation activity undertaken by an employee of a regulated undertaking;
- involves the provision of information on an incidental basis in conjunction with some other professional activity, provided the purpose of the activity is not to assist the person in entering or performing an insurance contract;
- involves the management of claims of insurance undertaking on a professional basis;
- involves loss adjustment or expert appraisal of claims for insurance undertaking.
An authorisation is not required where the person carrying on what would otherwise constitute mediation can satisfy the following conditions:
- contracts require only knowledge of the insurance cover provided under the contract;
- not for life insurance;
- do not cover the risks for which the insurers may be liable to indemnify the insured;
- the principal or professional activity is not insurance mediation;
- the insurance is complementary to a contract for the supply of goods and services and insurance covers risk of breakdown or damage to these goods or the contract is for the provision of travel insurance and covers damage to loss of baggage or other travel risks even if the insurance includes life cover, as long as this is ancillary to the main risks linked to travel; and
- the annual premiums under the contracts do not exceed €500 and no contract is for a term of more than five years.
This is intended to cover entities such as travel agents and retailers who provide travel insurance and warranties and extended warranty cover related to their sales.
Regulatory Requirements I
The investment intermediaries’ legislation applies to insurance intermediaries. Insurance policies are included in the definition of investment instruments. Indeed, many insurance policies are primarily investment policies with an element of insurance incorporated. Insurance intermediaries are regulated as investment intermediaries.
Accordingly, an intermediary will generally be categorised as providing investment business services and/or investment advice. Investment business services include receiving and transmitting orders in relation to insurances and other investment instruments.
See separately the section on the regulation of investment intermediaries. In broad terms, there are a number of different types of intermediary categories. Restricted activity investment product intermediaries are permitted to receive and transmit orders for insurers but cannot hold funds, except in limited circumstances.
Multi-agency intermediaries may only provide advice in relation to insurance policies by undertakings for which they hold an appointment. An authorised adviser may provide advice on a range of products in the market. All providers are now subject to the Consumer Protection Code.
Insurance undertakings and other product providers may not appoint intermediaries or pay commissions, or other payment, unless the intermediary is itself regulated and complies with its legal obligations, to the best of the product producer’s knowledge. It is an offence to accept orders or pay commission to a non-regulated party.
Insurers must maintain registers of their intermediaries. They are required to be open for public inspection. Copies must be provided to the Central Bank periodically. Where an appointment is discontinued, the insurer must notify the Central Bank of the circumstances and the intermediary must publish a notice saying his /its appointment has been discontinued in one national newspaper. If it fails to do so, the insurer may do so.
Regulatory Requirements II
Insurers are obliged to ensure that their appointed intermediaries comply with the regulations. The Regulations require intermediaries to have knowledge and ability to comply with the relevant legal requirements and sufficient knowledge and competence to carry out the relevant activities. Minimum qualifications and competence, including continuing professional development and other obligations, apply on an ongoing basis.
There are requirements in respect of client accounts. Money paid to an intermediary is deemed to be paid to the insurance undertaking. Money paid to the intermediary for the customer is not deemed paid, until the customer receives it.
Intermediaries must have minimum professional indemnity cover of €1 million for each claim and in aggregate 1,500,000 per claims annually.
Insurance intermediaries must disclose certain information including whether they are under a contractual obligation to advise exclusively on the products of one insurer or whether it provides advice based on an analysis of the market or larger number of products.
Specified steps must be taken and information must be provided in advance of an insurance contract being entered. This includes a detailed needs assessment (know your customer) and a rationalisation of the relevant recommendation.
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