This country-specific Q&A gives a pragmatic overview of the law and practice of insurance & reinsurance law in Ireland.
It addresses topics such as contract regulation, licensing, penalties, policyholder protection, alternative dispute resolution as well as personal insight and opinion as to the future of the insurance market over the next five years.
This Q&A is part of the global guide to Insurance & Reinsurance. For a full list of jurisdictional Insurance & Reinsurance Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/insurance-reinsurance
How is the writing of insurance contracts regulated in the jurisdiction?
There is no statutory definition of a contract of insurance under Irish law, nor are there specific rules for the formation of an insurance contract beyond the general principles of contract law and the duty of utmost good faith. As a result, the law in relation to insurance contracts in Ireland is primarily governed by common law principles, the origins of which can be found in case law. Irish legislation does not specify the essential legal elements of an insurance contract and the courts have considered it on a case-by-case basis.
The Central Bank of Ireland (the “Central Bank”) is responsible for the prudential regulation of (re)insurance undertakings and intermediaries operating in Ireland. The European Communities (Insurance and Reinsurance) Regulations 2015 (the "2015 Regulations"), which transposed Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 (“Solvency II”) into Irish law, sets out the regulatory framework within which insurance activity may be carried on by (re)insurers in Ireland. The 2015 Regulations received minor amendments by way of the European Union (Insurance and Reinsurance) (Amendment) Regulations 2017 (the “2017 Regulations”).
Generally speaking, the Central Bank has no involvement in supervising the writing of insurance contracts and insurers retain significant freedom of contract. However, the Central Bank may, from time-to-time, request that an insurer provides its general and special policy conditions, scales of premiums and other documents which the insurer uses in its dealing with policy holders. The Central Bank may request such information in respect of an insurance contract in order to verify its compliance with applicable requirements, namely the Unfair Terms in Consumer Contracts Directive 1993/13/EC, the Distance Marketing of Financial Services Directive 2002/65/EC, the Consumer Protection Code 2012 and the Consumer Protection Act 2007. The Sale of Goods and Supply of Services Act 1980 is also applicable to insurance contracts.
In addition, the supervisory role of the Central Bank involves ongoing review and assessment of an undertaking’s corporate governance, risk management and internal control systems for example. The Central Bank is also empowered to conduct regular themed inspections across the industry.
It should be noted that the Central Bank does not require the submission of product documents by insurance undertakings operating in the Irish market.
Are types of insurers regulated differently (i.e. life companies, reinsurers)?
Prior to the implementation of Solvency II through the 2015 Regulations, distinct regulations governed the activity of life insurance, non-life insurance and reinsurance in Ireland.
The 2015 Regulations now provide a uniform regulatory framework for each type of business and the Central Bank adopts a consistent approach in its supervision of these entities. However, given the difference in the nature of business carried on by each distinct insurer, the 2015 Regulations, together with the Insurance Acts 1909-2011, do make certain distinctions between the carrying on of non-life insurance, life insurance or reinsurance business.
From an approach perspective, the Central Bank has adopted the PRISM or the Central Bank’s “Probability Risk and Impact SysteM” which is a systemic risk-based framework against which the Central Bank assesses supervisory requirements i.e. entities that are categorised as being high-impact under PRISM are subject to a higher level of supervision by the Central Bank. PRISM recognises that the Central Bank does not have infinite resources and selectively deploys supervisors according to a firm’s potential impact and probability for failure. All regulated firms are categorised as high-impact (including ultra-high), medium-high, medium-low or low. The ratings are set according to the systemic risk posed by regulated entities, and firms are assigned one of the categories set out below. Although relatively few in number, high-impact firms are the most important for ensuring financial and economic stability and are therefore subject to a higher level of supervision.
Are insurance brokers and other types of market intermediary subject to regulation?
A person (or firm) cannot undertake, or claim to undertake, insurance mediation activities unless they are registered with the Central Bank pursuant to the European Communities (Insurance Mediation) Regulations 2005 (the “2005 Regulations”) or are passporting into Ireland on a freedom of establishment or freedom of services basis.
Insurance undertakings and intermediaries that manufacture any insurance product for sale to customers are required to implement product oversight and governance procedures prior to distributing or marketing an insurance product to customers. A target market must be identified for each product to ensure that the relevant risks to that target market are identified, assessed and regularly reviewed. In addition, insurance intermediaries are required to disclose the nature of any remuneration received in relation to an insurance contract to the customer.
Under the 2005 Regulations, “insurance mediation” means “any activity involved in proposing or undertaking preparatory work for entering into insurance contracts, or of assisting in the administration and performance of insurance contracts that have been entered into (including dealing with claims under insurance contracts)….”. The broad definition of insurance mediation contains important carve-outs excluding certain activities from that definition for the purposes of the 2005 Regulations. For example, activities specifically excluded from the definition include an activity: (a) that is undertaken by an insurer or an employee of such an undertaking in the employee’s capacity, (b) involves the provision of information on an incidental basis in conjunction with some other professional activity, so long as the purpose of the activity is not to assist a person to enter into or perform an insurance contract, or (c) involves the management of claims of an insurance undertaking on a professional basis; or (d) involves loss adjusting or expert appraisal of claims for reinsurance undertakings.
In Ireland, the 2005 Regulations captures most activities that insurance agents engage in other than limited back office claims management. However, the definition of insurance mediation in the 2005 Regulations refers to activities that include ‘dealing with claims’ and not the management of such claims. Therefore, it is the generally accepted understanding that insurance undertakings who engage solely in the administration of insurance claims, without assisting the insured with regard to claims are not governed by the 2005 Regulations.
On applying to the Central Bank to be registered as an insurance intermediary, the applicant must satisfy a number of criteria for authorisation, which include:
- the good reputation of directors;
- the knowledge and ability of senior management and key personnel;
- the holding of minimum levels of professional indemnity insurance; and
- maintenance and operation of client premium accounts.
The Central Bank maintains a register of authorised insurance intermediaries in Ireland and is responsible for supervising their compliance with regulatory requirements by way of advertising monitoring, themed inspections, general inspections and mystery shopping. Intermediaries are generally ranked as ‘Low Impact’ under the Central Bank’s supervisory framework, the Probability Risk and Impact System (“PRISM”). Therefore, intermediaries are subject to a lower level of supervision than imposed by the Central Bank on insurers and reinsurers.
The Irish Investment Intermediaries Act 1995 (the “IIA”), has not been disapplied and continues to govern the regulations of intermediaries despite the 2005 Regulations. As such, two pieces of Irish legislation govern intermediaries operating in Ireland. In practice, however, the Central Bank treats the provisions of the IIA as having been formally disapplied, although this is not strictly accurate. As such, technically the IIA is still inforce and insurance intermediaries should continue to comply with the IIA as well as the provisions of the 2005 Regulations.
The Insurance Distribution (Recast) 2016/97 (the “IDD”) was required to be transposed into Irish law by 23 February 2018, at which point the provisions of the 2005 Regulations were to be repealed. However, owing to discussions held at European level, the transposition date of the IDD has been postponed to 1 October 2018. Like its predecessor, the IDD is a 'minimum harmonising' directive. The IDD creates a minimum legislative framework for the distribution of (re)insurance products within the EU and aims to facilitate market integration and enhance consumer protection. The IDD introduces general consumer protection principles for all insurance distributors to act honestly, fairly and professionally and in accordance with the best interests of the customer.
The EU Regulation on Key Information Documents for Packaged Retail and Insurance-based Investment Products (EU1286/2014) (the “PRIIPs Regulation”), supplemented by the PRIIPs Regulatory Technical Standards 2017 (Delegated Regulation 2017/653) (“RTS”) came into effect on 1 January 2018. The PRIIPs Regulation is a key piece of legislation; which aims to enable retail investors to understand and compare the key features and the potential risks and rewards of investment products, funds and investment-linked insurance policies. The objective of the PRIIPs Regulation is to ensure that a common standard for Key Information Documents (“KIDs”) is established in a uniform fashion so as to be able to harmonise the format and the content of those documents.
A PRIIP means “an investment product where the amount repayable to the retail investor is subject to fluctuations because of exposure to reference values or to the performance of one or more assets which are not directly purchased by the retail investor; or an insurance product which offers a maturity or surrender value and where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations”.
The PRIIPs Regulation applies to persons who: (i) manufacture PRIIPs for sale to retail investors in the EEA or make changes to an existing PRIIP including, but not limited to, altering its risk and reward profile or the costs associated with an investment in a PRIIP (“PRIIP Manufacturer”); or (ii) advise on or sell PRIIPs to retail investors in the EEA.
The wide scope of PRIIPs Regulation means that all PRIIP Manufacturers and financial intermediaries that distribute PRIIPs to retail investors fall within its scope. Certain products, including non-life insurance products and pension products, are specifically excluded from the PRIIPs Regulation and UCITs are not obliged to comply with PRIIPs until 1 January 2020.
Is authorisation or a licence required and if so, how long does it take on average to obtain such permission?
Undertakings cannot carry on (re)insurance business in Ireland without authorisation from the Central Bank or from another recognised EU regulator through the ‘single passport’ regime.
On applying for authorisation, an applicant will typically meet with Central Bank representatives on a number of occasions. In the first instance, the applicant will have a preliminary meeting with the Authorisations Team of the Central Bank. Thereafter, the application proceeds through the submission of a detailed business plan to the Central Bank. The Central Bank will take a number of months to review the application. During the review process, it will typically request additional information and documentation and is likely to have comments on certain features of the application for authorisation. 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 Central Bank has a statutory six month time period within which to consider a fully completed application for authorisation as an insurance undertaking. Once an undertaking is authorised by the Central Bank it is licensed to carry on insurance or reinsurance activity across the EEA. The Central Bank does not currently charge a fee for licence applications.
A reinsurance provider can establish a special purpose reinsurance vehicle, which provides a quicker and simpler route to authorisation and reduces the extent of supervision by the Central Bank as compared with fully regulated reinsurers.
Are there restrictions over who owns or controls insurers (including restrictions on foreign ownership)?
The authorisation process requires the submission of details of all of the entity’s proposed shareholders to the Central Bank. However, there are no restrictions on the ownership or control of an insurance or reinsurance undertaking, other than the requirement that the proposed controller must be of good standing. The European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2016 have introduced increased disclosure requirements in respect of ownership of corporate entities. These regulations require entities to maintain a register of the beneficial owner (i.e., the natural person who ultimately owns or controls the share capital or the voting rights or has control by any other means of the undertaking) in order to ensure greater transparency of ownership.
The application for authorisation requests details of any proposed person that will ‘qualifying holding’ in the applicant. A ‘qualifying holding’ is defined in the 2015 Regulations as a holding representing 10% or more of the capital or voting rights, or which makes it possible to exercise a significant influence over the management of the undertaking. Furthermore, where there is a change in the ownership or control of a regulated entity, the 2015 Regulations require certain notifications to be made to the Central Bank. The acquisition, increase and/or disposal of a ‘qualifying holding’ triggers the requirement to notify the Central Bank. The Central Bank will assess any proposed acquisition by reference to, amongst others, the financial soundness of the proposed acquirer and the suitability of all proposed directors and senior management in accordance with its Fitness and Probity regime (to ensure the sound and prudent management of the undertaking).
Is it possible to insure risks without a licence or authorisation? (i.e. on a non-admitted basis)?
Prior to the introduction of Solvency II, (re)insurance activity was regulated at an EU level by Directives 88/357/EEC, 90/619/EEC, 92/49/EEC and 92/96/EEC (together “Solvency I”). Under Solvency I, it was possible for third-country (re)insurers to write business in Ireland on a non-admitted basis subject to compliance with certain conditions. However, these provisions were not carried over into Solvency II. The market has viewed this as an oversight in the legislation and there has been on-going lobbying by the insurance industry to have the 2015 Regulations amended in order to permit third-country (re)insurers to write business in Ireland on a non-admitted basis, as was originally provided for under the Solvency I regime.
What penalty is available for those who operate without appropriate permission?
A (re)reinsurance undertaking, which operates in Ireland without the requisite authorisation from the Central Bank commits an offence under the 2015 Regulations. The Central Bank plays a pivotal role in the supervision and regulation of financial service providers in Ireland to ensure compliance with regulatory requirements. The Central Bank’s administrative sanctions regime provides it with a credible tool of enforcement and acts as an effective deterrent against breaches of financial services law.
Where an offence is committed by an undertaking, and it can be proven that the offence was committed with the consent or connivance, or was attributable in any way to the wilful neglect of a person in management of the undertaking, the Central Bank has the power prosecute the relevant person, as well as the undertaking. Therefore, a director, manager, secretary, other officer of the company or any person purporting to act in that capacity could be subject to prosecution from the Central Bank for the unauthorised operations of an insurance or reinsurance undertaking.
The penalties which can be imposed by the Central Bank will depend on the seriousness of the offence. If convicted of a summary offence (ie a more minor offence) the undertaking and / or relevant person is liable to a fine not exceeding €5,000 or to imprisonment of a term not exceeding 12 months, or to both. On conviction on indictment (ie a more serious offence, which operating without a licence most likely constitutes) the undertaking and / or relevant person is liable to a fine not exceeding €500,000 or to imprisonment for a term not exceeding 3 years, or to both.
If an undertaking continues to operate in Ireland without authorisation, the undertaking and / or relevant person will be guilty of an offence for each day on which the contravention continues and liable for a fine of €500 for each such offence.
How rigorous is the supervisory and enforcement environment?
Ireland has a well-established efficient prudential regulatory infrastructure that complies with best international standards. As above, the Central Bank’s prudential supervisory framework, PRISM, focuses on the most significant firms, the risks they pose and the level of damage they could cause to the financial system, the economy and consumers if they were to fail. Following the economic crash in Ireland, the Central Bank is intent on ensuring a rigorous and effective supervisory and enforcement framework is in place. The Central Bank’s Administrative Sanctions Regime acts as an effective deterrent against breaches of financial services law. The Central Bank has the power, where a breach is identified, to issue a supervisory warning, take supervisory action, agree a settlement, or refer the case to formal inquiry for determination and sanction.
The Central Bank’s supervisory role involves overseeing an undertaking’s corporate governance, risk management and internal control systems. Insurance and reinsurance undertakings are required to submit annual and quarterly returns on solvency margins and technical reserves to the Central Bank for assessment. In addition, the Central Bank conducts regular themed inspections across the insurance and reinsurance industry.
How is the solvency of insurers (and reinsurers where relevant) supervised?
Insurers and reinsurers regulated by the Central Bank are required to meet the capital and solvency requirements set out under Pillar 1 of Solvency II, as transposed by the 2015 Regulations into Irish law.
To comply with the enhanced Solvency II regulatory reporting requirements in respect of solvency, Irish authorised (re)insurers are required to submit the following information to the Central Bank:
- a solvency and financial condition report (“SFCR”);
- detailed annual and quarterly reports supplementing information contained in the solvency and financial condition report;
- a regular supervisory report, at least every three years, containing specific information regarding the business and performance of the insurer, its system of governance, risk profile, capital management and information relating to its valuation of assets, technical provisions and other liabilities for solvency purposes;
- an annual own-risk and solvency assessment supervisory report, setting out the results of the own risk and solvency assessment performed by the life insurer; and
- other reports required by the Central Bank.
In supervising the solvency of an undertaking, the Central Bank may also require an insurer to provide it with a certificate of the value of the assets representing the technical provisions on the closing date on which the accounts and balance sheets of the insurer were provided to the Central Bank.
What are the minimum capital requirements?
The Solvency II capital requirements prescribed in the 2015 Regulations are calculated based on the specific risks borne by the relevant insurer and are prospective in nature. In calculating its solvency and capital requirements insurers are required to include both existing business and any new business expected to be written over the following 12 months. Solvency II imposes a solvency capital requirement (“SCR”) and a lower, minimum capital requirement (“MCR”) on insurance undertakings.
An insurance undertaking may calculate the SCR based on the formula set out in the 2015 Regulations or by using its own internal model approved by the Central Bank. The SCR should amount to a high level of eligible own funds, thereby enabling the undertaking to withstand significant losses and ensure a prudent level of protection for policyholders and beneficiaries. The MCR should be calculated in a clear and simple manner, corresponding to an amount of eligible basic own funds, below which policyholders and beneficiaries would be exposed to an unacceptable level of risk if the undertaking were allowed to continue its operations.
An insurance undertaking must have procedures in place to immediately identify and inform the Central Bank of any deterioration in its financial condition. As such, the reporting requirements in respect of SCR and MCR provide for clear channels by which the Central Bank can monitor the financial state of an insurance undertaking. In the event of a breach of capital requirements, the Central Bank will employ an escalating level of supervisory intervention, beginning with the implementation of a recovery plan by an insurance undertaking, as approved by the Central Bank. Where there is a breach of the SCR or MCR, compliance must be re-established within six months or three months respectively, otherwise the Central Bank may restrict the free disposal of the assets of the undertaking and ultimately withdraw its authorisation.
Is there a policyholder protection scheme?
The Insurance Compensation Fund (the “Fund”) provides compensation to eligible policyholders of an Irish-authorised non-life insurer or an EU-authorised non-life insurer, which carries on business in Ireland, and which has gone into liquidation or administration. Non-life insurance companies writing business in Ireland are required to contribute 2% of gross written premium in respect of Irish situate risk to the Fund. The Central Bank is responsible for assessing the financial position of the Fund and determining the appropriate contribution to be paid.
The approval of the High Court of Ireland is required for a payment to be made out of the Fund. Where an insurer is in administration, at least 70% of its entire business in the preceding 3 years must relate to Irish situate risk in order to gain access to the Fund. Payments out of the Fund are capped at 65% of the sum due to the policyholder or €825,000 whichever is the less. Health, dental and life policies are excluded from the scope of the Fund.
How are groups supervised, if at all?
Where an Irish-authorised (re)insurer is a member of a wider insurance group, the group is subject to group supervision in accordance with the Solvency II regime. The provisions relating to group supervision are quite complex, as supervision is required of the group’s solvency, governance and reporting obligations. The level of group supervision by the Central Bank will depend on the location of the ultimate insurance parent and the Solvency II regime permits the application of a tailored-approach by the local regulator in respect of group supervision.
Where a group is made up of several EEA insurers, one EEA regulator will act as the group supervisor, while the local regulators are responsible for supervision of the individual entity operating in their respective jurisdiction.
Where the ultimate insurance parent is located outside the EEA, the Central Bank is required to ensure appropriate supervision of the worldwide group. This may be done by extending the solvency capital requirements imposed on EEA insurers and reinsurers to non-EEA entities. Alternatively, it is open to the Central Bank to adopt “other methods” which ensure appropriate group supervision. Where a third-country has been recognised as having an equivalent prudential supervisory regime to that imposed under Solvency II, the Central Bank may rely on the supervision of the worldwide group by the relevant third-country regulator.
Do senior managers have to meet fit and proper requirements and/or be approved?
The Central Bank has the power to designate certain positions within a regulated firm as being Pre-approval Controlled Functions (“PCFs”). The main implication is that a person in a PCF role needs to comply on an ongoing basis with the Fitness and Probity Standards issued by the Central Bank. The PCF will need to confirm this in writing annually. Also there is an obligation PCFs to inform the Central Bank of breaches of financial services law which may be of interest to the Central Bank – this obligation is set out in the Central Bank (Supervision and Enforcement) Act 2013.
The approval of the Central Bank must be sought prior to appointing a person to act as a PCF. In summary, a PCF is a function through which a person may exercise a significant influence on the conduct of a regulated financial service provider’s affairs. Therefore, as part of the Central Bank’s Fitness and Probity regime, all proposed directors and senior management will have to apply to the Central Bank for prior approval.
In order to comply with the Central Bank’s Fitness and Probity standards a person is required to be:
- competent and capable;
- honest, ethical and act with integrity; and
- financially sound.
For the purposes of considering whether or not to approve a person to carry on a PCF, the Central Bank has a broad range of powers and in particular may request that the person or an individual on behalf of the undertaking provide certain specified information to it. The person may also be required to attend before a specified officer or employee of the Central Bank for an interview. This is to ensure that the undertaking has the necessary people, skills, processes and structures to successfully manage its insurance or reinsurance business. This includes, in particular, close scrutiny of the undertaking’s management structures, board and senior management appointments, key committees and key statutory roles.
With effect from 3 January 2018, the Minimum Competency Code 2017 (the “MCC”) (as attached) and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48 (1) Minimum Competency Regulations 2017 (the “Minimum Competency Regulations 2017”) together replaced the existing Minimum Competency Code 2011. The MCC and the Minimum Competency Regulations 2017 is closely linked to the Fitness and Probity regime.
Parts 1 and 2 of the MCC specifies certain minimum competency standards with which persons falling within its scope must comply when performing controlled functions and/or providing certain financial services, in particular when dealing with consumers. Part 3 of the MCC sets out details on the recognition of qualifications in respect of retail financial products for the purposes of the code. The aim is to ensure that consumers obtain a minimum acceptable level of competence from individuals acting for and on behalf of regulated firms in the provision of advice and information and associated activities in connection with retail financial products. The Minimum Competency Regulations 2017 are associated with the MCC and impose certain obligations on regulated firms.
Persons are expected to comply with the letter and spirit of the MCC. Any right acquired or obligation or liability incurred, in respect of a contravention of, or act of misconduct under, the previous Minimum Competency Code 2011 survives the replacement of the previous Minimum Competency Code 2011 with the MCC and the Minimum Competency Regulations.
Please note that compliance with the MCC where applicable is one of a number of considerations which may be taken into account in deciding whether a person is of such Fitness and Probity as is appropriate to the performance of a controlled function within the meaning of Part 3 of the Central Bank Reform Act 2010.
Are there restrictions on outsourcing parts of the business?
The 2015 Regulations permit (re)insurers to outsource many of its functions to a third party service provider or otherwise, provided that a written outsourcing agreement is put in place and the (re)insurer maintains proper oversight and supervision of the outsource service provider.
Where the outsourced activity constitutes a critical and important function of an insurance undertaking, the Central Bank must be notified before outsourcing the activity and is also required to be informed of any subsequent material developments with respect to any such function or activity. Critical or important functions are defined by EIOPA as those that are ‘essential to the operation of the undertaking as it would be unable to deliver its services to policyholders without the function or activity’.
Insurance undertakings are required to have written outsourcing policies in place which clearly define the duties and responsibilities of both parties. In addition, an outsourcing agreement must ensure effective access for the insurer, its external auditor and the Central Bank to all information on the outsourced functions and activities and provide permission to conduct on-site inspections. Any outsourcing must not:
- materially impair the undertaking’s system of governance;
- cause an undue increase in operational risk;
- impair the supervisory monitoring of compliance with obligations; or
- undermine the continuous and satisfactory service to policyholders.
While an insurer can outsource freely to an entity located in another EU / EEA Member State, the Central Bank has been reluctant in the past to authorise an undertaking which plans to outsource a large proportion of its activities to a third country.
How are sales of insurance supervised or controlled?
All insurance undertakings are required to comply with the general good requirements, which regulate the manner in which insurance undertakings may sell and market insurance products to consumers in Ireland. These general good requirements for the sale of insurance are set out in the:
(a) Central Bank’s Consumer Protection Code 2012 (published by the Central Bank);
(b) Consumer Protection Act 2007;
(c) Sale of Goods and Supply of Services Act 1980;
(d) European Communities (Unfair Terms in Consumer Contracts) Regulations 1995; and
(e) European Communities (Distance Marketing of Consumer Financial Services) Regulations 2004.
Where these requirements are not complied with, entities and their management should expect vigorous investigation and enforcement action by the Central Bank.
Are consumer policies subject to restrictions? If so, briefly describe the range of protections offered to consumer policyholders.
Consumer policies are not subject to any particular restrictions by the Central Bank. However, there are a broad range of protections afforded to consumers of financial products under the Consumer Protection Code (the “CPC”). The CPC applies to financial services providers regulated either by the Central Bank or by a regulator in another EU or EEA Member State, when providing services to consumers in Ireland on a freedom of establishment or freedom of services basis.
Under the CPC, regulated entities are required to act honestly, fairly, and in the best interests of the consumer and the integrity of the market. Firms are obliged to obtain certain information from a consumer prior to providing a product or service, in order to assess the suitability of a product for the individual consumer. This includes information on the consumer’s needs and objectives, personal circumstances, financial situation and where relevant attitude to risk. The CPC also sets out the obligations on financial service firms when dealing with consumers in respect of advertising, contacting consumers, claims processing, handling of errors and complaints, maintaining records and providing information on products. In addition, regulated entities are required to disclose certain information to consumers in respect of conflicts of interest and any remuneration arrangements in place.
Consumer policies are strongly protected under the CPC and regulated entities may be subject to administrative sanctions by the Central Bank for any failure to comply with its provisions.
Are the courts adept at handling complex commercial claims?
Yes. In Ireland, the jurisdiction in which court proceedings are brought depends on the monetary value of the claim. Claims with a monetary value in excess of €75,000 are heard by the High Court which has an unlimited monetary jurisdiction.
The High Court has a specialist court, the Commercial Court, which deals exclusively with commercial disputes. Proceedings are case-managed and tend to move at a much quicker pace than general High Court cases, time from entry into the list to full hearing varies between 1 week to 4 months depending on the time required for hearing. Entry to the list is at the discretion of the judge and may be refused if there has been any delay. Insurance and reinsurance disputes can be heard in the Commercial Court if:
- The value of the claim or counterclaim exceeds €1,000,000; and
- The court considers that the dispute is inherently commercial in nature.
The Commercial Court judges place a strong emphasis on mediation and the Commercial Court Rules provide for up to a four-week stay of proceedings to allow the parties to consider mediation.
Is alternative dispute resolution well established in the jurisdiction?
Mediation is the most common form of dispute resolution in Ireland and since the introduction of the Mediation Act 2017 on 1 January 2018, solicitors are required to advise their clients of the merits of mediation as an alternative dispute resolution method in advance of issuing court proceedings. In addition, in order to issue proceedings, the Act requires the solicitor to swear a statutory declaration confirming that such advice has been provided and this declaration must now be filed with the originating document in the relevant court office when issuing proceedings.
The courts cannot compel the parties to mediate disputes; however, in the High Court and Circuit Court, a judge may adjourn legal proceedings on application by either party to the action, or of its own initiative, to allow the parties to engage in an ADR process. When the parties decide to use the ADR process, the court rules provide that the courts may extend the time for compliance with any provision of the rules. A party failing to mediate following a direction of the court can be penalised as to costs.
If an insurance contract contains an arbitration clause, the dispute must be referred to arbitration. However, there is an exception for consumers, who are not bound by an arbitration clause in an insurance policy if the claim is less than €5,000 and the relevant policy has not been individually negotiated.
Since 8 June 2010 the Arbitration Act 2010 (2010 Act) has applied the United Nations Commission on International Trade Law (UNCITRAL) Model Law to all Irish arbitrations. The 2010 Act brought increased finality to the arbitral process by reducing the scope for court intervention or oversight and providing a more limited basis for appealing awards and decisions than was previously available.
The High Court has powers for granting interim measures of protection and assistance in the taking of evidence, although most interim measures may now also be granted by the arbitral tribunal under the 2010 Act. Once an arbitrator is appointed and the parties agree to refer their dispute for the arbitrator’s decision, then the jurisdiction for the dispute effectively passes from the court to the arbitrator.
A contract that does not contain a written arbitration agreement is not arbitrable and is specifically excluded from the application of the 2010 Act. The arbitration agreement must be in writing whether by way of a clause in the substantive contract or by way of separate agreement. While Section 2(2) of the 2010 Act stipulates that such clauses should be in writing, this provision has been given a broad interpretation to include an agreement concluded orally or by conduct as long as its content has been recorded in writing.
Article 34 of the 2010 Act deals with applications to the court for setting aside an award. The grounds on which a court can set aside an award are extremely limited and correspond with those contained in Article V of the New York Convention, which requires the party making the application to furnish proof that:
(a) a party to the arbitration agreement was under some incapacity or the agreement itself was invalid;
(b) the party making the application was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his or her case;
(c) the award deals with a dispute not falling within the ambit of the arbitration agreement;
(d) the arbitral tribunal was not properly constituted; or
(e) the award is in conflict with the public policy of the state.
What are the primary challenges to new market entrants?
The Central Bank requires the substance and “heart and mind” of an Irish-authorised insurance undertaking to be maintained in Ireland in order to ensure compliance with all applicable legal and regulatory requirements. As such, the primary challenge facing insurers and reinsurers seeking to establish in Ireland is demonstrating real substance. In considering an application for authorisation, the Central Bank will need to be satisfied that the key personnel responsible for the strategic decision making of the undertaking will be located in Ireland. There are no guidelines in terms of the specific numbers required by the Central Bank, as this will generally depend on the nature, scale and complexity of the business.
To what extent is the market being challenged by digital innovation?
In many ways, digital innovation has yet to come to the fore in the insurance market. However, the challenges created by such innovation are increasingly relevant. The growing sophistication of digital technology gives rise to cyber-security threats and risk of data breaches. The nature of the insurance market itself is also being challenged by digital innovation. We are seeing an increasing trend towards risk prevention rather than insuring against risk. Advanced technology has created safer cars and smarter devices which can prevent household damage, thereby mitigating risk and reducing premiums. Insurers will have to adapt to the technological needs of the market or risk being left behind.
In order to rise to the challenges created by digital innovation, insurers must seek to create innovative products, which protect against data loss or cyber damage. In addition, the introduction of automation into the workplace will change the nature of many roles in the insurance industry and the market will have to adapt by reducing administrative and operational support, in favour of skilled resources such as analytics and software development.
Driverless cars / autonomous vehicles present particular challenges for the motor insurance industry. The existing driver-centred Irish legislative framework will need to be updated to facilitate driverless cars on Irish roads. The UK has proposed a single insurer model for driverless cars, where both the driver and the driverless technology are insured under one policy. While this has not yet been considered by the Irish legislature in any meaningful way, it can be anticipated that the Irish legislature is likely to follow the UK approach, given similarities between the existing road traffic frameworks in both countries.
Over the next five years what type of business do you see taking a market lead?
Emerging technologies and risks
The market for cyber insurance is growing and is seen as one of the biggest growth areas in the insurance industry globally. According to industry data, the global cyber market was estimated to be worth around $4.3bn in premiums in 2017. Fitch believes cyber insurance premiums could increase to $20bn by 2020.
Cyber insurance is still a relatively new product on the Irish market however it has become more popular in recent times and a number of insurers are now offering new cyber products in Ireland as a result. It has become a board issue in anticipation of the introduction of GDPR on 25 May 2018 and following a number of high profile cyber-attacks in recent years. It is expected that cyber will be a growth area in Ireland in the coming years.
In our view, the market leaders over the next five years will be those insurance companies that branch away from the traditional insurance business model towards a more technology-friendly operating model. In today’s digital economy, consumers want instant access to relevant and simplified information and this extends to complex insurance products. Embracing the benefits that technological advances can offer to the design and distribution of innovative insurance products will enable progressive companies to meet the needs and expectations of consumers in a more effective and efficient manner.
Drones are an emerging and rapidly developing technology, and new legislation is proposed in Ireland to increase existing drone regulation and impose criminal liability for certain drone offences. The draft bill (the Small Unmanned Aircraft (Drones) Bill 2017) imposes an obligation on commercial drone operators to have insurance for any liability arising from drone operation, including potential collision with persons or property, and it will be a criminal offence to operate a drone for commercial use without insurance. There is no clear timeline for the implementation of this Bill. As this market continues to grow, it seems inevitable that drone insurance will be a growth area.
Driverless cars and autonomous vehicles present particular challenges for the motor insurance industry. The existing driver-centred Irish legislative framework will need to be updated to facilitate driverless cars on Irish roads. The UK has proposed a single insurer model for driverless cars, where both the driver and the driverless technology are insured under one policy. While this has not yet been considered by the Irish legislature in any meaningful way, it can be anticipated that the Irish legislature is likely to follow the UK approach, given similarities between the existing road traffic frameworks in both countries.
Developments in M&A
Compared to 2017 levels, we anticipate further increases in the levels of insurance industry M&A activity in 2018. While the lack of clarity about specific proposals under Brexit and the proposed changes to the US financial services industry regulations and tax code may be a short-term inhibitor of insurance M&A, once clear, some of the changes may drive increased deal-making as the year progresses.
Developments related to third-party funding
In May 2017, the Irish Supreme Court confirmed in its decision in Persona Digital Telephony Ltd & Another v. Minister for Public Enterprise that third-party funding of litigation is unlawful, and indicated that any changes to the law in this regard in Ireland would be a matter for the legislature, not the courts. However, the Irish High Court has previously made clear that after-the-event insurance is valid; therefore, post-Persona Digital, ATE insurance is the only valid third-party funding in this jurisdiction.
UK Insurance Act 2015
Following implementation of the Insurance Act 2015 in the UK in August 2016, insurance law in Ireland is now significantly different from the UK law for the first time since 1906. We anticipate that the implementation of the Act will have an impact on the Irish insurance industry as the Irish market is closely connected to the UK (in particular the London market) and many Irish risks are written subject to English law. However the significance of this impact remains to be seen.
Payment protection insurance (PPI)
Following the UK Supreme Court decision in Plevin, a further redress scheme in respect of PPI is underway in the UK. It is possible, particularly in light of the changes to the limitation period for claims to the Financial Services and Pensions Ombudsman in relation to long-term financial products, that there could be further litigation in relation to the sale of PPI in Ireland.