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APTI Seminar

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APTI Seminar

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  1. Page based on Title Slide from Slide Layout palette. Design is 2_Title with graphic. Title text for Title or Divider pages should be 36 pt titles/28 pt for subtitles . PRESENTER box text should be 16pt. DATE text box is not on master and can be deleted. The date should always be 18 pts. APTI Seminar • Insurance Related European Developments • Presented by • Jim Murphy, Principal 21 April 2011

  2. Page based on Title and Text from Slide Layout palette. Design is 1_Title with photo Subtitles are Part of Title Field, then Modified Manually (see next page) About Milliman • Global independent actuarial and consulting firm • Offices in 54 locations with over 2,500 employees • Dublin office • Became part of Milliman in 2009 (previously Life Strategies) • 28 employees • Mainly work in life & pensions market (domestic and IFSC) • Also work in pensions policy and health areas • Clients include insurance companies, intermediaries, industry bodies, Government and state bodies Tuesday, September 23, 2014

  3. Page based on Title and Text from Slide Layout palette. Design is 1_Title with photo Subtitles are Part of Title Field, then Modified Manually (see next page) Agenda • ECJ Ruling on Gender Directive • PRIPS • Insurance Guarantee Schemes • Summary Tuesday, September 23, 2014

  4. Page based on Title Only from Slide Layout palette. Design is 01_Title with photo. Subtitles are Part of Title Field, then Modified Manually (see Template page 17) Overview of recent events in history 2004 2011 2008 The Old Days … EU Directive 2004/113/EC – the “Gender Directive” Equal Status Act amended in Ireland to implement EU Directive 1 March 2011 - landmark judgement from ECJ ruling against gender specific insurance rates The Future … Tuesday, September 23, 2014

  5. Page based on Title and Text from Slide Layout palette. Design is 1_Title with photo Subtitles are Part of Title Field, then Modified Manually (see next page) Gender Directive 2004/113/EC • Designed to eliminate discrimination on the basis of gender • Implications for insurance • Article 5 gave Member States an option to opt out in relation to insurance • Allowing insurers to differentiate premium rates for men and women as long as: • Use of sex is a determining factor in the assessment of risk based on relevant and accurate actuarial and statistical data • Relevant data must be compiled and published regularly • Costs relating to pregnancy and maternity cannot be considered in differentiating premiums. • Broadly speaking gender directive meant business as usual for Irish insurers …until recently Tuesday, September 23, 2014

  6. Page based on Title and Text from Slide Layout palette. Design is 1_Title with photo Subtitles are Part of Title Field, then Modified Manually (see next page) ECJ Ruling 1 March 2011 • Belgian consumer association (Test Achats) challenged the validity of the Article 5 opt-out • EU Advocate General issued an opinion on 30 September 2010 • Opined in favour of Test Achats • ECJ ruling was issued on 1 March 2011 • Ruled in Test Achats favour • But recognised should be some time to transition to unisex rates • Unisex rates should apply from 21 December 2012 Tuesday, September 23, 2014

  7. Page based on Title and Text from Slide Layout palette. Design is 1_Title with photo Subtitles are Part of Title Field, then Modified Manually (see next page) Initial Reaction – Equality Groups Tuesday, September 23, 2014

  8. Page based on Title and Text from Slide Layout palette. Design is 1_Title with photo Subtitles are Part of Title Field, then Modified Manually (see next page) Initial Reaction – European Commission EU Justice Commissioner, Vivian Reding, welcomed the judgement and signalled that she would “convene a meeting with business leaders from the insurance industry in the coming months to discuss the judgement’s implications” Tuesday, September 23, 2014

  9. Page based on Title and Text from Slide Layout palette. Design is 1_Title with photo Subtitles are Part of Title Field, then Modified Manually (see next page) Initial Reaction – Insurance Industry Tuesday, September 23, 2014

  10. Page based on Title and Text from Slide Layout palette. Design is 1_Title with photo Subtitles are Part of Title Field, then Modified Manually (see next page) Implications • Expected changes in pricing of different lines of business * General directional changes expected for each line of business – will could be variations within a line of business • Concerns that premiums overall will increase • Due to “uncertainty premium” • Insurers will want to protect themselves against anti-selection/moral hazard Tuesday, September 23, 2014

  11. Page based on Title and Text from Slide Layout palette. Design is 1_Title with photo Subtitles are Part of Title Field, then Modified Manually (see next page) Areas of uncertainty • A number of areas of uncertainty arise from the judgement • Industry trying to get clarity • Advice from lawyers • Meeting with EU Commission may not happen until September • Contracts issued prior to 21 December 2010 – emerging view: • Contracts issued prior to 21 December 2007 not affected • Contracts issued between 21 December 2007 and 21 December 2012 can continue to apply gender specific rates after 21 December 2012 if premiums and benefits are fixed • Contracts issued between 21 December 2007 and 21 December 2012 with reviewable premiums or benefits may require unisex rates from 21 December 2012 • Can companies collect information about gender on application form – emerging view: • Should be acceptable (to understand portfolio mix) provided unisex rates apply • Can insurers price Group business using gender details for scheme members? (The views expressed above and in the following slides are not definitive and action should not be taken based on these without seeking further specialist advice) Tuesday, September 23, 2014

  12. Page based on Title and Text from Slide Layout palette. Design is 1_Title with photo Subtitles are Part of Title Field, then Modified Manually (see next page) Areas of uncertainty • What is the position with annuities related to occupational pension schemes? • The Directive covers insurance contracts that are “private, voluntary and separate from the employment relationship” • What does this mean in practice? • Some views expressed that bulk annuity purchases can still be priced using gender specific rates but individual annuities should be gender neutral • Can insurers ask for information at underwriting or claims stage which could be deemed to represent discrimination? • e.g. information relating to prostate cancer, which is solely relevant for males • Is reinsurance business covered by the ruling? • Reinsurance contracts appear to be out of scope • In practice, insurers are likely to want reinsurers to provide unisex rates • Does the ruling apply to non-EU insurers? • Groupe Consultatif survey from March 2009 highlights differences in implementation across countries: http://www.gcactuaries.org/documents/survey_gender_dir_implement_mar09.pdf Tuesday, September 23, 2014

  13. Other issues • Is this the thin end of the wedge for insurance underwriting? • Draft EU Directive in the pipeline covering age and disability* => modelled on Gender Directive • Test Achats expected to take a legal case regarding age/disability factors in insurance • If insurers are not allowed to rate based on age or health status => community rating • Some form of Risk Equalisation would be required for a voluntary private market to function • Effectively operating a Risk Equalisation scheme is fraught with difficulty * The term “disability” in this context encompasses health status too • However EU AG’s opinion acknowledges different issues with age versus gender • What is the future for occupational pension schemes • The European Parliament called on the European Commission and Member States on 16 February to “obligate occupational and other supplementary pension providers to use gender-neutral mortality tables when calculating pension benefits so as to prevent women from being punished for their higher life expectancy” Tuesday, September 23, 2014

  14. Page based on Title and Text from Slide Layout palette. Design is 1_Title with photo Subtitles are Part of Title Field, then Modified Manually (see next page) Agenda • ECJ Ruling on Gender Directive • PRIPS • Insurance Guarantee Schemes • Summary Tuesday, September 23, 2014

  15. What is a PRIP? • Multi-choice question A. A theatrical object B. An expletive, viz. “you dirty PRIP” C. A type of investment product D. An acronym for Personality Integration Rehabilitation Program Tuesday, September 23, 2014

  16. What is a PRIP? • Multi-choice question A. A theatrical object B. An expletive, viz. “you dirty PRIP” C. A type of investment product D. An acronym for Personality Integration Rehabilitation Program Tuesday, September 23, 2014

  17. Packaged Retail Investment Products • There are many ways to “access” assets • A unit-linked investment policy • A tracker bond • A structured deposit • A UCIT or other fund • Maybe others • April 2009 – European Commission issued a paper on PRIPs • Proposal to move to a common framework for • disclosurerequirements and • salesprocess of all PRIPs Tuesday, September 23, 2014

  18. 3L3 set up a task force • April 2009 – November 2009: • CESR, CEBS, CEIOPS (three “Level 3” Committees covering securities, banking and insurance regulators) consider EC report • Response is a 3L3 task force to study the key issues, report published in October 2010 • Three main areas of focus: • Scope: structured deposits included; protection, with-profits out of scope • Disclosure requirements: start with UCITS “Key Investor Information” … typically a 2 page document • Sales process: start with MiFID Level 1 Tuesday, September 23, 2014

  19. EU Commission Consultation Process • EU issued a consultation paper in November 2010 • Consultation process closed in January 2011 • Consultation paper sought views under a number of headings relating to scope, pre-contractual disclosure requirements and sales process • Some points of interest: • With profits is not explicitly addressed but would appear to be capture by the proposed definition of PRIPs • The Commission is considering an explicit exception for Pensions business • Feels that Variable Annuities should be in scope • Consideration given to variations in disclosure document for different types of PRIP Tuesday, September 23, 2014

  20. Page based on Title and Text from Slide Layout palette. Design is 1_Title with photo Subtitles are Part of Title Field, then Modified Manually (see next page) Agenda • ECJ Ruling on Gender Directive • PRIPS • Insurance Guarantee Schemes • Summary Tuesday, September 23, 2014

  21. Insurance Guarantee Schemes • EU Commission issued a White Paper in July • Proposed policyholder protection scheme regime for life insurers • Minimum requirements to apply across Europe • Schemes to be set up in each Member State – home state rather than host state basis • Covering both life and non-life policyholders for amounts less than 100% • Some discussion about limiting coverage to certain types of non-life insurance policies • Schemes to be funded in advance rather than “after the event” • Commission suggests a fund of 1.2% of premiums to be built up after 10 years • Contribution from each insurer will depend on its risk profile • Whatever the final form, EU Commission is committed to implementing a new regime • Will mean greater costs for consumers but for greater security Tuesday, September 23, 2014

  22. Key Issues • Enhance policyholder protection • Increase harmonisation of EU insurance markets • Challenge of moral hazard: • Safety net may encourage customers to choose riskier insurers • Safety net may reduce risk management incentives for insurers • Limits on benefits designed to mitigate the first point • Ex-ante funding designed to mitigate the second point • Ex-ante funding will lead to additional costs Tuesday, September 23, 2014

  23. Key Issues • Challenge of dealing equitably with people at the point of insurer insolvency • Potential for the scheme to step in to avert insolvency • Additional challenges in terms of skills and resource • For life insurance, focus on portfolio transfer of risks to another insurer • For non-life – key protections around outstanding claims rather than premiums paid. Tuesday, September 23, 2014

  24. Key Responses to Consultation • Broad consensus on Home State principle • Majority in favour of covering life and non-life policies. • Some felt life only should be covered • with one proposing inclusion of motor insurance too • Majority felt natural persons should be covered and legal persons excluded • Majority of total responses favoured ex-ante funding • Although most insurers would prefer ex-post funding • Risk based contributions was consensus view • With most respondents proposing a limit/cap on contributions • Those in favour of ex-ante funding supported a target level of funding • But no insights provided on the target level set out in the Consultation Paper Tuesday, September 23, 2014

  25. Page based on Title and Text from Slide Layout palette. Design is 1_Title with photo Subtitles are Part of Title Field, then Modified Manually (see next page) Agenda • ECJ Ruling on Gender Directive • PRIPS • Insurance Guarantee Schemes • Summary Tuesday, September 23, 2014

  26. Summary • ECJ ruling on gender will see changes from late 2012 • May be a fire sale in run up to 21 December 2012 • Potential restrictions on use of age and health status have much greater implications • PRIPS development will likely take some time yet to come to fruition • Will ultimately mean changes to sales processes and disclosure requirements • Local legislation and codes (e.g. consumer protection code) will need to be updated • EU wide Insurance Guarantee Schemes have been proposed for many years but finally look likely to happen • Will provide safety net for consumers but will come with a cost too Tuesday, September 23, 2014

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