UK: Senior Managers And Certification Regime Takes Effect For Insurers (Pinsent Masons Insurance Briefing: 12 December 2018)

Last Updated: 8 January 2019
Article by Colin Read, Nicholas Bradley and Alexis Roberts

The main topics we're focusing on this week are:

Senior Managers and Certification Regime takes effect for insurers

New accountability rules for staff at insurers and reinsurers regulated by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) are now in force. The Senior Managers and Certification Regime (SMCR) replaced the Senior Insurance Managers Regime (SIMR) and revised Approved Persons Regime (APR) for insurance firms from 10 December 2018. The rules, which were designed to increase individual accountability within the financial sector, already apply to banking staff and will be extended to all other regulated firms, including brokers, from next year Financial services employment law expert Jon Fisher of Pinsent Masons said that the certification regime would be the biggest change for Solvency II insurers who had previously been subject to the SIMR. "Insurers will need to ensure that robust certification arrangements are put in place quickly so that they can meet the 10 December 2019 deadline," he said. "They will also need to make sure that all staff are trained in the Conduct Rules prior to that date."

GUIDE: The Senior Manager and Certification Regime (SMCR) for insurers

The SM&CR, which is designed to make individuals at financial firms more accountable, will apply to insurers from 10 December 2018. SM&CR's conduct rules will apply to all regulated firms from 10 December 2018. Brokers and other smaller solo-FCA regulated firms will become subject to the SMCR from 9 December 2019. The FCA has published a simple and useful overview of the regime here. The SMCR is made up of the senior managers' regime, the certification regime and the conduct rules. This is called the core regime. Firms subject to the Solvency II Directive, large non-directive firms (NDFs) and insurance special purpose vehicles will transition automatically, while small NDFs and small run-off firms will be required to submit additional information to the Financial Conduct Authority (FCA) before they can transition. Read more...

Innovation in insurance services can help address the climate change dilemma

ANALYSIS: Climate change poses huge questions for the insurance industry, and the implications of major weather events, changing temperatures and shifting land use and availability will be felt by insurers for decades to come.  Anthropocentric or human-made climate change is a real and serious issue as the Lloyd's index report, and other recent reports, areshowing. In financial terms, tropical windstorms present the costliest single risk to Asian cities in the index report. Both extreme heat and extreme cold were noted as risks to Paris and London, highlighting the complex and sometimes paradoxical nature of climate change risk to GDP. Loss from climate-related risks is set to grow as major weather events increase in frequency and severity. The costs of mitigating these and the re-structuring of the global economy towards a low-carbon future are set to mount. Since the signing of the Paris Climate Change Agreement in 2015 several major insurers have put programmes in place to manage climate-related risks. They are developing risk models for changing weather conditions to set rates more effectively and developing resources to assist individual firms and wider insurance markets in managing climate-related risks. Bodies such as the International Association of Insurance Supervisors (IAIS) and Lloyd's are producing reports on research in the field. Read more...

What the Insurance Distribution Directive means for firms

ANALYSIS: New rules on insurance distribution have come into force that set new requirements about the way businesses in the insurance market engage with customers. The introduction of the IDD is part of a broader project by the EU to revise the way in which financial services are regulated.
In particular, MiFID II is the EU's most ambitious piece of regulatory reform in the financial services industry to date and various obligations contained in the IDD have been designed to ensure a level of consistency with it. The FCA's Senior Managers and Certification Regime for insurers will change the way individuals working within FCA-regulated entities are monitored and comes into force on 10 December 2018. The UK's exit from the EU may create knock-on effects to the way in which insurers and insurance intermediaries are regulated domestically, however the IDD (as transposed by the FCA) will continue to apply in full whilst the UK remains in the EU.  Read more...

Driverless cars insurance laws receive Royal Assent

A new insurance and liability regime for driverless cars has been finalised in the UK. The Automated and Electric Vehicles Act 2018 received Royal Assent on 19 July, although the majority of its provisions will not take effect until implementing regulations are also introduced into law. No timetable has yet been set for the regulations to be introduced, according to the Department for Transport.  The new legislation applies to motor vehicles "designed or adapted to be capable, in at least some circumstances or situations, of safely driving themselves." The Department for Transport told that there are no vehicles on public roads currently that fit that definition, but that ministers have said they expect to see true self-driving cars on UK roads from 2021 onwards. Insurance expert Chamika Hand of Pinsent Masons, said the 'single insurer' model provided for in the new legislation will supplement the existing compulsory insurance regime that covers motor claims in the UK. Insurers will be liable for damage stemming from an accident caused by an automated vehicle when the vehicle is in self-driving mode, where the vehicle is insured, and "an insured person or any other person suffers damage as a result of the accident". Read more...

FCA promises closer supervisory and enforcement collaboration

The Financial Conduct Authority (FCA) has set out its intention to take a more aggressive approach to enforcement, while developing closer links between its supervisory and enforcement functions. It has set out its thinking in two new papers; one on its approach to supervision and one on its approach to enforcement. These papers are part of a series planned by the FCA following on from its broad 'Mission' document of November 2016, through which the FCA intends to explain its approach to different aspects of regulation in more depth."The FCA notes that the penalties and sanctions from enforcement actions are not by themselves a sufficient deterrent to reducing misconduct," said financial services contentious regulatory expert Jonathan Cavill of Pinsent Masons, the law firm behind "Therefore, the FCA is moving to a more forward-looking and pre-emptive system by increasing detection in tandem with more efficient investigations. The FCA will consider which issues are most likely to give risk to the greatest harm to consumers and the markets when prioritising its supervision efforts." "In doing so, there will be a particular focus on strategy and culture as the root cause of major failings. We have seen the FCA adopting more rigorous approaches to firms' strategy and culture in enforcement actions and now, with the greater alignment of supervision and enforcement moving forwards, these factors will also play into the FCA's supervision methods," he said. Read more...

English court delivers landmark judgment on project insurance coverage

The High Court has handed down a judgment deciding that a sub-contractor on a construction project was not entitled to coverage from the project insurance policy. The case is the first in which the Court has had to decide on how subcontractors in the construction industry come to participate in project insurance. "A key issue in this case was whether the main project insurers were entitled to bring a subrogated recovery claim against the sub-contractor and if so, whether the sub-contractor was entitled to rely on the defence of co-insurance" said insurance expert Colin Read of Pinsent Masons.  Read said the judge's main emphasis was the courts would give precedence to the underlying contract between the co-insureds, and the intention of the contracting parties, rather than the policy, although it was acknowledged that the intention of the insurers could be relevant. Read more...

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