Insurance
Act, 2000 - Regulation and Disclosure
The
Insurance Act, 2000 ("the Act") became law on
the 1st January, 2001 by Order of the Minister for Enterprise,
Trade and Employment.
Purpose
The
Act has four key objectives which are as follows:-
- The
regulatory responsibility for insurance intermediaries
has been transferred to the Central Bank of Ireland.
- The
Minister for Enterprise, Trade and Employment ("the
Minister") has the power to make regulations to require
insurers and insurance intermediaries to make disclosure
of information to policyholders.
- The
existing system of notification in relation to reinsurers
and reinsurance intermediaries is to be strengthened.
- Authorised
officers now have increased powers and offences and penalties
imposed by previous Insurance Acts have been updated.
Central
Bank - New Regulator for Insurance Intermediaries
The
Act provides as and from the 1st April, 2001 that insurance
intermediaries are subject to the regulatory powers of the
Central Bank as set out in the Investment Intermediaries
Act, 1995. The rationale for this is the merger and convergence
between the provision of insurance and investment products.
Typically both products can be sourced from the same intermediary.
In introducing the Act the Minister stated the following:-
"It
is essential that vendors of insurance and investment services
are regulated by the same regulator if we are to avoid disparity
in the regulatory system."
Therefore,
the previous system of self-regulation by insurance intermediaries
has now been abolished as it was felt that this was inappropriate
in an area so important to consumers.
The
linkage with the Investment Intermediaries Act, 1995 is
achieved by including "insurance policies" within
the definition of "investment instruments" and
also "a client of an insurance intermediary" within
the definition of "investor". As a result of these
amendments, an "insurance intermediary" now comes
within the definition of "investment business firm".
Therefore,
insurance intermediaries will now have to apply to the Central
Bank for authorisation and be subject to the Central Bank
regime which provides that before an authorisation will
be granted, the Central Bank must be satisfied with, amongst
other things, the following:-
- The
Memorandum and Articles of Association of the investment
firm or other such constitutional documents.
- Minimum
levels of capital.
- The
probity and competence of its directors and managers.
- The
suitability of its qualifying shareholdings.
- That
its organisational structure and management skills are
satisfactory and that adequate levels of staff and expertise
will be employed to carry out its proposed activities.
- That
it has adequate procedures both to ensure that the Central
Bank is supplied with all necessary information and that
the public can be supplied with any information which
the Central Bank may specify.
- That
it satisfies the Central Bank as to the conduct of its
business, its financial resources and any other matters
that the Central Bank considers necessary.
The
Central Bank has divided intermediaries into the following
three categories:-
Restricted
Activity Investment Product Intermediaries (RAIPIs) :-
-
Are restricted to receiving and transmitting orders for
insurance policies to insurers from whom they hold letters
of appointment and providing advice on those policies.
-
May only handle cash in respect of renewals of policies
or proposals which have been accepted by an insurance
undertaking.
Authorised
Advisors :-
- May
provide advice on policies of insurers from whom they
do not hold letters of appointment.
- Are
subject to the same restrictions as RAIPIs as regards
cash handling.
Authorised
Cash Handlers: -
- May
provide a complete range of services including cash handling
and own account trading.
The
Central Bank has issued Handbooks setting out the supervisory
requirements applicable to each category. These can be accessed
via the following links:
Disclosure
of Information
The
Act enables the Minister to introduce disclosure regulations
requiring insurers and insurance intermediaries to provide
information to policyholders at the beginning, during the
course of and at the end of the policy. The existing regulations
in this area and consumer protection legislation were found
to be deficient. The Minister stated the following:-
"It
is clear to us that adequate information is not being provided
to enable consumers to make rational and considered choices
in relation to the purchase of insurance products".
The
objectives in introducing regulations are as follows:-
-
To enhance and strengthen consumer disclosure measures.
- To
end over-complication in the presentation of products.
- To
increase competition while maintaining a high level of
consumer protection.
- To
address mis-selling including "churning" of
policies.
- To
create and ensure greater transparency of all charges,
expenses and prices.
Disclosure
regulations for the sale of life assurance products were
introduced on the 1st February, 2001. No such regulations
have been introduced yet for non-life products.
Motor
Insurance
The Department of Enterprise Trade and Employment has indicated
that it intends soon to introduce regulations requiring
15 days notice of renewals of motor insurance policies to
be given to insured parties including details of no claims
bonus status.
Reinsurance
Undertakings - Notification
The
Act strengthens the existing informal notification procedure
for reinsurers, whether they are resident in Ireland or
registered in Ireland as non-resident. The Act also empowers
the Minister, at a future date, to introduce a statutory
system of authorisation and/or supervision for reinsurers
if the Minister considers that such action is required.
The rationale for these provisions is to protect the reputation
of the Irish financial services sector. The provisions in
the Act amend and extend the Insurance Act, 1989. In short,
the provisions provide for the following:-
- It
is now unlawful for a person or a company registered in
Ireland to carry on, in or outside Ireland, the business
of reinsurance without an authorisation or a notification
to the Minister.
- However,
the notification obligations do not apply to a company
registered outside Ireland which does not have a place
of business in Ireland.
- The
notification to the Minister will include information
in relation to the ownership and share capital of the
company, the directors and senior management, the accountants,
auditors and solicitors and the risks proposed to be covered
by the business.
Appointment of Authorised Officers - Offences and Penalties
Updated
The
Act provides greater powers for authorised officers appointed
by the Minister. Officers can now enter premises and inspect,
copy or remove books, records and other documents of a company.
They can also require the production of all documents and
records and require any person to explain such books and
documents and furnish information to them.
The
Act also updates the existing penalties and offences provided
for under the Insurance Act, 1989.
Summary
- The
Central Bank is now the regulator for insurance intermediaries.
Accordingly, insurance intermediaries will be subject
to the extensive supervisory powers that the Central Bank
has under the Investment Intermediaries Act, 1995.
- The
Act introduced extensive disclosure rules and regulations
in the life assurance sector. Such rules may be introduced
into the non-life sector in the future.
- Reinsurers
must either have authorisation from the Minister or must
notify the Minister with the required statutory information
to carry on reinsurance business.
- The
Act provides that the authorised officers of the Minister
have wide-ranging powers to seek any information that
is relevant to his investigation.
For
further information or general enquiries please contact
Eamon Jones
E-mail: ejones@kilroys.ie
Telephone: +353-1-4395600
Fax: +353-1-4395601/4395602
©
Kilroys Solicitors 2002
|
