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 May 2002
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