COVID-19 - As regulators flex, so must firms

20 April 2020

by Anirvan Choudhury Senior Manager

Email +44 (0)7483 423721

The coronavirus (COVID-19) pandemic has created challenging market conditions for insurers to navigate while maintaining day-to-day operations. In response, regulators have extended the deadline for regulatory reporting, deferred the publication of regulatory reviews and consultations and delayed the adoption of new policy measures. Regulators have also set out expectations for firms around prudent financial management, business continuity, and the fair treatment of customers. All of which should help insurers focus on ensuring business continuity.

Prudential perspective

Insurers play an important role in the economy by providing insurance cover as well as being long-term investors in the UK economy. During the COVID-19 pandemic regulators expect firms to manage their financial resources prudently to meet policyholder commitments.  Although the insurance industry was well-capitalised going into this pandemic, recent interest rate cuts along with a fall in asset prices are likely to put downward pressure on profitability and solvency ratios. Therefore, the PRA and EIOPA have advised insurers to pay close attention to the need to protect policyholders and to maintain safety and soundness when making decisions regarding variable pay (bonuses) and distribution of profits (dividends).  In addition, regulators have taken proactive measures to help mitigate the impact of market movements on firms’ capital requirements. For example, the PRA is accepting applications to recalculate TMTP and EIOPA is publishing weekly calculations of risk-free interest rate term structures. These measures are expected to support insurers in monitoring and managing their financial position during the COVID-19 outbreak. 

Conduct Perspective

Many consumers are currently vulnerable because of COVID-19 and the FCA has reminded insurers of their responsibility to treat customers fairly. They have urged insurers to show as much flexibility as possible when dealing with customers. The FCA has set clear expectations that before suspending the sale of existing products firms need to consider the needs of their customers. This also presents new opportunities for firms to design innovative products that meet the changing needs of customers. We have published a blog setting out what the FCA’s guidance means for insurers.

Extension of reporting deadlines and deferrements

To reduce the compliance burden on firms, regulators have committed to review their work plans so that non-critical data requests and deadlines can be postponed. For example, the PRA has extended the deadline for various regulatory reporting requirements. The FCA has extended closure dates for open consultations and the IAIS has postponed the publication of new supervisory materials by six months. Read more on our summarised regulatory delays.

What do firms need to do?

Firms need to strike a balance between managing prudential and conduct risk considerations. As insurers strive to meet the FCA’s expectations in terms of flexibility in settling claims, they need to simultaneously monitor reserves, solvency,  and liquidity levels to ensure safety and soundness from a prudential perspective. Also, as firms adapt their business processes and operations in response to COVID-19 they should maintain appropriate governance and controls to ensure that key function holders can discharge their duties in accordance with expectations under Senior Managers and Certification Regime. Finally, during these uncertain times firms should take steps to avoid any actions that might be perceived as attempts to exploit profit opportunities as this is likely to draw regulatory scrutiny and could lead to reputational damage. 


by Anirvan Choudhury Senior Manager

Email +44 (0)7483 423721