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Clifford Chance

Clifford Chance

Insurance

2019: The legal year in review

The year has seen some important legal and regulatory developments in the insurance industry, with more still to come.

2019 was yet another year dominated by Brexit uncertainty, with many insurers and intermediaries completing and implementing their contingency plans. Now that the UK seems likely to leave in early 2020 on the basis of the withdrawal agreement, attention will turn to the upcoming trade negotiations.

Putting the Brexit saga aside, this year saw some other important legal and regulatory developments for the UK insurance industry.

One of these was the Rothesay Life decision by the UK High Court in August. The Court refused to sanction the transfer of a substantial annuities book from Prudential Assurance Company to Rothesay Life, even though PRA and FCA had raised no objection and the independent expert had given the opinion that the transfer would not have a material adverse effect on policyholders. The Court's decision was considered by many to be largely fact specific, but this could mean greater scrutiny of Part VII transfers in future, especially where established groups seek to transfer business to newer market participants. The appeal is due to be held in early 2020.

This year also saw the FCA announcing a review of its approach to conduct regulation. In its April 2019/2020 business plan, as well as in a number of speeches throughout the year, the FCA talked about taking a fresh look at its approach to regulation, particularly simplifying rules and adopting a more outcomes-based approach.

Some of the FCA's key publications this year show signs of this focus on customer outcomes. In its market study into general insurance pricing practices published in October, the FCA criticised the practice of offering price discounts to new customers with increased premiums being charged on renewal (and often targeted at customers judged less likely to switch). The FCA found these practices often lead to unfair outcomes, including a 'loyalty penalty' being paid by customers who do not switch or shop around, and with one out of three customers paying higher premiums displaying some characteristics of vulnerability. The FCA signalled that it was willing to consider some level of pricing intervention to respond to these issues – a move that could significantly affect insurers' pricing models in retail business and, in turn, their bottom lines.

The FCA has flagged both the 'loyalty penalty' and treatment of vulnerable customers as priority issues, so expect to hear more on them in 2020.

2019 will also have seen insurers (and, from this December, intermediaries) coming within the scope of the Senior Managers and Certification Regime. With this comes greater individual accountability for individuals in senior management roles, and firms have been taking this opportunity to review their governance processes. We have seen an increase in requests for corporate governance reviews, as well as for advice on processes to deal with whistle-blowing and non-financial misconduct (including #MeToo issues).

Technology - and its opportunities and challenges – remains a key theme in the industry this year. September saw the launch of Lloyd's of London's "Blueprint One" strategy for the future of Lloyd's, which sets out ambitious plans to modernise Lloyd's processes and use technology and automation to drive down the cost of doing business at Lloyd's. Insurers are continuing to explore the opportunities posed by smart contracts and blockchain applications, whilst also recognising the challenge of building viable insurance products using these new technologies. Finally, the debate over big data continues with insurance regulators in many jurisdictions paying close attention to how insurers collect and use customers' personal data and how this data use impacts on customer outcomes.

This article first appeared in Insurance Day