Oireachtas Joint and Select Committees
Thursday, 4 May 2017
Seanad Committee on the Withdrawal of the United Kingdom from the European Union
Engagement with Industry Representatives
12:20 pm
Mr. Kevin Thompson:
It is my pleasure to present the views of the insurance industry to the committee today on Brexit as well as our proposed solutions to some of the key challenges that exist as a result of it. I believe these hearings are important. Insurance Ireland is available to support the work of the committee in any way that it can.
By way of background, I am keen to give the committee an overview of who we are and what we do. We are the representative body for the insurance industry. We have over 140 member companies throughout all classes of insurance, reinsurance and captive management. I will set out some figures to give the committee an impression of the scale of the industry. Total industry employment is approximately 28,000 people, made up of those employed directly and indirectly. Insurance Ireland members pay out more than €13 billion in claims and benefits to Irish consumers each year. Gross premium income for our membership was €51 billion in 2015. The industry holds €200 billion in assets under management, with €35 billion invested in Irish infrastructure or Government debt. We pay €1.8 billion in tax and one in four jobs in financial services are in insurance.
Our members take on the risks of individuals, households and businesses and are involved in almost every aspect of economic activity in the country. Under the umbrella of insurance, products range from international insurance to reinsurance, health, protection products and pensions. These sectors need regulatory staff, underwriters, loss adjustors and sales staff among others. The breadth and depth of the industry is considerable. As an industry based on risk management, we are accustomed to dealing with changing circumstances, but Brexit is a unique challenge.
Insurance is a global business and within Europe it has developed for providers in the Single Market. This means we have companies with operations in many countries serving different markets. Ireland has benefited greatly from the market and has developed into an international insurance hub. Also, given our proximity to the UK, we complement and compete with the UK market. Given this interconnectedness there are two distinctive sides to the coin for us. The first is the potential upside. We are ambitious for the sector and want to maximise the potential inward investment from companies looking for a base to maintain European market access. However, there are potential down-sides too. As well as the threats to the domestic economy, a substantial proportion of our membership export to the UK. They require access to the UK market on existing terms in the same way as the agrifood sector and others.
Therefore, Brexit must be seen in the context of keeping existing jobs as much as it is seen as gaining new ones. Winning new investments is the key to keeping existing jobs since we are in a competitive international market and the credibility and attractiveness of a location is determined by the players in the market.
In addition, any Brexit-related impact on the domestic economy will have an impact on spending and potentially the purchase of discretionary insurance products with the risk that households and businesses take on risks that could materialise and result in severe financial hardship.
We surveyed parts of our membership on two occasions in recent months on Brexit. In December, we surveyed our independent non-executive directors, INEDs, who are an important constituency with a broad industry perspective. At the time, 75% saw more opportunities than challenges arising from Brexit. In March, we surveyed the chief executive officers, CEOs, and chief risk officers, CROs, of our member companies and found a change in outlook. A total of 45% of our CEOs and CROs saw more opportunities and 55% saw more challenges arising from Brexit. Admittedly, these are different groups but it was a clear change in outlook. We also asked our CEOs and CROs about a potential "Brexit dividend" for Dublin and to rate the key priorities to realise this. The response in order of priority was addressing the regulatory considerations, infrastructural bottlenecks, personal taxation, availability of talent, and competitiveness issues. This should not be read as a wish list from the industry, but it does point to areas we need to consider for insurance but also for many other sectors.
I refer to one of these issues, in particular, which is regulation, and how we can develop a proposal to protect and grow the sector here. The European goal has been to create a single market for insurance subject to adherence to certain criteria such as standardisation of solvency ratios. The directive covering this is Solvency II. This is a directive in European law that codifies and harmonises EU insurance regulation. Primarily, this concerns the amount of capital that EU insurance companies must hold to reduce the risk of insolvency. The regulatory regime is administered by national supervisory authorities and there is an element of national interpretation of standards, which is allowed. The development and implementation of Solvency II took approximately 20 years and came at a cost of €4 billion to implement across Europe and approximately €150 million in Ireland. Using Solvency II as a guideline, we are reiterating a proposal we made last year for two regulatory reforms which we believe would have a significant impact in terms of managing the downside and maximising the upside.
The first is grandfathering. This is where there is approval in principle for insurance undertakings that are regulated in other jurisdictions. For example, if the UK's Prudential Regulation Authority, PRA, licenses an existing company and it has a good record, then this should be a credit in the approval process and the Central Bank of Ireland should say it will allow the entity to trade on a similar basis to the circumstances in the UK. In short, this is an approval in principle approach based on the good standing of an equivalent regulatory authority. The second is a regulatory corridor. This is a joint grandfathering arrangement between the UK and Ireland. There is a desire for such an arrangement within the UK. This would allow for rapid approval of Irish entities who are seeking to export their services to the UK.
Brexit is a set of circumstances characterised by volatility and uncertainty. These proposals can provide reassurance to the domestic industry and facilitate new entrants in a manner that supports the UK and EU insurance markets. Solvency II is a robust regulatory system - I refer to the stress tests published in December 2016 to illustrate this - and Ireland should exploit this to its advantage. The proposals outlined above are in line with Solvency II and would allow us to realise the potential in our industry. They are also within our control, can be deployed quickly and would add to our standing as an enterprise-friendly destination within the EU.
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