Insurance regulatory news, 6 August 2021

FIG Bulletin

Reports on recent UK regulatory developments of interest to insurers and their intermediaries. See also our Financial institutions general regulatory news in the Related Materials links.


This is our last edition of the weekly regulatory news as we move to focus on more topic-driven material. We will send you notification of new publications from your area(s) of interest in the usual Hogan Lovells Engage Alerts. If you have any enquiries, please contact us.

Flood insurance: UK government response to independent review

Following the publication in November 2020 of a report on the independent review of flood insurance in Doncaster, the government has published a policy paper response to the review. The report, which was commissioned by the government, set out the findings from an independent review of why some Doncaster residents who suffered flooding in November 2019 did not have sufficient insurance cover. The report also identified action that might improve protection against future events, in the form of 12 recommendations. The government explains that it fully accepts nine of the recommendations and accepts three in part. It will work with the industry and flood risk management stakeholders to progress them. Among other things, the government:

  • accepts the recommendation to consider regulation by the Financial Conduct Authority (FCA) to reduce insurance policies with flood exclusions. It is taking a proactive stance with the insurance industry to ensure it addresses the exclusion issues. The government will write to the Association of British Insurers (ABI) asking it to work with insurers to provide data, as soon as possible, on the current number of household policies with flood exclusions;
  • accepts the recommendation of industry-led actions to address concerns about policies with flood exclusions and take up of Flood Re. It comments that the recommendations challenge the ABI and the British Insurance Brokers' Association (BIBA) to improve communication and awareness between the industry and consumers to ensure Flood Re is being used where applicable and improve best practice. This will help consumers become more aware of their insurance options and may decrease the number of policies sold with flood exclusions; and
  • notes that BIBA, the ABI and Flood Re are already developing a code of practice and a new specialist directory of firms who can offer flood insurance for household building and contents cover. The government will write to the industry to ensure there is a clear timetable for delivery within the next twelve months and ask it to regularly provide sufficient data to help assess the impact of these interventions.

In a press release responding to the policy paper, the ABI generally welcomes the government's work in this area. It explains that insurers will continue to support their customers who have been flooded. The industry is committed both to developing a signposting service for customers who find it challenging to obtain flood insurance, and to doing all it can, in partnership with the government and the devolved administrations, to ensure that increased flood risk is appropriately managed.

2022 insurance stress test: PRA Dear CEO letter

The Prudential Regulation Authority (PRA) has published a Dear CEO letter setting out timelines and high-level scope for the 2022 insurance stress test (IST) to support firms' planning.

On timing, IST 2022 will be launched in mid-May 2022, firms' submissions will be required by mid-September 2022 and the PRA plans to provide feedback on the exercise in December 2022.

On scope:

  • for life insurers, the stress testing exercise will primarily focus on economic stresses. Recognising the difficulty in achieving consistency across life firms in 2019, the PRA intends to share the scenario design without calibration in September 2021 for early industry comment and feedback. This will also provide a basis for engagement between the PRA and individual firms to support firms' IST 2022 delivery planning, including reporting; and
  • for general insurers, the stress testing exercise will focus on natural catastrophe perils and cyber underwriting risk (including standalone or part of a broader package, as well as non-affirmative covers where relevant). Recognising the complexity in designing a cyber underwriting scenario, the PRA will share the design of the cyber scenarios in September 2021 for early industry comment and feedback.

The PRA states that the IST 2022 exercise will help to inform its longer-term approach to insurance stress testing with any identified changes to be included in its work following the review of the UK Solvency II regime led by HM Treasury.

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Authored by Yvonne Clapham


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