Development of insurance regulation in Ireland
| DOI | https://doi.org/10.1108/13581981211237954 |
| Date | 20 July 2012 |
| Published date | 20 July 2012 |
| Pages | 248-263 |
| Author | Richard Brophy |
| Subject Matter | Accounting & finance |
Development of insurance
regulation in Ireland
Richard Brophy
Brophy & Co Insurances Ltd, Dublin, Ireland
Abstract
Purpose – The purpose of this paper is to chart the chronology of insurance regulation in Ireland and
evaluate the integration within European Union directives.
Design/methodology/approach – The approach used was to chart the development of insurance
regulation in Ireland and establish the stakeholders in the insurance industry that are affected by
regulation. The various aspects of the EU involvement in regulation were also listed.
Findings – Ireland is one of the few countries that has a single financial regulator that is the Central
(Reserve) Bank. The Central Bank is recognised as the Irish national regulator for all insurance
activities in the EU and with that carries responsibility for implementing EU directives. In comparing
other regulatory systems, there is a mixture of direct government involvement, sector specific
regulation, financial services regulation and Central Bank acting as regulator.
Research limitations/implications – Research is based on literature review and data obtained
from the EU regarding national regulators. It does not set a standard of regulation or compare different
regulators but establishes the different forms of regulation in Ireland and the EU.
Practical implications – The paper establishesIreland’s insurance regulatoryenvironment amongst
its European peers.It also charts the development of insuranceregulation from solvency to the current
model of solvencyand consumer protection with the other officesof Financial Services Ombudsman.
Originality/value – The paper is based on research based on literature review and data obtained
from the EU regarding national regulators.
Keywords Insurance, Regulation, Regulatoryarchitecture, Ombudsman, Internalmarket,
European Union,Ireland
Paper type General review
The Irish insurance industry has undergone significant changes in the past 30 years –
not only in relation to changes taking place within the industry but also in relation to
the changing position of insurance within the area of financial services. As the debate
rages about how financial services should be regulated in Europe, this paper
endeavours to establish a chronology of how insurance services are regulated within
the Republic of Ireland and how the financial regulation architecture contrast with
other regimes in the EU.
1. Introduction
A regulatory environment plays an important part in governing what institutions
can and cannot do in relation to financial services (Hughes,1994). Sensible regulation of
insurance requires an understanding of a broad range of economic financial theory –
pricing metrics, game theory, dynamics, international trade and econometrics –
alongside ancillary subjects such as statisticaland information theory (Chandler, 2000).
The insurance market in Ireland involves many stakeholders. The most obvious of
these stakeholders are the customers, the underwriters (henceforth referred to as
“insurance companies” in this paper) and also the government, including the relevant
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
JFRC
20,3
248
Journal of Financial Regulation and
Compliance
Vol. 20 No. 3, 2012
pp. 248-263
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581981211237954
government department and also the organs of regulationsuch as the financial regulator
and ombudsman.
Regulation architecture in the European Union (EU) is characterised into three types:
sectorial (industry sectors:, e.g. insurance regulator, banking regulator), consolidated
(single regulator for all financial services) and unified (a single regulator including the
reserve or Central Bank) (Masciandaro et al., 2009). Another term to describe a unified
regulator, used by Sharma and Vashishtha (2007), is “holistic”. A holistic approach looks
at financial markets as continuously evolving entities, irrespective of traditional
sectorial distinctions and accordingly delivers supervision which is more effective in
handling the challenges of regulatory arbitrage, financial conglomerates and cross
border integration of the domestic financial sector.
Regulation in Ireland is one of the very few systems where there is a single financial
services regulator made up of the Central Bank. This is different from most other
European and foreign national regulators, and this structure raises some unique issues
in terms of regulation of all types of financial services (Pellegrina and Masciandaro,
2008). The Central Bank regulates different aspects of the insurance market from the
standpoint of the industry, the selling of products and consumer advisors. Before the
Central Bank regulated this market, Ireland had an underdeveloped system operated
by the Department of Industry and Commerce, which intervened on rare occasions, as
when solvency issues arose for two leading underwriters with a significant market
share. Alongside this, the EU has influenced the Irish market in a number of ways,
through directives that are brought into Irish law and the internal market, where Irish
underwriters’ trade abroad and foreign underwriters operate in the Irish market.
This paper outlines the chronologyof insurance regulation fromvarious perspectives,
taking into account the needs of insurance companies, intermediaries and consumers,
how the regulator operates in the Republic of Ireland, and the different functions of
regulation. The paper also provides brief comparison regulatory systems withinthe EU.
2. The Irish insurance market
The development of the insurance market in Ireland can be traced to the UK insurance
industry. Underwriters provide products which intermediaries then sell to consumers.
Intermediariescome in the form of tiedagents or insurance brokersselling life and non-life
products. The duties of insurance brokersand intermediaries can be summed up as:
.arranging suitable cover; and
.making appropriate notifications under the terms of cover (Virgo and Ryley, 2004).
Over the past 50 years, the Irish market, together with other national markets, has
changed with the advent of direct insurers (bypassing intermediaries), telephone sales
operations, and internet-based selling. In addition to this, alternative ways of selling
insurance products have been established through the banks, more commonly known as
bancassurance (Hughes, 1994). Evolution of this market came from banks which offered
loans and mortgages and provided the insurance products to cover the loan amount.
Bancassurance brings together the advanced selling skills of insurance operators and
the stronger customer orientation and loyalty of the banks, resulting in highly profitable,
cost effective cross selling of insurance products (Hughes, 1994). These products were
often provided by insurance companies and branded by the banks. In a move to make the
market more competitive for this type of product, the Consumer Credit Act (1995) which
Insurance
regulation
in Ireland
249
To continue reading
Request your trial