Opinion of the European Central Bank of 7 April 2017 on the provision of flood insurance (CON/2017/12)
Date: 2017-04-07
Institutions: European Central Bank
Subjects: Ireland, equal treatment, financial supervision, flood, indemnity insurance, insurance company, national law, property insurance

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 7 April 2017 

on the provision of flood insurance 

(CON/2017/12) 

Introduction and legal basis 

On  28  February  2017  the  European  Central  Bank  (ECB)  received  a  request  from  the  Chairman  of  the 

Oireachtas (Irish National Parliament) Joint Committee on Finance, Public Expenditure and Reform, and 

Taoiseach (Irish Prime Minister) for an opinion on a Flood Insurance Bill 2016 (hereinafter the ‘draft law’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the third indent of Article 2(1) of Council Decision 98/415/EC1, as 

the  draft  law  relates  to  the  Central  Bank  of  Ireland  (CBI).  In  accordance  with  the  first  sentence  of 

Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted 

this opinion. 

1.  

Purpose of the draft law 

1.1  The draft law contains provisions intended to achieve fairness in the market for property and flood 

insurance  in  Ireland.  In  order  to  achieve  this  purpose,  the  draft  law  places  certain  obligations  on 

insurance undertakings carrying out business in Ireland (hereinafter ‘insurers’) and confers certain 

powers upon the CBI.  

1.2  There are two aspects of property and flood insurance provision that are covered by the draft law. 

First, the draft law prohibits insurers from discriminating, when offering property insurance policies, 

between  (a)  persons  living  in  areas  designated  as  being  at  low  to  medium  risk  of  flooding 

(hereinafter ‘affected persons’); and (b) persons living in areas which are neither at low to medium 
risk of flooding nor designated as being at high risk of flooding (hereinafter ‘unaffected persons’)2. 

Insurers are prohibited from discriminating in their decision on whether to offer an insurance policy 

to  an  affected  or  an  unaffected  person,  the  price  at  which  a  policy  is  offered  (unless  the  price  is 

reasonably  justified  by  the  current  risk  profile  of  the  property)  and  other  terms  on  which  it  is 
offered3. The  prohibition  on  discrimination  does  not appear  to  prevent insurers from calculating  a 

higher premium for affected persons than for unaffected persons, subject to reasonable justification 

1  

2  
3  

Council  Decision  98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 

See paragraph 3 of the draft law. 
See paragraph 3 of the draft law. 

 
 
 
 
                                                 
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based  on  the  current  risk  profile  of  the  property.  Second,  the  draft  law  prohibits  insurers  from 

unreasonably  refusing  to  offer  an  insurance  policy  to  affected  persons,  or  offering  a  policy  at  an 
unreasonable price or on unreasonable terms to them4. This prohibition also appears to be limited 

as  insurers  are  permitted  to  offer  a  price  which  is  reasonably  justified  by  the  current  risk  profile 

associated with a property. 

1.3  The draft law confers upon the CBI the power to carry out an assessment of the manner in which 
an  insurer  deals  with  applications  for  insurance  by  affected  persons5.  This  assessment  may 

consider  the  extent  to  which  the  insurer  in  question  acts  in  compliance  with  the  draft  law’s 

prohibition on discrimination and the  duty not to  act unreasonably in its dealings  with  an affected 

person.  The  draft  law  does  not  set  any  further  parameters  for  such  an  assessment  or  the 

circumstances in which the CBI might carry out such an assessment.  

1.4  Where  the  CBI  decides  to  perform  such  an  assessment,  the  draft  law  confers  upon  the  CBI  the 

powers to issue directions to the insurer concerned to take steps or adopt or cease practices as it 

considers  appropriate  and  necessary  to  ensure  compliance  by  that  insurer  with  its  obligations 
under the draft law6. 

1.5  With regard to enforcement, the draft law confers powers on the CBI to enforce such directions on 
insurers  that  fail  to  comply  with  them,  by  applying  to  the  High  Court  for  an  enforcement  order7. 

When  granting  the  enforcement  order,  the  High  Court  must  also  impose  a  fine  on  the  insurer, 

unless the High Court determines that it would be unjust to impose such a fine. In such a case, it 
may impose a lesser fine or dispense with the requirement to impose a fine8. 

2. 

General observation 

This  opinion  does  not  address  whether  the  draft  law  is compatible  with  Directive  2009/138/EC  of 
the European Parliament and of the Council9. The ECB will only assess the provisions of the draft 

law that impact on the tasks of the CBI as a national central bank (NCB) and as a member of the 

Eurosystem and the European System of Central Banks (ESCB).  

3. 

Conferral of new tasks on the CBI 

3.1  The  draft  law  extends  the  CBI’s  current  supervisory  responsibilities  in  relation  to  insurance 

undertakings and expands its consumer protection-related mandate to include the tasks described 

in  paragraphs  1.3  to  1.5.  In  the  context  of  a  proposed  conferral  of  new  tasks  on  an  NCB  in  the 

ESCB,  it  is  necessary  to  assess  such  a  conferral  against  the  prohibition  on  monetary  financing 

4  
5  
6  
7  
8  
9  

See paragraph 4 of the draft law. 
See paragraph 8 of the draft law. 

See paragraph 9 of the draft law. 
See paragraph 10(3) of the draft law. 
See paragraph 10(5) of the draft law. 

Directive 2009/138/EC of 25 November 2009 of the European Parliament and of the Council on the taking-up and 
pursuit of the business of Insurance and Reinsurance (OJ L 335, 17.12.2009, p. 1). 

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under  Article  123  of  the  Treaty.  For  the  purposes  of  that  prohibition,  Article  1(1)(b)(ii)  of  Council 
Regulation  (EC)  No  3603/9310  defines  ‘other  type  of  credit  facility’,  inter  alia,  as  ‘any  financing  of 

the public sector’s obligations vis-à-vis third parties’.  

3.2  As one of the objectives of the monetary financing prohibition, which may not be circumvented, is 
ensuring a sound budgetary policy of Member States11, the task of financing measures, which are 

normally the responsibility of the Member States, and financed from their budgetary sources rather 

than from the NCBs’, must not be entrusted to NCBs by law. In order to decide what constitutes a 

form of financing of the public sector’s obligations vis-à-vis third parties, which can be translated as 

the provision of central bank financing outside the scope of central bank tasks, an assessment of 

whether the task to be undertaken by an NCB is a central bank task or a government task, i.e. a 

task  within  the  responsibility  of  the  Member  States,  needs  to  be  carried  out  on  a  case-by-case 

basis. In other words, sufficient safeguards must be in place to ensure that circumventions of the 

objectives of the monetary financing prohibition do not take place. 

3.3  As part of its discretion in the exercise of its duty, on the basis of Article 271(d) of the Treaty and 

Article 35.6 of the Statute of the European System of Central Banks and of the European Central 

Bank (hereinafter the ‘Statute of the ESCB’), to ensure that NCBs honour the obligations laid down 

by the Treaty, the Governing Council has endorsed safeguards of that kind in the form of criteria for 

determining what may be seen as falling within the scope of a public sector’s obligation within the 

meaning  of  Article  1(1)(b)(ii)  of  Regulation  (EC)  No  3603/93  or,  in  other  words,  constitute  a 

government task as follows:  

First, central bank tasks are in particular those tasks that are  related to the tasks that have been 

conferred upon the ECB and the NCBs by the Treaty and the Statute of the ESCB. These tasks are 

mainly defined in Article 127(2), (5) and (6) and Article 128(1) of the Treaty, as well as Article 22 

and Article 25.1 of the Statute of the ESCB.  

Second, as Article 14.4 of the Statute of the ESCB allows NCBs to perform ‘other functions’, new 

tasks, i.e. tasks that are not related to tasks that have been conferred upon the ECB and the NCBs, 

are  not  precluded  per  se.  However,  new  tasks  that  are  undertaken  by  an  NCB  and  which  are 

atypical of NCB tasks or which are clearly discharged on behalf of and in the exclusive interest of 

the government or of other public sector entities should be considered government tasks.  

Third, an important criterion for qualifying a new task as atypical of an NCB task or as being clearly 

discharged  on  behalf  of  and  in  the  exclusive  interest  of  the  government  or  other  public  sector 

entities  is  the  impact  of  the  task  on  the  institutional,  financial  and  personal  independence  of  that 

NCB.  

In particular, the following aspects should be taken into account:  

10  

11  

Council  Regulation  (EC)  No  3603/93  of  13  December  1993  specifying  definitions  for  the  application  of  the 
prohibitions referred to in Articles 104 and 104b(1) of the Treaty (OJ L 332, 31.12.1993, p. 1). 

Article  123  of  the  Treaty  also  serves  the  objective  of  maintaining  price  stability  and  reinforces  central  bank 
independence. 

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(a)  whether the performance of the new task creates conflicts of interest with existing central bank 

tasks  which  are  not  adequately  addressed  and  does  not  necessarily  complement  those 

existing  central  bank  tasks.  If  a  conflict  of  interest  arises  between  existing  and  new  tasks, 

sufficient safeguards to mitigate that conflict should be in place. The complementarity between 

a new task and the existing central bank tasks should not be interpreted broadly, so as to lead 

to  the  creation  of  an  indefinite  chain  of  ancillary  tasks. Such  complementarity  should  also  be 

examined in relation to the financing of those tasks; 

(b)  whether without new financial resources the performance of the new task is disproportionate to 

the NCB’s financial or organisational capacity and may have a negative impact on the capacity 

to perform properly the existing central bank tasks; 

(c)  whether the performance of the new task fits into the institutional set-up of the NCB in the light 

of central bank independence and accountability considerations; 

(d)  whether the performance of the new task harbours substantial financial risks; 

(e)  whether the performance of the new task exposes the members of the NCB decision-making 

bodies  to  political  risks  which  are  disproportionate  and  may  also  have  an  impact  on  their 

personal independence and, in particular, on the guarantee of term of office set out in Article 

14.2 of the Statute of the ESCB.  

3.4   On the basis of the criteria set out above, the following paragraphs assess whether the CBI’s new 

tasks are in line with the monetary financing prohibition.  

3.4.1 

New  tasks  related  to  the  tasks  conferred  upon  the  ECB  and  the  NCBs  by  the  Treaty  and  the 

Statute of the ESCB 

The  prudential  supervision  of  insurance  undertakings,  and  the  terms  on  which  they  provide 

insurance  policies,  and  the  protection  of  consumers  of  financial  services  are  not  expressly 

mentioned  among  any  of  the  basic  central  banking  tasks  listed  in  Article  127(2)  or  (5)  of  the 

Treaty or otherwise conferred upon the NCBs by the Statute of the ESCB. Indeed, under Article 

127(6)  of the  Treaty, the  Council may  confer specific  tasks upon the ECB  concerning policies 

relating to the prudential supervision of credit institutions and other financial institutions with the 

exception of insurance undertakings. While Article 127(5) of the Treaty provides that the ESCB 

shall contribute to the smooth conduct of policies pursued by the competent authorities relating 

to the stability of the financial system, the ESCB contribution in this respect does not imply the 

conferral  of  any  original  competences  on  the  ECB.  Against  this  backdrop,  the  new  tasks 

conferred on the CBI under the draft law  are  not related to the tasks conferred upon the ECB 

and  the  NCBs  by  the  Treaty  and  the  Statute  of  the  ESCB.  Consequently,  as  a  next  step,  the 

conferral  of  these  tasks  by  the  draft  law  on  the  CBI  must  be  closely  scrutinised  to    assess 

whether  they  constitute  government  tasks  and  whether  the  related  funding  gives  rise  to 

monetary financing concerns.  

3.4.2 

Tasks which are atypical of NCB tasks 

The  draft  law’s  conferral  of  tasks  in  relation  to  a  specific  area  of  insurers’  activity  may  not  be 

atypical  of  NCB  tasks  based  on  the  understanding  that  these  tasks  do  not  interfere  with  the 

NCB’s ESCB-related tasks and provided that those tasks are a complementary specification of: 

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(a)  an  NCB’s  existing  role  as  prudential  and  conduct  of  business  supervisor  of  insurance 
undertakings, a role which is currently fulfilled by numerous ESCB NCBs12; and/or (b) existing 

consumer protection tasks in the area of financial services, a role which is currently also fulfilled 
by numerous ESCB NCBs13. In this regard, it may be observed that a central bank’s pursuit of 

legislative  mandates  in  several  areas  may  lead  to  inherent  tensions  between  the  multiple 

objectives it is bound to pursue, and require the central bank to balance competing interests in a 

manner more appropriate for a government.  

The CBI is already responsible for the prudential supervision of insurance undertakings as well 

as supervision  of their  business  conduct. It also  has a  broad consumer  protection  mandate  in 
the  field  of  financial  services,  including  insurance14.  Its  responsibilities  in  this  regard  include 

ensuring  compliance  with,  inter  alia,  the  Consumer  Protection  Act  2007,  the  European 

Communities  (Unfair  Terms  in  Consumer  Contracts)  Regulations  1995  and  2000,  European 

Communities  (Distance  Marketing  of  Consumer  Financial  Services)  Regulations  2004  and  the 

Non-  Life  Insurance  (Provision  of  Information)  (Renewal  of  Policy  of  Insurance)  Regulations 

2007. The Consumer Protection Code 2012, which the CBI adopted pursuant to section 117 of 
the  Central  Bank  Act  1989  and  section  61  of  the  Insurance  Act  198915,  imposes  binding 

obligations on, inter alia, insurance undertakings with respect to the manner in which they deal 

with  customers  and  consumers.  The  Central  Bank  Acts  1942  –  2015  provide  the  CBI  with 

investigatory, supervisory and enforcement powers designed to ensure that it can carry out its 

prudential and consumer protection mandates. In the case of the draft law, it specifically confers 

powers  upon  the  CBI  to  monitor  and  take  action  in  relation  to  insurers’  conduct  vis-à-vis 

consumers, i.e. potential discrimination or unreasonable actions, albeit in the particular sphere 

of property insurance.  

Therefore, it follows that, given the CBI’s mandate under national law for consumer protection in 

the field of financial services, and, more broadly, for financial stability, roles which are currently 

also fulfilled by numerous ESCB NCBs, the CBI’s new tasks under the draft law may be argued 

to be not atypical of a central bank. For the same reasons, the tasks conferred by the draft law 

appear  to  be  so  closely  related  to  the  CBI’s  existing  tasks  and  mandates  that  the  overall 

objectives  and  interests  to  be  pursued  by  the  CBI  remain  largely  unchanged.  The  new  tasks 

would  therefore  not  be  regarded  as  being  discharged  in  the  exclusive  interest  of  the 

government. The CBI is the sole supervisory authority for insurance undertakings and there is 

no  indication  that,  in  carrying  out  this  function,  the  CBI  would  be  acting  exclusively  in  the 

interest  of  another  public  authority.  Furthermore,  the  powers  assigned  to  the  CBI  are  in  the 

12  

13  

14  
15  

See for example, paragraph 3.1 of Opinion CON/2012/61, paragraph 2.2 of Opinion CON/2011/46, paragraph 2 of 
Opinion  CON/2010/33,  paragraph  2  of  Opinion  CON/2010/4,  and  paragraphs  6  to  8  of  Opinion  CON/2003/23.  All 
ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 
See also paragraph 3.3.4.2 of Opinion CON/2016/54, paragraphs 4.3 and 4.4 of Opinion CON/2016/34, paragraphs 
3.3 and 3.4 of Opinion CON/2015/54 and paragraph 3.1 of Opinion CON/2015/21.  

See, in particular, sections 5A(1)(f) and 6A(2)(b) of the Central Bank Act 1942 (as amended).  
In addition to the Investment Intermediaries Act 1995 and the Consumer Credit Act 1995.  

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interest of consumers buying financial products, i.e. property insurance in relation to properties 

at a low-to-medium risk of flooding, which the CBI also has a statutory mandate under Irish law 

to protect. 

3.4.3 

Impact of the tasks on the independence of the CBI 

It must also be considered how the new tasks that the draft law confers upon the CBI may have 

an impact on the institutional, financial and personal independence of the CBI. 

3.4.3.1  Extent to which the performance of the new task creates conflicts of interest with existing central 

bank tasks 

The core obligations created by the draft law apply to insurers. As noted in Sections 3.4.1 and 

3.4.2,  the  CBI  is  the  competent  authority  responsible  for  the  authorisation  and  prudential 

supervision of insurance undertakings. In addition, the CBI has a consumer protection mandate 

with  respect  to  insurance  undertakings  operating  in  Ireland.  Therefore,  the  CBI’s  new  tasks 

under  the  draft  law  seem  to  complement  its  existing  tasks.  The  CBI’s  exercise  of  its  powers 

under  the  draft  law  would  therefore  not  appear  to  create  a  conflict  of  interest  with  its  existing 

central bank tasks. 

3.4.3.2  Extent  to  which  the  performance  of  the  new  tasks  is  disproportionate  to  the  CBI’s  financial  or 

organisational capacity 

The  principle  of  financial  independence  requires  that  the  Member  States  may  not  put  their 

NCBs  in  a  position  where  they  have  insufficient  financial  resources  to  carry  out  not  only  their 

ESCB-related  tasks,  but  also  their  national  tasks,  from  both  an  operational  and  financial 

perspective.  Furthermore,  when  allocating  specific  new  tasks  to  NCBs,  each  NCB  concerned 

should be able to avail itself of additional financial resources so that these tasks may be carried 

out  in  a  manner  that  will  not  affect  the  NCB’s  operational  or  financial  capacity  (including 

sufficient human resources) to perform its ESCB tasks. As such, it must be ensured that the CBI 

can avail itself of sufficient resources, including personnel, for the performance of assessments 

and  the  issuance  of  directions  under  the  draft  law,  so  that  the  CBI’s  capacity  to  perform  its 

ESCB-related  tasks  is  not  affected.  In  this  regard,  the  draft  law  does  not  specifically  address 

how  to  finance  additional  expenses  resulting  from  the  CBI  being  granted  additional  powers. 

However, the ECB understands that the additional resources required by the CBI to exercise its 

powers  under  the  draft  law  would  be  financed  by  the  existing  framework  that  finances  the 

supervision  of  regulated  financial  service  providers,  i.e.  by  way  of  industry  levies  and,  if 

necessary,  a  subvention  from  the  CBI.  It  is  understood  that  in  order  to  fall  within  the  existing 

framework, and therefore provide for the CBI to be reimbursed for the costs incurred in relation 

to the performance of its new tasks, the draft law will need to be categorised as a ‘designated 
enactment’ for the purposes of the Central Bank Acts 1942 - 201516.  

16  

See sections 2 and 32D and Schedule 2, Part 1 of the Central Bank Act 1942.  

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3.4.3.3  Extent  to  which  performance  of  the  new  task  fits  into  the  CBI’s  institutional  set-up,  in  light  of 

central bank independence and accountability considerations 

The performance of the new tasks appears to be aligned with the CBI’s institutional set-up. As 

mentioned  in  paragraph  3.4.3.1,  the  CBI  is  responsible  for  the  prudential  supervision  of 

insurance  undertakings  and  has  a  consumer  protection  mandate  with  respect  to  insurance 

undertakings, in the context of which the new tasks under the draft law are conferred. 

3.4.3.4  Extent to which the performance of tasks harbours substantial financial risks 

The  draft  law  does  not  directly  address  the  CBI’s  potential  liability  in  the  event  of  any  legal 

action, application or other legal proceeding for damages in relation to the exercise of its powers 

under  the  draft  law.  Nonetheless,  section  33AJ(2)  of  the  Central  Bank  Act  1942  provides  that 

specified  officers  and  employees  of  the  CBI  are  not  liable  for  damages  for  anything  done  or 

omitted  in  the  performance  or  purported  performance  or  exercise  of  any  of  its  functions  or 

powers,  unless  it  is  proved  that  the  act  or  omission  was  in  bad  faith.  Furthermore,  no  appeal 

shall  lie  to  the  Irish  Financial  Services  Appeals  Tribunal  or  the  High  Court  in  respect  of 

assessments  carried  out  by  the  CBI,  directions  issued  by  the  CBI  or  decisions  by  the  CBI  to 

seek  an  enforcement  order.  In  that  respect  the  CBI  appears  not  to  be  exposed  to  substantial 

financial  risks. However, it is  for the Irish  authorities  to assess whether the  draft law complies 
with Irish legal and constitutional principles in this regard17.  

3.4.3.5  Extent  to  which  the  performance  of  the  new  task  exposes  members  of  the  CBI’s  decision-

making  bodies  to  disproportionate  political  risks  and  has  an  impact  on  their  personal 

independence 

The  performance  of  the  tasks  conferred  under  the  draft  law  does  not  appear  to  expose  the 

CBI’s  decision-making  bodies  to  any  disproportionate  political  risk  or  have  an  impact  on  their 

personal  independence.  As  mentioned  in  paragraph  3.4.3.1,  the  CBI  is  responsible  for  the 

prudential supervision of insurance undertakings and has a consumer protection mandate with 

respect to insurance undertakings in Ireland. 

3.4.3.6  Conclusion in relation to the draft law’s effect on the CBI’s independence 

On the basis of the above, it may be concluded that the draft law does not adversely affect the 

CBI’s institutional, financial and personal independence. 

3.4.4 

Conclusion regarding the compatibility of the draft law with the prohibition on monetary financing 

The CBI’s new powers to carry out assessments of the manner in which an insurer deals with 

applications  for  insurance  by  affected  persons  can  be  regarded  as  central  bank  tasks,  in  the 

sense  that  they  would  complement  the  CBI’s  existing  mandate  for  consumer  protection  in  the 

field of financial services. However, it should be noted that a central bank’s pursuit of legislative 

mandates  in  several  areas  may  lead  to  inherent  tensions  between  the  multiple  objectives  it  is 

bound to pursue, and require the central bank to balance competing interests in a manner more 

17  

See also paragraph 3.3.4.3.4 of Opinion CON/2016/54.  

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appropriate for a government. It is understood that in order to ensure that the CBI is reimbursed 

for its costs incurred in relation to the performance of its new tasks, the draft law will need to be 

categorised as a ‘designated enactment’ for the purposes of the Central Bank Acts 1942 - 2015. 

ECB-PUBLIC 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 7 April 2017. 

[signed] 

The President of the ECB 

Mario DRAGHI 

8