How European insurers and pension funds can contribute to further strengthen the Capital Markets Union

Discussions on European competitiveness and the Single Market are currently centre stage on the EU political agenda. Earlier this month, Enrico Letta’s report on the future of the Single Market and how to enhance the Capital Markets Union (CMU) have brought to light possible action points that are likely to feature on the agenda of the coming European Commission.

Insurers and pensions funds: their strategic role in society and capital markets

Insurers and pension funds have a strategically important role in our society, providing protection and peace of mind to both consumers and businesses. As large long-term institutional investors, the insurance and pensions sectors are contributing significantly to the European economy and capital markets. The figures speak for themselves: European insurers have assets worth EUR 9,348 bn and EUR 2,468 bn for European institutions for occupational retirement provision (IORPs). A substantial part of these assets is already invested in Europe, as 69% of insurers’ investments in equity, corporate and sovereign bonds are within the EU.

Enhancing the CMU and the Single Market: EIOPA’s perspective

The insurance and pensions sectors can play an even stronger role in deepening and further integrating European capital markets, for example by providing a wider range of products for people to invest in and by harnessing the savings power of Europe’s citizens to fuel the green and digital transition.

In anticipation of the new policy cycle, EIOPA has identified some areas where further attention could enhance the CMU and the Single Market.

1. Better consumer protection in retail financial services, including cross-border. The number of consumers who save through investment products in Europe is still relatively low. As a result, consumer savings are not being chanelled towards capital markets to finance the economy, and consumers are less likely to reach their financial objectives, which in turn makes them more vulnerable to shocks. This can be achieved by fostering the development of and uptake of simpler, safer and more accessible savings products, by ensuring investment products offer value for money, by strengthening the quality of financial advice, by enhancing regulatory focus on the governance of conduct risks, and by reinforcing supervision at all stages of the product lifecycle, particularly for cross-border business.
2. Increased cross-border operation by insurers and pension funds. Currently almost 12% of Europe’s insurance business is cross border. Growing this amount would allow insurers to reach a high number of retail investors in Europe, with consumers benefitting from a wider range of investment opportunities for their savings and pensions.
3. Greater use of pensions dashboards and auto-enrolment in occupational pension schemes to address protection gaps. Having an overview of pension savings at both national and individual level, by using pension dashboards, covering each national market, as well as individual tracking systems, would enhance transparency, raise awareness, and mobilize retail investments. Furthermore, auto-enrolment systems will also contribute to deepening CMU. Overall, countries with a well-developed multi-pillar pension system often benefit from a silver economy that actively contributes to GDP.

More integrated supervision for higher consumer protection

A stronger Capital Markets Union goes hand in hand with a well-functioning Single Market. Neither should be at the cost of consumer protection.

Policyholders and beneficiaries need a similar level of protection wherever they are based in Europe and wherever the insurance undertaking’s head office is located.

As business models evolve, bringing to bear the fruits of the Single Market, for example a wider product choice and more competitive pricing, supervision must keep up with change.

Moving at a gradual pace towards more centralised supervision in insurance makes sense to ensure consistent protection for consumers across the EU. Such a move would mean that where there are cases of consumer detriment, a supervisor at European level would be able to step in, if national supervisors are unable to act. Similarly, consumers need to be better protected in the event of the failure of an insurance company operating cross border.  Here, further progress to achieve a minimum harmonisation of Insurance Guarantee Schemes will help to address fragmentation and trust in the Single Market. Finally, addressing the current fragmentation in the approval of internal models for insurance companies, will help to increase the competitiveness of large insurance groups.

A more integrated European Single Market and a stronger Capital Markets Union is key to boost economic growth – including by driving the shift towards green and digital economies – competitiveness, and consumer protection through a stronger European supervision. The insurance and pensions sectors have the potential to contribute to this goal and EIOPA stands ready to facilitate this.