Opening remarks - Global Insurance Supervision conference

Good morning Professor Gründl, Professor Ludwig, Professor van Hulle, everyone

Together with the International Center for Insurance Regulation (ICIR) and the Research Center SAFE - Sustainable Architecture for Finance in Europe, it gives me great pleasure to welcome you all to this year’s Global Insurance Supervision conference.

Allow me first to extend my sincerest thanks to all the people involved who have made this conference happen.

• Professor Dr Alexander Ludwig and all the good work from his team
• Professor Dr Helmut Gründl and colleagues from the International Center for Insurance Regulation
• A warm thanks to all of our distinguished speakers, panellists and moderators
• And finally thanks to my own colleagues at EIOPA for their work in helping to bring this conference together.

I am delighted that once again this conference can be held in person. Indeed, we were happy to see so many registrations so quickly. Happy, but not surprised.

The GIS conference – now in its eighth edition – has become, after all, an important occasion to talk about and reflect on insurance supervision questions that affect us all.

And that shows, as today we are welcoming insurance supervisors, industry experts, and academics from some 35 different countries. We truly are a global community. And I am pleased to see many familiar faces here today.

As we all know, insurance plays a crucial role in enabling people, business, and society to function. And so it is just as crucial that it is supervised effectively.

And as insurance is, more and more, rarely limited to one jurisdiction or one region, it logically follows that we have discussions on different approaches to supervision. And we have them at events like today.

The theme of this year’s conference is ‘Insurance supervision in a world of transformation.’ 

‘Transformation’ is quite a loaded word. A dictionary definition will refer to ‘a marked change in form, nature, or appearance’ – but there is no indication if the change is for the better.

And indeed, the transformation that we are going through – not just in terms of the insurance sector, or supervision, but also for society is profound.

Global warming is making us rethink what we buy, how we travel, where we live.

Technology is changing the way we learn, do business and, of course, communicate.

Geopolitical upheaval puts peace, security and values in the spotlight, while the macroeconomic climate reminds us of the importance of resilience.

As to whether we think that transformation is positive or negative, we might not always share the same opinion, and this too is more and more visible in our societies, adding to the challenges. Still, we need to continue talking, listening, and reflecting, while finding common goals.

And one of those common goals, I am almost certain, for us as supervisors is that we want supervision to ensure that consumers and policyholders are not left behind by the transformation, and that supervision helps to ensure financial stability while we are transforming.

Achieving this goal in the midst of change is not easy. Yet, a principle based regulatory framework, combined with a risk-based approach to supervision will help us to be agile where needed, be on it where necessary, and be aware throughout the process, thereby helping us to achieve our goal of good consumer protection and financial stability. It shouldn’t come as any surprise then that the this is one of the topics on the agenda today.

In Europe, risk-based supervision is embodied through Solvency II.

The framework came into being in 2016, introducing a forward-looking risk-based approach to assessing and mitigating risk in the EU insurance sector.

EIOPA believes that the framework has proven to work well over the years, strengthening the sector’s resilience to weather financial, pandemic, and geopolitical turbulence.

Solvency II is now undergoing a review. EIOPA has provided its technical advice to the European Commission and earlier this summer the European Parliament reached a position on the review of this Directive, which will allow the legislative process to move forward.

One improvement to Solvency II we can expect to see is that smaller and lower-risk insurers will benefit from reduced requirements for reporting. Simplified processes and a lower administrative burden, in accordance with the principle of proportionality, is very much in line with this risk-based approach and a change EIOPA welcomes.

We can also expect to see the easing of capital requirements. This means that insurers and reinsurers will be required to hold less in capital than before, with the objective of freeing it up for more long-term investments.

For EIOPA, the appropriate course of action here is to err on the side of caution at a time of ongoing uncertainties. Even though some easing in the context of long-term investments would be appropriate, as also stated in our Opinion on the Solvency II review, further capital relief for not truly long-term investments would increase risks for consumers and financial stability in times of uncertainty.

Moreover, where there is capital relief, it should be closely tied to moving the green transition ahead, something EIOPA will monitor going forward. Finally, with more easing coming into the framework, it is essential that we have a better view of the ability of individual companies to manage stress. As such EIOPA welcomes the proposal to publish individual results of our regular stress tests.

Last but not least, let me underline that Solvency II is a competitive regulatory framework. And here, when I talk about competitiveness, I mean more than the level of capital requirements. Rather I mean a sustainable competitiveness that relies on fair pricing and credible risk assessment, building resilience and trust. For transformation on the basis of a robust framework will allow for the focus of industry and supervisors to be on the new topics and the change that is coming.

Let me take a moment to address here some of the comments that come my way about over-regulation in Europe.

It’s true that, in terms of regulation, over the last four years, the Commission has been busy.

In part this has been driven by the need for the financial sector to play its part in the transition to a greener economy, and in part that by the increasing number of cross-sectoral or horizontal regulation.

But also in part because of the pace of technological developments.

Such is the speed of transformation that while it might be appealing to pause on regulation, the external factors won’t be taking a break.

And I would say that there is no harm in being early in addressing risk.

But I would also say that it’s important that we consider the overall legislative agenda, that we ensure enough time for consultation. So that when new regulations are introduced, it isn’t a case of needing to comply with many new requirements all at the same time.

I also want to stress the importance of the consultation phase. This is the chance for all stakeholders to provide detailed input on what they think will work or won’t work. The earlier we have this information, the fewer difficulties in implementation.

In my view, we should be talking less about over-regulation and more about good regulation – and by this I mean regulation that is relevant and fit-for-purpose. Because good regulation benefits competitiveness. To speak of a trade off between the extent of regulation and competitiveness is too simplistic.

I hold Solvency II up as an example of regulation that works well. It is detailed, it is complex, and when it was introduced there were concerns that it was over-burdensome. But it is a regulation that we have to seen to work and it is a regulation that is admired and copied by many countries outside of Europe.

This is the spirit of Solvency II: a framework with policyholder protection at its heart.

And it is from this spirit that European insurance groups and insurers successfully do business internationally and will continue to do so. With some EUR 9 trillion in assets and written premiums of about EUR 1.35 trillion last year, EEA is one of the biggest insurance markets in the world, and demand continues to grow.

In the same way it is in this spirit that European supervisors will continue the dialogue in the IAIS on the global Insurance Capital Standard, the ICS, welcoming the work done to reach good outcome, while always having the need for level playing field and the protection of the European consumer in mind.

And protection of consumers these days is paramount as is the notion that protection gaps are growing worldwide. Naturally this will be on the agenda today – for it is very much a priority for EIOPA.

Climate change is probably the most pressing risk of our time. In Europe, this summer, we have seen fires, mudslides and floods. In fact, Europe is the fastest-warming continent in the world, warming twice as fast as the global average for the last four decades. But of course, climate change affects every continent.

The impact of these events on individuals is dramatic, the impact on societies large. And so we all have a role to play in preparing for and managing the effects of climate change, also the insurance industry. In fact, the insurance sector is very well positioned to make an important contribution to this collective goal.

First of all by providing insurance. Catastrophe insurance is a key tool to mitigate macroeconomic losses following extreme climate-related events. It provides prompt funding for people and businesses to recover and rebuild from devastating events.

Yet at the moment, a huge 75 per cent of climate-related catastrophe losses in Europe are not insured. This situation is deeply concerning as it leaves households and businesses exposed to unnecessary risks and condemns those affected by natural hazards to a slow and arduous recovery process. To address this issue, we must ensure that insurance coverage against natural catastrophes remains accessible and affordable for all.

Now this will not just happen automatically. In fact, we currently see actions that move the other way, with insurance excluding more cat risk, while consumers trust more and more on public authorities to pick up the bill.

One could say that the current way the market is organising how to finance the losses as a result of climate change is not functioning well.  Therefore we need to rethink how the entire eco system works, including consumers, the financial markets, public authorities, insurers and reinsurers. Instead of each of these groups currently working on shifting risks and costs to others in the system, we need a dialogue in which each of the groups takes its own responsibility and is able to do so. For the question is not how to avoid the events, these will come, the question is how we as a society can stand together to deal with the events in the most efficient way, thereby lowering cost and impact, ensuring quick recovery and in the end quickly supporting the individuals that were impacted this time.

To facilitate this dialogue EIOPA has worked together with the European Central Bank to develop a set of policy options to increase climate resilience in Europe. We advocated for a comprehensive solution to expand coverage with four pillars:

1.            policies designed with adaptation and mitigation measures,

2.            enhancing the capacity of the insurance market, by involving the entire financial system

3.            as well as public-private partnerships at the national

4.            and EU levels to cover losses that may be difficult to insurance against purely via market-based solutions.

We will continue working on these policy options and share them, while encouraging further dialogue at all levels to bring this topic further. And let me stress that insurance will have a key role to play in bringing this further.

But let’s go back to the consumers and the fact that 75% of natcat risk in the EU is currently not insured. In order to better understand the reasons for this, EIOPA recently conducted a behavioural analysis to find out why consumers are reluctant to consider insurance options that do already exists. We found several causes and I will share the three most important ones: that past negative experiences, misperceptions about the risks of natural catastrophe events, a lack of transparency in terms and conditions, high reliance of state intervention and demanding purchasing processes were some of the barriers that held people from embracing products offering natcat protection.

As I am sure we will hear in today’s panel discussion, natural catastrophe protection gaps are not just a European issue, but indeed a global challenge. And it is becoming all the more clear that we cannot afford to ignore these gaps or else we will leave too many households and firms vulnerable to devastating shocks.

The third important topic of this year’s conference is innovation.

Regulators and supervisors technological neutral and open to innovation. At the same time we are cautious about its intended and unintended consequences. The good thing is that supervisors are naturally curious, so we are interested in technological developments, including how they can simplify our own work.

And so, when we look at innovation, we must also examine what novel ways of working entail for efficiency, the level playing field, financial stability, data protection and the rights of consumers.

One challenge for supervisors – and regulators – is how to create effective regulatory frameworks that enable innovation without compromising consumer protection. In Europe, we also in addition to this, the challenge of cross-sectorial legislation. That is legislation developed for any player in the market using a certain technology, including insurers – I am talking about the AI Act, DORA – the Digital Operational Resilience Act, Open Finance.

In all of these cases, we have to make sure that the specificities of the insurance sector are sufficiently reflected.

A second challenge for supervisors is simply keeping up with the pace of change. Such is the speed of the digital transformation that it becomes all to easy for supervisors to be left behind.

And again, this is where cooperation – through events like this and through other for a – that we can learn from each other. Simply sharing the developments in the market as well as supervisory responses is very helpful, with, as a next step, identifying where more coordination by international supervisors in needed, supervision of AI clearly being a candidate.

The International Association of Insurance Supervisors (IAIS) Fintech Forum is a great example of how that can be done.

And closer to home, last year EIOPA, together with the European Commission and our sister Supervisory Authorities, launched a new EU Supervisory Digital Finance Academy.

It offers a training programme to supervisors, enabling them to deepen their understanding of the complex digital transformation impacting finance. The home of the Academy is the Florence School of Banking and Finance which offers a range of on-site and online courses.

Before I close, want to underline the importance of global cooperation. Especially given the scale and scope of the transformation that we are in.

Cooperation is, after all, at the very heart of good supervision and at EIOPA, in particular, we truly value good cooperation: with our 27 national supervisory authorities, our Board members, and with the other European Supervisory Authorities, as well as with the IAIS, and other international fora, such as the Network for Greening the Financial System.

And earlier this year, we were happy to hold the Eastern Cooperation Conference for supervisors from central and eastern European jurisdictions. Indeed, I am pleased to see a number of supervisors from that event here today.

In particular, I am so pleased that Lesia Burbel from the National Bank of Ukraine is able to join us here in person to talk about insurance Supervision under extreme distress. And here, let me say that EIOPA – and indeed the European Union – continues to stand with Ukraine in this war sparked by unprovoked aggression from Russia.

As I said earlier, all of us here share a common interest in effective supervision. Our ongoing dialogue is essential to promote mutual understanding and build trust and I am sure that this conference is going to lead to many productive and interesting conversations.

And I think that is right note to end my remarks, and make way for the first of our discussions.

I hope you enjoy the coming days.

Thank you very much.