Outlook in Regulation and Supervision

Good morning, ladies and gentlemen,

It is a pleasure to join you today at the 11th Annual Life & Health Insurance Summit here in Amsterdam. We are here to talk about the future—the future of our society’s wellbeing and economic prosperity and the role of the insurance sector in helping secure it.

Achieving this begins with narrowing existing protection gaps. According to the Global Federation of Insurance Associations, the most significant protection gaps, globally, exist in pensions, and in insurance for natural catastrophes, cyber risk and health. This is not different in Europe.

“Protecting people for the long-term”—has been the traditional role of insurance. And this promise remains.

What is changing is the nature of risk, as well as our capacity to assess it.

Today, insurers are operating in a very dynamic threat landscape: foreseen changes in climate and in the demographic makeup of our societies, are one factor contributing to this.

The other is the growing availability of data and means to gain insights from it, especially considering recent advancements of AI. In light of this, we are confronted with new questions about fairness, which are pushing us to re-examine the way in which insurers deliver on their promise to be society’s risk manager.

EIOPA’s role as a supervisor is to remain on the lookout for risks, and to support the supervisory community and the industry in addressing them adequately. It is through this lens that I will share with you thoughts on challenges that may lie ahead in life and health insurance.

[Climate change increasing health care costs]

Let me start with the growing effects of climate change on the insurance business model. As the pace of climate change gains in speed, we are seeing an increasing frequency of natural disasters. These are causing immense damage to properties and to crops. Last year alone, this amounted to 280 billion US dollars globally.

In Europe, the natural catastrophe protection gap is severe, with only a quarter of the losses insured.

The other, less-discussed, dimension of global warming concerns its consequences on human life and health. As a result of heatwaves, wildfires, and air pollution linked to climate change, more people are dying or falling seriously ill.

The heatwave we witnessed in Europe two summers ago took 60,000 lives. Cardiovascular and respiratory illnesses directly linked to the effects of growing temperatures are affecting many people and driving up the cost of health care.

Climate change has implications for health insurers. Because regardless of where their policyholders live, as global temperatures continue to rise, so too will the frequency and intensity of heatwaves. And vulnerable groups, including elderly citizens, are disproportionately affected.

[demographic change leading =>pension gaps and potential health care gaps]

And this brings me to the second factor that will impact insurance, and in this case, also the pensions models in Europe, and that is, demographic change.

Europe’s population is getting older. And people are living longer. And while on its own this is a blessing, it does come at a cost: a cost to health care, to long-term care, and to retirement income.

Europe has a significant pension gap. Today, 17 million senior citizens are at risk of poverty or social exclusion. That is 1 in 5.  

Due to previous inequalities, women receive pensions nearly 30% smaller than men, increasing their risk of poverty by 35%. 

In the coming decades, the number of Europeans aged over 65 is going to rise dramatically. Today, for every retired person, there are almost three people of working age. By 2070 there will be merely half of that—1.5 working-age people per retired person.

But what implications does population aging have on healthcare financing? Well, it can strain healthcare financing in two ways. First, longer lifespans lead to higher lifetime healthcare costs.

And second, as the elderly population grows, there are fewer working people contributing to healthcare funding through social security. This creates a challenge where a smaller group funds healthcare for a larger group in need. And this is indeed what the figures are pointing to. What’s more, long-term care is likewise expected to become more needed and more costly and thus be a further stress on the system.

Already today we are confronted with a growing need for more adequate health and retirement funding. What we need to see is a greater impetus to address these issues.

In the aftermath of the COVID-19 pandemic, we saw a broad political consensus that the resilience of European health care system needs to be strengthened. And this commitment needs to continue.

It is concerning that, by and large, European citizens still perceive their governments as the primary drivers in securing a dignified retirement and adequate healthcare. Governments alone will not be able to bear the cost. It will make any effort to provide the basis, but it will simply not be able to always do more.

This recognition is also reflected in public policy, which is increasingly heading in a direction of individuals playing a more proactive role in decisions that affect their income at retirement.

The bottom line is, when too many elderly citizens face financial insecurity, we see rippling effects on consumer spending patterns, economic growth, and the overall well-being of societies.

The truth of the matter is that this problem requires all relevant parties to raise their game:

Citizens would benefit from a greater financial literacy, a heightened awareness of the risks, and an understanding of the urgency to take action. They need to take ownership of their retirement planning and do so at a young age.

For some, this might mean purchasing additional health insurance coverage; for others, a life insurance or a pension product to be better set for retirement.

Insurers too have an important role to play here: it starts with putting simple and affordable products that work on the market, so that beneficiaries can count on a reliable source of income when an illness or disability strikes or when retirement comes. And they can actively encourage long-term saving and financial planning.

We also need transparent communication to build consumer trust. If a product is too complicated for a consumer to understand, it cannot be in their best interest.

Rather, one needs to be able to see what a product does, and what it does not. When people can discern what products do not address their needs, they might they consider paying for ones that do.

[Right to be forgotten and mutualisation]

In my introduction I said that the changing nature of risk and our growing ability to assess it has also raised questions about fairness.

At the heart of discussions about health insurance fairness lies the principle that we all should have equitable access to coverage.

This is also at the core of the debate around the right to be forgotten, which prohibits the collection and use of health information from survivors of cancer or certain other chronic diseases after a specified period of time.

The concern is that if insurers have unrestricted access to all past medical data, people with pre-existing conditions could face disproportionate challenges in obtaining insurance, and that this imbalance could worsen existing disparities in healthcare access.

Fairness in insurance also has to do with how risk is distributed, and premiums are priced. Insurers rely on individuals’ health data to evaluate risk and set premiums, with the understanding that healthier individuals generally incur lower healthcare costs.

As insurers are able to make increasingly precise predictions based on granular data, we have to be mindful of the risk of exclusions and cherry-picking. These can occur through risk-based pricing and underwriting techniques, as well as through impacts on the quality of cover. This would mean that those carrying higher risks may face increased premiums or refusal of a product, or contract exclusions. We need to think about what this means.

Artificial Intelligence is another reason why we must think through these challenges today, as it is accelerating the trend towards more accuracy, granularity and personalisation of data.

The AI Act foresees only one high-risk use case of AI in insurance, and that is pricing and underwriting in life and health. I think this is very telling.

And so we have to ask ourselves, is such comprehensive health data necessary to maintain fair premiums and sustainable insurance pools? And even if such data is essential for accurate risk assessment, should it dictate pricing?

Or are there perhaps solutions which allow insurers access to this data, in order to better understand the risk, without it being factored into pricing? Reducing the availability of data would reduce the visibility of risk. Would this be acceptable? And to what extent should supervisors engage in setting limits on what data insurers use and how they use it?

The answers to these questions depend on one thing, and that is, the understanding of mutualisation we come to as a society. In a continent with an ageing population that is living longer, health care risks will rise and so will the costs. The question we need to answer is how we as a society will manage those risks. Clearly insurers, as managers of societies risk will have an important role to play, a role that involves data collection and mutualisation, for this is a key part of how risks are managed.  How to do this in a fair and efficient way is a question that needs to be considered seriously.

Conclusion

Ladies and gentlemen, I realize that in my talk I raised more questions than I have been able to answer. Solving the challenges that lie ahead will require innovation and bravery, to find and explore the full mix of possible angles. But this should not scare us.

After all, finding solutions to these problems, that is, protecting European citizens and businesses from the risks they face and strengthening their financial resilience lies at the heart of the insurance business.

This is what differentiates insurance from other financial services industries. Insurers are the ones that have the long-term liability perspective, the long-term risk and asset management wealth protection. They are thinking in decades.

And while we must be mindful of the risks, we also need to embrace innovation in courageously tackling these questions. Insurance is not about today. It is about securing tomorrow’s peace of mind and enabling a healthy functioning of society.

Thank you.