The International Credit Insurance and Surety Association (ICISA) recently submitted its response to EIOPA’s consultation on guidelines for identifying critical functions under the Insurance Recovery and Resolution Directive. The consultation, which closed on 31 July 2025, represents a key step in developing the EU’s framework for managing insurance company failures in an orderly manner while protecting policyholders and maintaining financial stability. 

What is IRRD and Why Does it Matter? 

The Insurance Recovery Resolution Directive (IRRD) creates a recovery and resolution framework for insurers and reinsurers in Europe, similar to the existing regime already in place for banks following the Global Financial Crisis. Many large, globally important insurers have already had pre-emptive recovery plans in place for several years under local regimes. The IRRD expands upon this and provides a comprehensive set of rules and obligations around the management of insurer failures.  

Overall, the IRRD aims to provide authorities with tools to manage insurer failures and mitigate broader economic disruption this might cause. This framework is intended to supplement existing tools available to regulators under Solvency II, although detail on how the two frameworks knit together will likely need further clarification as detailed guidelines are prepared. Whereas Solvency II focuses on the prudential underpinnings aimed at preventing insurer failures; IRRD provides an additional set of tools to authorities enabling better “what if” preparations. The end result of the IRRD is that much more of the insurance sector will have resolution plans in place should such circumstances arise.  

Under the IRRD, National Resolution Authorities (NRAs) are given responsibility under the framework to prepare resolution plans for insurers or reinsurers within their markets where there would be a public interest to do so in the event of failure. In particular, NRAs are tasked with identifying whether there are any critical functions performed by undertakings within their markets. Critical functions are products or services provided by an undertaking where the inability to provide that function could have a significant impact on policyholders, beneficiaries, and the wider economy. These guidelines, issued recently by EIOPA, set out the proposed process and methodology for NRAs to apply when assessing the criticality of functions.  

ICISA’s Key Concerns – Proportionality, Scope, and Objectivity 

ICISA’s response calls for the proportionate application of assessments of criticality and highlights some concerns about the need to ensure targeted, objective assessments by NRAs. The core points made by ICISA can be summarised as follows: 

  • Scope Potentially Too Broad: ICISA notes that the potential scope of critical functions is too wide and may lead to over-identification of criticality. This could diminish the value of identifying genuinely critical functions and contribute to unnecessary regulatory complexity, contrary to the EU’s stated goals of regulatory simplification. ICISA argues for a narrow reading of Article 2(25) of the IRRD to ensure only functions meeting the full definition are included. 
  • Need for Objective Assessment: ICISA emphasizes that National Resolution Authorities should base their assessments on purely objective criteria, focusing on specific undertakings rather than making ex ante assumptions about particular lines of business. The response questions the value of a discussion in the explanatory text about “potential critical functions” which may bias any objective assessment to be done by NRAs. ICISA argues that such assumptions could pre-empt and disrupt independent evaluation of criticality. 
  • Proportionality Essential: ICISA stressed that proportionality should drive action within the IRRD framework. The association notes that this principle, enshrined in Article 5(4) of the Treaty on European Union, has been critical to EU regulation generally and equally applies to the IRRD in that context. Proportionality would ensure that genuine critical functions will be correctly identified, while avoiding the creation of unreasonable burden through over-identification. 

Methodological Issues: A Call for Balance 

ICISA also provided comments on some aspects of the proposed methodology to be applied by NRAs: 

  • Looking Beyond Market Share: ICISA argues that market share alone can be highly misleading indicator of criticality when seen in isolation. Over-emphasis on this single metric could ignore competitiveness for new business within markets and broader competitive dynamics that would be relevant in resolution scenarios. Market penetration, in particular, should be considered as an additional criterion alongside market share when evaluating criticality. 
  • Availability of Alternative Risk Mitigation: NRAs should also account for the prevalence of self-insurance or other risk mitigation measures outside the insurance sector which might also be available, and in some cases, be more prominent in a market than any single insurance product. This broader view of risk management practices provides essential context for understanding true market dependencies. 

Spotlight on Credit Insurance and Surety 

While credit insurance and surety appear on EIOPA’s list of potential critical functions, ICISA’s response reinforces that no function should automatically qualify as critical. Each assessment must be based on objective criteria applied to specific undertakings in their particular markets, avoiding predetermined assumptions about business lines. 

The inclusion of credit insurance and surety in the consultation reflects clear recognition of their role in supporting the real economy and contributing to financial stability. These products help businesses manage trade and commercial risks, supporting economic activity across sectors. However, ICISA emphasizes that this recognition should translate into proper objective assessment rather than automatic assumptions about criticality. 

What Next for IRRD Critical Functions? 

EIOPA will now review all consultation responses as it finalizes the guidelines. The IRRD framework is expected to become operational in 2027, with implementation occurring in three batches through July 2026.  

For the credit insurance and surety sector, this regulatory development represents both recognition of the industry’s systemic importance and a call for continued engagement with supervisory authorities. ICISA will continue monitoring developments and advocating for proportionate application of the framework that recognizes the diverse nature of insurance markets across the EU. 

ICISA welcomes ongoing dialogue with members and regulators to ensure the final guidelines support effective resolution planning while maintaining the competitive dynamics that benefit policyholders and the broader economy. 

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