2023 is shaping up to be another major year for regulatory change. Key developments are expected throughout the year, including major updates to the key features of frameworks put in place following the Global Financial Crisis. This change can be directly aimed at our sector, our counterparties, or the sectors our members support.
This is all occurring against a backdrop of a difficult business and economic environment, with high inflation being just one of the more obvious challenges to face. Continued disruption in supply chains, higher interest rates impacting financing and growing geo-political stress worldwide contribute to an environment in flux.
When we look at the regulatory change occurring today, insurers report that it is not only the substance of changes that is difficult to keep up with, but the volume of change too. And staying ahead of the curve can be difficult for even the largest multiline groups. This is particularly true for a smaller sector like credit insurance and surety, where the challenge can be magnified due to the size of the insurers and the specialized nature of the sector.
So what is happening and what should credit insurers and sureties be aware of to remain compliant in a period of change?
This topic will be considered in more detail during Surety Week on 14 February (see below for further details). However, let’s being by considering some of the major changes that are happening today that are likely to affect credit insurers and/or sureties. A brief listing of the major developments underway at present would include:
- Review and updating of insurance prudential rules in the EU (Solvency II Review).
- Implementation of Basel IV rules worldwide. Credit insurers and sureties will keep a close eye on the treatment of their products where financial institutions are the client due to new rules coming in in the EU, UK and elsewhere.
- Greater focus on sustainability, including reporting and disclosure requirements. This includes insurance commissioners in the US adopting the TCFD standard for climate risk disclosures, EIOPA considering the prudential treatment of sustainability in the EU, and a greater focus on both sides of the impact of financial services firms in supporting carbon-intensive industries worldwide.
- Consideration of harmonisation of insolvency rules in the EU, in part triggered by the experience during the pandemic. This may lead to changes in national regimes which could have implications for surety and trade credit insurance where declarations of insolvency are important procedural steps.
- Further development of surety guidelines in India following initial application in recent years.
- Alterations to state aid rules in the EU and reviews of the approaches of governments in support of exporters, as well as the EU perhaps also directly supporting exporters.
This high level overview also has many branches beneath them impacting elements of distribution, accounting, governance and beyond. This also does not touch on the many rules impacting the construction sector, international trade and others which can also impact surety and trade credit insurance when they are applied.
Changes to rules governing the activities of the clients of credit insurers and sureties may also lead to unintended consequences for our members. This type of change can often be the most difficult to monitor and respond to. For example, as covered in a recent ICISA article, a change has been proposed in the EU banking rules review to the treatment of credit protection where exclusions could be applied as a result of a fraud by the bank’s obligor. While this proposal made sense in isolation for its application to banks, it failed to acknowledge the impact such a change could have on the use of credit insurance by financial institutions. Fortunately, due to detailed explanations to policymakers by ICISA and partner associations, amendments have been proposed which address this point. The rapidly evolving sanctions regime is another example where the indirect impact of these on our sector can be significant.
Those of us in the credit insurance and surety sector often highlight that we punch above our weight in terms of the value we add to the economy. And this is certainly true. Key economic activities rely on the services provided by ICISA members worldwide to keep trade flows moving, ensure obligations are met and to secure capital at risk in key investments, including public funds. But the downside of this is that often our sector is only in the spotlight when something goes wrong – a crisis in a particular industrial sector, the failure of a major corporate, or some other problem. This means we, as an industry, must also work hard to continue doing the right thing and to remain vigilant about the regulations that apply to us directly and indirectly.
It must also be acknowledged that regulators and policymakers often have to divide their attention across the entire sector. As a result, they can’t always spare the resource to develop a deep knowledge of specialized lines such as ours. This is why ICISA and other partner associations around the world maintain contact with key stakeholders on a regular basis. This keeps them informed about the sector, but also ensures we are available when bigger questions arise in those times of need and can help regulators come up to speed quickly.
This is also why ICISA developed campaigns such as, Trade Credit Insurance Week and Surety Week. These events are aimed at providing a forum for key topics within the industry, but also crucially, to open the sector to the outside world. We are pleased that around 50% of attendees at TCI Week and Surety Week in 2022 came from outside of our membership, including from governments, policymakers, regulators and other key stakeholders.
I am looking forward to specifically addressing the topic of regulatory change around the world alongside Joe Shaw of the International Underwriting Association and Steve Ness of the Surety Association of Canada. This discussion will go live on Tuesday, 14 February at 10:00 CET and I encourage members and non-members alike to tune in to hear about some of the major developments our organisations are responding to, as well as some of our tips for those in the sector to stay on top of the regulatory change that affects your businesses.
Registration for this session, as with all Surety Week session is free and open to all. This can be done on the ICISA website, and for those who can’t make it to the live session, a link will be provided afterwards to registrants to watch again. I strongly encourage you to register for as many events, including this one, so that you can access all of the key discussions throughout Surety Week 2023 live or later.
