The 8th annual Global Insurance Supervision Conference took place in Frankfurt, Germany recently. Attending on behalf of ICISA, I joined a group of experts from around the world representing supervisors, insurers, trade bodies, consumer groups and academics to discuss emerging issues in the regulation of insurance.
Organised this year by EIOPA, the International Centre for Insurance Regulation, and Sustainable Architecture for Finance in Europe, the conference takes place each year as a way for industry and regulators to come together discuss current trends in supervision and prospective approaches to emerging risks.
With a backdrop of global macro-economic turbulence, the war in Ukraine and other challenges facing the sector, the conference focused on key elements in how regulators are approaching risk and regulation. This included the ongoing shift towards risk-based supervision around the world, the impact of protection gaps and how to address these, and the impact of technology on business models and the supervision of insurance.
The two-day conference began with an opening address from Chair of EIOPA, Petra Hielkema. She highlighted the major themes of the conference and the need for action on several topics. Discussing complaints that EIOPA receives about the risk of overregulation, she countered that the discussion should instead focus on whether regulation is effective or not.
While we believe that good quality regulation is the top priority, it is also important to ensure that the volume of regulation is appropriate. The pace of regulatory change is also an important element in ensuring that all participants can keep up. It is interesting to note in that context the pledge put forward by the Ursula von der Leyen during her State of the European Union speech this week that the Commission would seek to reduce reporting obligations across the EU by 25%.
Mrs. Hielkema also discussed the need for more specific feedback from different groups in consultation periods. She called for those responding to provide detailed, data-driven feedback rather than strategic responses as these allow for clearer reactions from regulators. Naturally, this is something ICISA aims to do, however, it is not always straightforward – even with data – to convince regulators to alter course where that may be necessary.
A further session on the macroprudential landscape and the regulatory response highlighted a few of the challenges that the current environment poses. With an unclear path and timeframe to lower inflation rates, how central banks respond could have significant impacts on economies and the insurance sector on both sides of the balance sheet. As well as the risk of a longer period of high inflation and negative impacts on real estate markets, the alternative scenario where central banks react too slowly to a more rapid normalisation was also discussed.
Overall, the concern of systemic impacts and the preparedness of the insurance sector was highlighted. This was a common thread throughout the conference and echoes our experience in discussions with regulators in recent months. Within our own sector, this is a growing topic of consideration for regulators. This discussion on macro-level impacts also led into a further panel on the adoption of risk-based capital regimes around the world.
While Solvency II and similar regimes have been in place for several years and have demonstrated that they lead to greater stability in the insurance sector, the uptake in less well-developed markets is an ongoing process. The implementation of the International Association of Insurance Supervisors’ (IAIS) International Capital Standard (ICS) is at an advanced stage and being adopted in various locations, bringing this model of regulation to more markets. The challenges that some markets may face in this process was discussed, but overall there seems to be a recognition of the benefit and that such challenges can be overcome.
Protection gaps, particularly relating to natural catastrophe, was another key discussion during the conference. Speakers on this topic highlighted the increased losses and volatility related to natural catastrophes experienced worldwide. The impact of such events can also have second order impacts even in lines such as credit insurance and surety through pressure on reinsurance capacity. The challenges that reinsurers face today, and how they respond to these, was another major talking point from the conference.
While much of the discussion focused on identifying solutions to address gaps, including public/private partnerships, one comment from the audience highlighted the genuine tension between economic realities and commerciality of writing such risks on the one hand, versus the social impact of lower insurance availability. In other words, protection gaps cannot only be seen as a sign of market failures, but must also be considered in terms of market equilibrium. Whether governments see the situation as one or the other is likely to drive the policy and regulatory responses to a greater extent. That includes the level of intervention that may be seen as this gap likely expands.
As the conference moved into its closing stages, breakout sessions allowed participants to debate consumer supervision, macro-supervision, as well as diversity, equity, and inclusion in an insurance context. I participated in the latter which saw a refreshing discussion which focused on the demonstrable benefits of such policies within the sector. Building a sector which incorporates a wide range of viewpoints is not just one which ticks a box, but is more likely to see positive results and profitability over a long-term horizon. For more niche sectors, like credit insurance and surety, achieving that is more challenging, but is a topic that should not be avoided.
The final day of sessions then focused on disruption, innovation, and the opportunities (and challenges) stemming from new technologies. For many people around the world, access to insurance is a luxury. New technology can help to bridge such gaps and introduce new clients to a range of protection products. But doing so also brings its challenges too. For regulators too, there is the potential benefit of being able to be more responsive to changes in market conditions through the use of so-called “SupTech”, however, it also raises questions about supervisory creep and where reasonable boundaries lie between market supervision and market interruption.
Overall, the conference was a great opportunity to connect and reconnect with different voices and perspectives on the issues affecting our industry. The challenges we face across life and non-life lines are diverse, but there are clearly several themes which dominate. Many of these are well known to us in the credit and surety sector, including the macro-prudential questions and adapting to new technology. But it is also useful to step back and see the bigger picture of where our corner of the insurance sector fits in. What are the drivers behind the decisions regulators take tomorrow? And what can we do today to help them in that job, as well as make our sector more resilient and stable? These are questions I look forward to discussing with ICISA members at TCI Week in October, as well as in our meetings in the coming months.