In 2018, the trends stemming from the digitalisation will require the insurance industry to review existing business models, to improve systems and delivering on promises made and bringing value to consumers, Gabriel Bernardino says. According to the Eiopa-Chairman the insurance industry will be also affected by political developments.
VWheute: What is in your opinion the general mood in the insurance industry and what are the challenges for 2018?
Gabriel Bernardino: Insurance companies are on average adequately capitalised and deliver positive profitability in these challenging times and very difficult macro-economic environment with historically low interest rates and unprecedented quantitative easing by central banks.
With the legislative part of Solvency II now being in place for some time already, insurance industry has its capital better aligned to the risks it runs, because it uses a more realistic basis to assess and mitigate risks and can therefore better price them.
The insurance industry has also upgraded its governance models, with a complete different emphasis on the role of the Boards, the setting-up of key functions and the implementation of the Own Risk and Solvency Assessment (ORSA). With Solvency II we do have the right basis for a more transparent industry, with harmonised templates for supervisory reporting and enhanced public disclosure.
VWheute: How about the growing pace of digitalisation?
Gabriel Bernardino: The insurance industry, like any other industry, is currently facing a number of challenges mainly arising from the new technologies and the growing pace of digitalisation. In 2018, the trends stemming from the digitalisation will continue to require the insurance industry to review existing business models, to improve systems, processes or products to evaluate if they are fit for purpose, delivering on promises made and bringing value to consumers. Additionally, the world of insurance will continue to be impacted by demographic changes and macro-economic environment characterised by the low interest rates environment.
The insurance industry will be also affected by political developments. In the light of the UK’s decision to withdraw from the European Union, insurers need to think ahead and act now. It is more than crucial that all insurance groups properly assess the risks of a “cliff edge scenario” to their business and consider all possible solutions to reduce them under the Solvency II regulatory framework.
VWheute: What will be high on the Eiopa´s agenda in 2018? Which programmes need to be implemented?
Gabriel Bernardino: Frist, maintaining sound regulation, Second, further enhancing supervisory convergence and building a common supervisory culture in Europe, Third, reinforcing consumer protection in a digital age, Fourth, preserving stability in uncertain world. After the implementation of Solvency II, the focus is on the supervisory convergence and the development of a European supervisory culture.
The insurance supervisory community in Europe needs to develop common ways of thinking, behaving and working. This implies a common interpretation of the laws and regulations, a common understanding of supervisory objectives and a common view on the key characteristics of good and effective supervision. Therefore, in the coming three years one of our key priorities is to further enhance supervisory convergence with the aim to move towards a common European supervisory culture.
VWheute: What in your view must be improved in the cooperation between supervisors and insurers? What are the current friction points from your point of view?
Gabriel Bernardino: We listen to the industry and address their arguments wherever possible. All our decisions taken independently are based on the extensive information exchange either via public consultations, workshops or public hearings with industry, academia, consumer representatives, etc.
In my view the cooperation between supervisors and insurers can be further improved by providing supervisory authorities and Eiopa with the necessary means. They need the relevant expertise, capacity and mandate to execute this mandate in full independence. First, Eiopa´s Regulation should be strengthened with a mandate to act more intrusively when it detects signals of risks of cross-border failures.
Second, Eiopas's role with regards to supervisory independence and conflict of interests should also be strengthened. These fundamental supervisory principles have gained even more relevance under Solvency II, due to the degree of supervisory judgment necessary in the application of a risk-based regime.
It is fundamental that national supervisors are operationally independent, and that they are accountable for the exercise of their functions and powers. Supervisors should always have adequate powers with proper resources, so they can perform their functions and independently exercise their powers.
The question of supervisory abilities goes beyond the national context, as it also impacts the whole internal market. The operational independence, transparency, and accountability of national supervisors therefore need to be enforced, by providing a strong European framework with a clear role for EIOPA in assessing compliance with that framework.
VWheute: What conclusions do you draw from this year?
Gabriel Bernardino: Let me start with Solvency II. The first results of the Solvency II implementation showed that it was carried out smoothly as a result of timely preparation and appropriate transitional measures. In an industry with EUR 11 trillion of assets, this success is remarkable and has contributed significantly to the stability of the European financial sector.
We are now in a position where Solvency II data allow analyses covering data for more than one whole year which is a fundamental element for supervisors’ risk assessment. Thanks to Solvency II we now have an industry that is better prepared to face the challenges. The access to better and more granular data on assets, liabilities and own funds of insurers, allows for a quantum leap in terms of risk-based supervision and financial stability analysis.
In the area of financial stability, this year’s pension’s stress test provides an assessment of how sustainable pensions are in case of adverse economic developments.
Another important development during this year was the progress achieved regarding the Pan-European Personal Pension Product, PEPP. The European Commission, based on our advice, has put forward a proposal in June and we hope a political agreement can be found in the coming months.
It is foreseen to be a powerful tool to encourage personal pension savings for individuals and to enable important long-term investments.
The PEPP would not be a substitute in any way to social security or Pillar II in the retirement schemes; it aims to complement national products. Consumers should benefit from the trust given to the European label.
Die Fragen stellte VWheute-Redakteur Michael Stanczyk.
Bild: Eiopa-Chairman Gabriel Bernardino (Quelle: Eiopa)