The European Insurance and Occupational Pensions Authority has outlined a series of reforms for 2017 and beyond that it believes are necessary to avert serious financial crises in the future.
Speaking at the EIOPA Sixth Annual Conference in Frankfurt, EIOPA chairman Gabriel Bernardino outlined the organisation’s focus throughout 2016 and into 2017 with Solvency II changes, European Union pensions legislation and rise of digitalisation in the industry among issues highlighted.
Bernardino said that the challenge for EIOPA in the coming years will be to build and put in place a common European supervisory culture.
“Only a common supervisory culture will ensure an equal level playing field, prevent regulatory arbitrage and safeguard a similar level of protection to all policyholders and beneficiaries in the European Union,” he said.
EIOPA is developing a handbook of good supervisory practices in Solvency II, but, he noted, progress “can and should be made” without waiting for a crisis.
Bernardino said insurers have complained that Solvency II will make it more difficult for them to do business, and noted that the industry had already begun to consolidate, as companies sought to become more efficient.
‘Recovery and resolution tools’
“One of the lessons learned from the recent financial crisis is the need to have in place adequate recovery and resolution tools, which will enable national authorities to intervene in failing institutions and resolve failures when these materialise in an effective and orderly manner,” Bernardino said.
“At present, there is no harmonised recovery and resolution approach for insurers in the European Union. EIOPA already started working in this area, and will publish a discussion paper before the end of the year.”
He said that EIOPA will also issue a discussion paper on the review of the Solvency Capital Requirement before the end of this year and that during 2017 through a series of roundtables it will also “engage with all relevant stakeholders”.
Solvency II ‘not a zero failure regime’
“Although the introduction of Solvency II and, in particular, the adoption of risk-based capital requirements and forward looking supervision should contribute to reduce the likelihood of insurance failures, it is important to realize that Solvency II is not a zero failure regime and eventually failures will continue to occur,” warned Bernardino.
However he said that the implementation of Solvency II gives all European Union insurance supervisors “a tremendous opportunity to change and converge” in a bottom-up process towards an European supervisory culture based on “common good and effective supervisory practices”.
On the Pan European Personal Pension Product (PEPP) and the Capital Markets Union, Bernardino said that in the area of long-term retirement savings, it is “evident” that the European Union internal market is “far from delivering its full potential”. As a result EIOPA will be launching a series of initiatives to help support the PEPP throughout 2017, he said.
Bernardino also backed the implementation of the Insurance Distribution Directive as a significant step forward and pointed to a template that it has been working on for the for the Insurance Product Information Document that will be introduced, subject to consumer testing and public consultation, which is currently on-going.
On digital innovations within the industry he said that successive technological innovations and that with the continued increase in the use of big data, the digital revolution is “transforming completely the way we interact and do business”.
‘Risks, but equally opportunities’
“As we all know, changes bring risks, but equally opportunities,” said Bernardino. Starting next year, EIOPA will organize a series of roundtables dedicated to “Insurtech”, he said.
Supervisors need to work together to ensure that all policyholders are protected by “high quality supervision,” said Bernardino in summary.
“Insurance and pensions products should provide adequate protection and better returns to citizens. Consumers and companies should benefit from the full potential of the single market. Innovation brought by the digital revolution should deliver better outcomes to citizens
“All of this work needs to be performed in a sustainable way with a clear focus on preserving stability and enhancing consumer protection. More than words, it is now time for action,” he added.