On 4 February 2021, Gabriel Bernardino the Chairman of EIOPA delivered a speech reflecting on the past decade of insurance and pensions supervision in Europe since the creation of EIOPA in 2011 (as one of the three European Supervisory Authorities).
EIOPA and Solvency II
In relation to insurance, EIOPA focused on the development of Solvency II, a modern risk-based framework that became the worldwide reference in insurance regulation.
Mr Bernardino expressed his view on how EIOPA was instrumental in finding political agreement for Solvency II. EIOPA provided concrete advice on a sound and prudent risk-based regime for the valuation of long term guarantees, and issued a set of Guidelines on the preparation for Solvency II implementation, to be applied during an interim phase.
Bernardino believes that Solvency II, which has at its core a risk-based approach in contrast with the old rules based regime of Solvency I, has had a significant effect on increasing the stability of the insurance market and the safeguard of policyholders.
As a result of Solvency II, insurers’ capital is better aligned to risks, risk management is an integral part of insurers’ governance frameworks and transparency towards supervisors and the public allows for better risk-based supervision and market discipline.
In the 2020 Solvency II review, EIOPA advised the European Commission to focus on keeping Solvency II fit for purpose, reflecting the current economic situation, improving proportionality and completing the regulatory toolbox. EIOPAs view is that the current micro-prudential framework requires supplementing with a macro-prudential perspective, including the introduction of minimum harmonised recovery and resolution framework across the Single Market, and a European network of national Insurance Guarantee Schemes. EIOPA’s views will contribute to the industry’s post-COVID recovery by encouraging long term investments in a sound and prudent way.
These changes are to ensure that Solvency II will continue to be a credible regime, capable of protecting policyholders and contributing to market stability in the next decade.
Structural reforms
Mr Bernardino outlined three areas which required structural reforms in the next decade: (i) the urgency to deliver adequate and sustainable pensions to EU citizens; (ii) a new approach to consumer disclosures; (iii) the need for centralised insurance supervision.
(i) Urgency to deliver adequate and sustainable pensions to EU citizens
Insurance and pensions can play a critical role in delivering adequate, safe and sustainable pensions to EU citizens. Both at national and European levels, conditions need to be created to incentivise the creation of more funded complementary private schemes. While maximum impact could be achieved with the implementation of auto-enrolment mechanisms, the forthcoming review of the IORPII Directive will also be a great opportunity to implement a fresh and more ambitious agenda.
(ii) Consumer Disclosures
The current disclosure requirements, which stem from a range of legislative sources, have failed to meet their objective and need to be overhauled. EIOPA believe they need to be consolidated into one legislative framework and made radically simpler. They should also be accompanied by an enhanced conduct supervision to ensure their effectiveness and to protect the consumer.
(iii) Centralised Insurance Supervision
Mr Bernardino stated that consistency of supervision is an essential element in a single market, as it helps ensure a level playing field between participants and the equal protection of consumers. Good supervisory results require supervisors to have the capacity to put in place common proactive and intrusive risk assessments, and deliver timely enforcement.
Although common efforts of EIOPA and national supervisors have been positive, the remaining challenges to insurance supervision require deeper structural reform. Mr Bernardino suggested that the centralisation of elements of insurance supervision in the EU is imperative when reforming the current system:
- The supervision of the internationally active insurance and reinsurance groups that are present in many member states and worldwide.
- The supervision of the companies exercising cross-border business under the freedom to provide services.
- The supervision of pan-European products like the PEPP.
Mr Bernardino concluded that there is a need for a single supervisory mechanism for Insurance.
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Contributed by Catherine Williams
