FIAR 2019: "Insurance Market Trends" Conference - part I

20 May 2019 —
What are the main challenges posed by European legislative changes in the insurance sector and their impact on market players? Part I of the "Insurance Market Trends" Conference, of FIAR 2019, brought these issues into question.

The participants in the "Insurance Market Trends" Conference received 2 training credits from ISF - Institute of Financial Studies, according to the new IDD requirements.

Some of the speakers from "Insurance Market Trends" Conference - part I:
  • Cristian ROSU, Insurance Reinsurance Vicepresident, ASF
  • Prof. Karel Van HULLE, Catholic University Leuven, Belgium and Goethe University, Frankfurt
  • Michael BRANDSTETTER, EU & International Affairs, VVO - Austrian Insurance Association
  • Gorazd CIBEJ, Director, AZN-Insurance Supervision Agency, Slovenia
  • Michael THEILMEIER, Re/Insurance Expert
  • Paul MITROI, Director. Regulation Direction, ASF
  • Klime POPOSKI, President of the Council of Experts, Insurance Supervision Agency of Macedonia
  • Georgi MARKOV, Deputy General Manager, EUROINS Insurance Group
  • Daniela GHETU, Editorial Director, XPRIMM Publications

(Part II of the conference can be found here)


Cristian ROSU,
Vicepresident, ASF

  • What is the insurance trend in 2019? From the preliminary data from the end of the first quarter of 2019, we can say that the total value of gross written premiums increased by about 7% compared to the same period last year, up to 2.72 billion lei vs. 2.53 billion lei
  • MTPL subscriptions increased by 5% up to 969.8 million lei. Also, the number of MTPL contracts increased by 5% up to 5.78 million contracts
  • There is an increase of the damage rate by 11% in Q1 2019, but also an increase of the reference tariff by approximately 10%. There is no increase in prices that could create worries. Worries are caused by some malfunctions occurring between insurers and repair services, which lead to consumer dissatisfaction
  • These nonconformities have been identified and, together with those involved, we are trying to find the best solutions, in order to not create pressure on prices and the consumer to be satisfied with the services received
  • Mutual insurance is still in trend in 2019. At the end of April, the law that created the framework for the construction of mutual insurance companies was published
  • Also, home insurance is in trend. We have seen, in the past few months, that changes are becoming more and more present and causing more and more damage
  • We have identified the main elements that should be legislatively amended to ensure that home insurance is attractive both on sale and on purchase. We hope that, with changing the law, there will also be changes in mentality and people will not wait for help from the state and, through a single policy worth 10 or 20 euros, the equivalent of 3-6 packs of cigarettes, can benefit from the money necessary to repair or even rebuild their home. See last-year floods that have caused and will cause a lot of trouble
  • The main changes of the PAID law:
    • The storm risk will be introduced
    • The possibility of contracting PAD policies by insurers, intermediaries or PAID will be introduced
    • The instrumentation and liquidation of damages can be done by insurers and PAID
    • It will be possible to issue insurance policies in co-insurance with PAID - mandatory and optional policies
    • Opening of PAID shareholder structure to any individual and legal entity, raising the ownership threshold from 15% to 25%, but no more than 30% of the share capital
    • There will be other minor changes, but which do not significantly influence the structure and construction of the legislative act

Prof. Karel Van HULLE,
Catholic University Leuven, Belgium and Goethe University, Frankfurt

  • Insurance regulation under Solvency I was: highly prescriptive and paternalistic, very legalistic, it did not reflect the economics of the insurance business model, and it was more concerned with policyholder protection than with insurance. Insurance supervisors were considered less important or qualified than their banking colleagues. Moreover, insurance supervisors preferred detailed rules rather than a principles based approach, requiring judgment.
  • Solvency II was planned at the end of last century (1999), was conceived in 2004 (Framework for consultation), was delivered in 2009, not without complications, and, after a period of changes, it has been 'alive and kicking' since 1 January 2016
  • The introduction of SII went very smoothly, notwithstanding pressure from the low interest rate environment
  • No (re)insurance undertaking failed as a result of the introduction of Solvency II, although some (life) insurance undertakings went into run-off
  • (Re)insurance groups showed in the last (2018) stress test that they can manage even a very severe nat cat scenario
  • Many insurers have changed their business model and are moving away from offering long term guarantees
  • Risk management has considerably improved within the insurance sector since the Solvency II discussions started
  • Due to Solvency II, capital requirements must be risk-sensitive
  • Role of prudential supervision is important
  • Assessment: Overall, it can be argued that Solvency II satisfies these conditions and that Solvency II has therefore delivered. However, some critical comments can be made: 1) Insufficient recognition of long-term business model, 2) The system has become too complex and too detailed, 3) Insufficient application in practice of proportionality, 4) Too burdensome framework for governance, 5) Still too much focus on capital (SCR seen as MCR), 6) Insurers and supervisors have a tendency to apply a Solvency I attitude to the Solvency II framework
  • Only 737 undertakings used Long Term Guarantees measures in 2017
  • Romania: 172% weighted average SCR Ratio (Q3 2018), 395% weighted average MCR Ratio (Q3 2018)
  • Risk management is key in insurance
  • Group supervision is dfficult to implement because of legal, cultural, psychological, language, etc. reasons; Group supervision was one of the most difficult issues in the development of Solvency II
  • Review of Solvency II should take place before 1 January 2021, i.e. the preparatory work should be completed by then
  • No need for Solvency III. Solvency II is not perfect and was never meant to be. It has been designed as a flexible regime that can and should be regularly amended in order to take account of practical experience. Many reviews are specifically foreseen in the Framework Directive, in the Delegated Regulation and in the EIOPA Regulation.
  • Early lessons from Solvency II: 1) Insurers and insurance supervisors have difficulties to work with a principle based approach, 2) Insurers are developing strategies to optimize capital, 3) EIOPA stress tests show that most insurers are well capitalized, 4) Risk management of most insurers has improved, 5) Insurance and insurance regulation/supervision is taken more seriously (also by banking supervisors), 6) Supervisory colleges are playing an important role in furthering a single European rulebook

EU & International Affairs, VVO - Austrian Insurance Association

  • Amount and density of regulation is disproportionate in comparison to value-added of consumers
  • Principle based approach vs. rule based tradition in CEE markets
  • Principle of proportionality has to be implemented in reality
  • Optimizing the legislation process (Lamfalussy-Process) implies: 1) a standard of 1 year for implementation once Level 1 and Level 2 measures are published & in force, 2) time discipline is a duty for both legislators and regulatory addressees ("Multi-Speed Europe")
  • IDD Review: it is time for adjustment to new rules and for evaluation of effects of implementation
  • Consumers expect advice without costs and take advantage of informing themselves from different sources about insurance products.
  • If consumers have to pay for any advice this can lead to less or even no advice.
  • Danger of social discrimination, as not everyone will be able to afford advice (e.g. low average income and insurance penetration in CEE markets).
  • PEPP (Pan European Pension Product): must be a real long-term pension product to address the pension gap and to deliver high value to savers
  • PEPP-KID: Cost cap must be defined in order not to prevent providers from offering by taking into account different natures of products, coverage of bionmetric risks, different pay-out forms and different distribution channels.
  • MID Review (Motor Insurance Directive): On the way to a fully harmonised level for the minimum amounts of cover, without market disruption in the form of sharp premium increases, a transitional period of three years should be granted
  • European Framework for Insurance Supervision: Small and diversified markets need a supervisor fully embedded in European structures AND close to local market specificities; European system of coherent insurance supervision with strong role of national supervisory authorities (NCAs) and colleges of supervisors assures adequate expertise about local specificities (e.g. civil law, pension systems) and local accountability.
  • Sustainable finance: Taxonomy first - Definition of terms have to be first presented before any measures are implemented to avoid unacceptable legal uncertainty & complexity.
  • NatCat: Closing the protection gap and prevention is a high priority - Rising impact of natural catastrophes with protection gap identified by European Environment Agency of appx. 400 bn Euro/year and >90% uninsured economic losses in some MS. Stronger political efforts on EU level are necessary to deal with the challenge of financing consequences of climate change. Moreover, appropriate insurance solutions on national and European level have to be developed.
  • No copy pasting across sectors: regulations must be created specifically for the insurance sector etc.
  • We must enable insurers to fulfill an important role for positive development of economy and society

Gorazd CIBEJ,
Director, AZN-Insurance Supervision Agency, Slovenia

  • Regulators must play an active role in ensuring that insurance undertakings have in place the right governance and culture.
  • But it is not up to the supervisor to determine the culture, business strategy or remuneration policy. The right cultures are rooted in strong ethical frameworks and in the importance of individuals making decisions in relation to principles, rather than only business-oriented values.
  • The main objective of regulation is the protection of policyholders. Solvency 2 & IDD represent EU's response to this requirement
  • Current regulatory challenges include: 1) Increasingly cross-border nature of the insurance business, 2) Anticipating a risk reversal in the global financial markets, 3) EIOPA 2020 Solvency II review
  • How much regulations is enough to overcome the challenges?
  • Application of the proportionality principle: Member states shall ensure that the requirements laid down in this Directive are applied in a manner which is proportionate to the nature, scale and complexity of the risks inherent in the business of an insurance or reinsurance undertaking (Article 29 of S2).
  • Out of the 27 national competent authorities ("NCAs") which have implemented the IDD, EIOPA identified 6 NCAs where there are significant issues with the publication of the national general good rules.
  • In addition, EIOPA identified 7 out of 27 NCAs where further steps appear necessary to ensure an appropriate publication of the national general good rules.
  • 14 out of 27 NCAs ensure an appropriate publication of the national general good rules, having clearly indicated on their websites all the general good rules in the sense of Article 11(1).
  • Regulators can play a role in dealing with climate change. For example, regulators can ensure a proper level of capitalisation of insurers / reinsurers to withstand NatCat events. They can also provide input to governmental ministries and bodies to ensure that the national risk assessments capture proper nat cat risk exposure and they can consider supporting environmentally sustainable investment strategies.
  • In Slovenia there are new ways of claims assessment: for example, an insurance company has a "photo cube", which is a high-quality photo studio. Only 5 minutes are required to scan a car and prepare a claim assessment.

Daniela GHETU,
Editorial Director, XPRIMM Publications

  • Gross written premiums in CEE region reached EUR 37 billion in 2018, reflecting a 2% growth compared to 2017.
  • In CEE regions, the GDP grew at a double rate compared to the rest of Europe, but the insurance sector didn't see the same performance. The reduction of life business in Poland was the main driver of the modest growth in CEE insurance industry.
  • The main growth factors were domestic demand, and especially consumption, driven by falling unemployment and higher wages. People had more funds to spend on insurance products.
  • In the past 10 years during which XPRIMM surveyed the region, CEE market total grew by 10.5%. Motor insurance, especially MTPL, was the main driver during this whole period.
  • A consolidation process of the insurance business can be seen in the region. Some participants, like ERGO, are leaving the markets unsatisfied of the obtained results, while other insurers, new or old in the region, are taking advantage of the available space.


Director, Regulation Direction, ASF

  • We don't need to fully develop a Solvency III regime, only to adapt and review Solvency II
  • I hope the next review will bring more clarity to the regulation
  • We looked to certain models when implementing the latest legislation aspects on the Romanian market
  • We tried to learn from the best: we have collaborated with colleagues from Spain, France, and Germany - because we tried to understand what transformation we needed also for us as supervisors
  • Solvency 2 managed to also transform supervisors and supervisor entities
  • We need to understand the new business models developed by insurance companies and to try to issue, as much as possible, the smallest number of rules
  • In Solvency II we had some obstacles, some misinterpretations
  • Collaboration is very important - we have to think about rules that will better protect consumers when they will want to buy products from abroad
  • EIOPA is not something above us: EIOPA is all of us; EIOPA is a very necessary and useful authority

Georgi MARKOV,
Deputy General Manager, EUROINS Insurance Group

  • There are certain elements which look more like rule of thumb instead of resulting from an analysis, for example: aspects related to the concentration risk, we can also discuss about the risk margins
  • On group supervision level we still some still unclear policies; on this level, there is a lot more to be done to make regulation more clear
  • We can see companies which are offering services in the technological field, there are technological companies which offer insurance services - these aspects should be better defined and regulated
  • The authorities from the countries on which we operate have the chance to meet together once a year
  • Under the freedom of services operations, we see some potential of improvement - because of the lack of collaboration between authorities, some problems may arise, which puts freedom of services collaborations under a negative light
  • Personally, I believe that EIOPA's role should increase and become more prominent; EIOPA should increase its role and to give more advice to local authorities

Re/Insurance Expert

  • I think we need to define more red lines, more areas of evaluation
  • Cross-border business is so discredited that I think it will take a while until we can present it in a positive light again
  • Without a very good college of supervisors, without EIOPA, things will not go well
  • Every time there was a strong centralization, things did not work; I believe EIOPA should only focus on certain major aspects, and best practices should be taken from various countries which have such best practices. Everything that is centralized loses touch with the local markets

President of the Council of Experts, Insurance Supervision Agency of Macedonia

  • First of all we need to change the mindset of the supervisory authorities
  • Capacity of the supervisory authority - the authority must be involved in the implementation of Solvency II
  • We need more open communications with our partners
  • We need to raise our voice to EIOPA - because EIOPA is our Partner
  • We do not have a formal collaboration between authorities in our region - but we have meetings twice a year
  • We need to be aware about the risks, about the stability and about the policyholder's interest to act in the right way
  • It is important for local authorities to communicate among themselves