Petr JAKUBIK, Financial Stability Team Leader, EIOPA

- Extensive fiscal measures and accommodative monetary policy constrained the economic impact of COVID-19;
- Fiscal and monetary space has been substantially reduced due to COVID-19. The pandemic reduced the economic resilience and the room for maneuver for a future crisis;
- Significant market losses in March 2020 were broadly recovered even within the year;
- A clear trend toward digitalization was intensified by the crisis. This trend highlighted the importance of cyber risk with a negative effect on financial firms' operational risk;
- The Covid-19 crisis caused more extensive work from home, the question is to which extend this this trend will revert back to pre-pandemic situation with implications to commercial real estate prices. We might not go back to the pre-pandemic situation;
- We moved from one crisis to another: getting out of the pandemic crisis in early 2022, Russian invaded Ukraine on 24 February 2022. The inflation that has been elevated driven by energy prices before the war has been further pushed up;
- Accommodative monetary policy is phasing out to control inflation;
- The yield curve has been moved up from ultra low to 2013 levels;
- All developments on the back of green and digital transformations, as well as the demographic trends with population ageing need to be taken into account;
- The macroeconomic outlook is uncertain. On the one hand, we are experiencing lower growth prospects and higher inflation. In April, in EA (EU), the inflation reached 7.4% (8.1%) with core 3.5% (4.1%). The latest EC forecasts for 2022 indicate a growth from 4% revised down to 2.7% & inflation from 3.5% revised up to 6.1%. Moreover, the EC projections are assuming severe disruption to natural gas imports (0.2% growth and 9.1% inflation for 2022). On the other hand, market corrections could materialise given the war consequences and tighter monetary policy that central banks are implementing. A more severe impact with double digit inflation figures can be triggered by cut-off of gas supplies from Russia and further intensification of the supply bottlenecks due to China's Covid-zero policy and subsequent substantial increase of risk premia;
- The direct impact of the Russian invasion of Ukraine on European insurers is limited: European insurers have limited activities in the Russian, Ukrainian and Belarusian markets; a low number of EEA groups are active in those countries through subsidiaries, whose size are small compared to the groups; major movements where observed on derivatives linked to commodities and energy related commodities, but very limited exposures for insurers;
- However, the second hand effects could be higher - with regards to assets, two areas are most relevant: the exposures to the banking sector and the exposure to sectors of the economy that are more sensitive to energy and gas prices; losses in those sectors could have spill-over effects to insurers through losses on investments; furthermore, lower economic growth could significantly affect new as well as existing businesses;
- The European insurance sector entered 2022 with solid capital buffers, an improvement is observed for life and composite insurers while a slight decline for non-life insurers. An improvement is observed for life and composite insurers while a slight decline for non-life insurers. The median SCR ratio for life solo undertakings went from 216% in Q4-2020 to 225% in Q4-2021. The median SCR ratio for non-life insurers slightly decreased from 218% towards 211%, probably due to the increase in interest rates;
- European insurers need to pay attention to inflation;
- Non-life claims and expenses reserved by insurers might need to be adjusted to reflect the increase in inflation; insurers usually set aside technical provisions whose calculation uses an assumption about inflation development;
- An important dimension is the length of the settlement period; longer duration cumulates an unexpected one-off increase in inflation over more years;
- Non-life liabilities typically have a duration of several years in fact 55% of technical provisions have duration longer than 2 years;
- Duration of non-life technical provisions depends on business lines;
- We definitely face many challenges in terms of EU economy, we have high volatility, with potential impact on derivative markets. We definitely need to factor in the inflation numbers;

Matteo CARBONE, Founder and Director, IoT Insurance Observatory

- Rumors about the death of personal auto insurance have been greatly exaggerated. It's true that cars are adding new technologies that are making them safer, but all the expectations that we had 5 years ago about the frequency and severity of accidents didn't happen;
- We expected self-driving cars to take over - but this didn't happen. Attempts exist, but not at the level we have been anticipating it 5 years ago;
- In the next 5 years, the most successful insures will be those that will use telematics well;
- When it comes to the use of telematics, there are 4 types of insurers: a) Conservatives - they are really prudent in exploring new things, they are not exploring all the opportunities to grow. Historically, insurers are a conservative industry; b) Fashionistas - they are exploring all the opportunities to grow because they fall in love with all new technologies, but they are not changing the way they work, so they grow less, c) Digital Masters - they overcome the difficulties that challenge their competitors, d) Beginners - They are at the beginning of their digital journey;
- Some players in the auto insurance industry have been able to use telematics well to innovate their business - these are the Digital Masters and include: All State, Discovery, Progressive, HUK-COBURG;
- Progressive's approach: they changed the price based on telematics. More drivers accepted to be monitored, which lead to up-front election and self-selection, which in turn led pricing sophistication;
- In 2020, more than 20 million cars in Europe and North-America were sharing data with their insurers, through Black Boxes, but also through mobile;
- We have a new wave of telematics, based on mobile use. Insurers are "in the mobile phone" of their clients;
- AllState Drivewise in the USA - they use a mobile app that is representing to the driver the risks and an analysis of his past behavior, suggesting how to improve their driving skills. They also reward their clients for good driving behavior;
- Discovery Insure have used telematics to influence the driver behaviour by rewarding them with a cup of coffee each week;
- The usage of a driving score at the underwriting stage is a different way to use telematics data: 1) A customer (not yet a policyholder) downloads the app and fills in her data, 2) She drives and a driving score is calculated along the trial period, 3) She receives a quotation based both on her data - the traditional data - and her driving score, 4) If she likes the proposed price for all the period of coverage, she will purchase the policy and become a policyholder;
- Telematics offer insurers economic benefits, including: positive selection - attracting the best risks for each pricing level (leaving the worst to the competitors), as well as premium leakage reduction - having all the policies underwritten with a more accurate price (smaller clusters);
- Some best practices have obtained material impacts from using telematics data in claims management: reduced claim average cost and litigations, detected more frauds,
increased the speed of the process and improved the customer satisfaction;
- Telematics enhanced the effectiveness of the claim evaluation and the efficiency of the claim process;
- Almost a fourth of the Italian auto policyholders have an insurance telematics device installed in their car;
- Today, all the US insurers are seriously looking at telematics - they are in the learning phase, trying to understand how to apply it to their company. Telematics has already been recognized as a necessary capability in personal auto insurance;
- Telematics adoption should not be seen as a product or an IT project, it is a business transformation enabled by connected data;
- Telematics data can be used for different use cases in the insurance business: 1) you have the opportunity to interact with your clients, 2) you create value on Insurance core processes, 3) you develop new knowledge that helps you develop your company, 4) you improve sustainability on a societal level (you help reduce the number of car accidents);
- By 2030, it will be the norm for drivers: 1) to download insurer's app on their phone to be insured (this app will continuously use the smartphone's sensors to deliver a superior customer experience), 2) to have the insurer proactively prevent risks (this will be done through both real-time warnings in risky situations and driver improvement via rewards for safe driving), 3) to have all the claim touchpoints enhanced by the usage of telematics data (there will with a virtuous collaboration between claim handlers and AI), 4) to select among personalized offers their insurers' apps (they will receive both telematics-based services and additional contextualized risk transfer solutions);

Interactive panel - What the future has in store for the Romanian insurers?

Tanja BLATNIK, CEO, EUROINS Romania:

- At EUROINS Romania, we've been focusing, for the last year, mainly on the non-MTPL segments;
- Financial education is hard work. As insurers, we need to simplify our products. Insurance is a social product, because, at the end of the day, we help each other. We need to get closer to the public through different educational projects and through marketing actions, as well as through other means;
- The short term orientation, this short term orientation we, as insurers, currently have - this need of finding solutions for tomorrow - will not bear any fruits. Insurance is a long term investment, it's a system, it's a connection between people, environment, politicians, a stable economy. We need to step out of our space and get outside, get to the people;
- As far as health insurance is concerned, any incentives - things that the customers will get back - are important. The fiscal benefits are important, but are they enough? People are interested in good medical services, in better well-being, better quality of life.
- If you don't see the incentive, then you don't believe in it. Hence, it's important to have an incentive, but it's also important to show this incentive to the client. It's also very important to have access to good conditions for hospitalization and medical services;

- As far as life insurance is concerned, unit-linked increased a lot last year, it represents one third of the total life insurance business last year in Romania, and the tax incentive played an important role as well;
- The value of Unit Linked (UL) insurance in Romania amounts to 151.3 million euros in 2021, representing approximately 1/3 of the total life insurance market in Romania. The UL market is growing faster than the life insurance market, + 25% in 2021 compared to 2020, compared to the 18% growth of the life insurance market as a whole;
- From the market trend, we notice that the appetite for long-term investments increases. Life insurance with investment component can meet this need;
- On the life insurance segment, we need to make sure that clients have access to their economies. Our clients on the unit-linked segments didn't dis-invest after the war in Ukraine started, because we made sure that this product is a very stable;
- For these products that we are selling we are diversifying a lot - we aim a long term diversification for our products;
- We should consider that these products are really good for long term. We have a huge interest in front of us, but it's linked with financial education. It's our role, as insurers, to explain our products and their benefits to our clients.

PART II


Katrin KROEGER, Natural Catastrophe Expert, Swiss Re

- The impact of climate change on the insurance business is considerable
- Insured Nat Cat loss today is approximately 10 times bigger than 30 years ago
- Secondary perils (these refer to 1) perils that generate event losses of low-to-medium magnitude that happen relatively frequently, such as hail, tornado, drought, wildfire, snow, flash floods, and landslides, as well as 2) secondary effects of primary perils such as storm surge, heavy precipitation in the wake of a tropical cyclone, fire following EQ or tsunami) represent 56% of the total insured Nat Cat losses since 1970 (in 2020: 70%, 2021: 73%);
- A complex interplay of many factors resulted in record losses from "2021 Flood Bernd", which included: 1) Extreme precipitation over days. Climate change likely one driver for the increase of these events, 2) Severe convective storms with heavy rain a month earlier had left the soils close to saturation, 3) The topography with steep river valleys exacerbated the flash intensity of the event, 4) Soil erosion and debris flow due to the heavy flows and fewer trees after 2018 drought, 5) In some areas, failure of alert and emergency systems, 6) Supply chain disruptions, inflation, increased material costs and labour shortages;
- Multiple drivers are behind rising insurance losses: economic growth (Increasing values in line with GDP growth), accumulation of exposed asset values, insurance penetration (take-up rates, broader coverage, social inflation, regulatory changes), urbanization (urbanisation, population growth), and climate change;
- Climate change has long been acknowledged as a threat and the effects are evident today: warmer average temperatures, rising sea levels, melting ice caps, longer and more frequent heat waves, erratic rainfall patterns, other weather extremes;
- Climate change has a limited change for insurance today. however, on mid/long term, there's a possible significant impact on re/insurance covers;
- The insurance industry has fundamental exposure to climate risks through physical and transition risks;
- The physical risks come from the following aspects: 1) a projected loss of 1-20% of global GDP by 2100; 2) models are flawed and do not capture large uncertainties and fat tails, 3) Relative winners and losers - low-income countries to suffer most
- The transition risks come from the following aspects: 1) estimated USD 4-14 trn of financial assets will become worthless, so-called stranded assets, typically in carbon-intense industries, 2) opportunities arise to invest in "green" assets, such as climate-resilient infrastructure or renewable energy

Joss MATTHEWMAN - Senior Director, Climate Change Product Management & Strategy, RMS

- Insurers and reinsurers will need to adapt their response to climate change;
- Climate change is a slow phenomenon, but the change is still there;
- The uncertainty around climate change (and climate variability) - we need to understand how big the uncertainty might be;
- At RMS, we are looking at changes in European windstorms and changes in European floods - we are starting to "model" climate change itself;
- The policy decisions will change as a result of climate change, so we take into account this near and long term side of climate change;
- We are trying to understand how climate change will change the decisions we take today;