Introduction

It’s my pleasure to welcome you today to this meeting of the European Forum for Innovation Facilitators.

I would like to extend a warm welcome to my colleagues from our fellow European Supervisory Authorities – the European Banking Authority and the European Securities and Markets Authority. It is always a pleasure to work on joint initiatives with them and I would like to thank the EBA for their excellent chairing of this forum over the last year. Rest assured that we will try our best to build on their progress. 

Of course, I would have preferred to welcome you in person in Frankfurt but – like everyone else – we have had to adapt. Nonetheless, we can still enjoy a fruitful discussion, just this time in a virtual environment.

Even now, if we look back to the start of the Coronavirus disruption, I think that we already can see just how quickly people and businesses have been able to adapt and innovate and just how easy it has been for people to turn to digital solutions.

People have relied on technology to get them through their day. From chatting to friends and family to ordering shopping, even the most reluctant consumers have embraced the online world available at the touch of a smartphone button. 

And of course, financial services are no exception. 

Smartphone applications and robo-advice solutions enabling 24/7 access from everywhere, contactless payment cards or smart watches for payments, mobile banking, crowdfunding, peer-to-peer lending and insurance solutions, and insurers who will accept smartphone films from policyholders as a way of supporting claims. These are just some examples of how people are going digital.

And so while the impact of the Coronavirus may not yet be clear, one thing is certain: There is growing appetite and acceptance for financial innovation.

And our role is to make it happen. 

But we have to make it happen in a way where the risks and opportunities are balanced. Where we take a sound approach ensuring a balance between enhanced financial innovation and well-functioning consumer protection and financial stability frameworks.

Financial innovation for the benefit of consumers

As consumers eagerly embrace digital technology, we must not let them down.

We must make sure that innovation is for the benefit of consumers. 

Without question, digital technology is bringing opportunities for providers and consumers alike. Thanks to innovation consumers can benefit from a wider range of products and services that are tailored specifically to their habits and needs. 

Take car insurance as an example.

Car telematics offer customers all sorts of benefits.  Like premium discounts based on driving habits, preventive push-notifications or alerts in case of bad weather conditions, or road assistance in case of accident or car theft of the vehicle. 

These are just some of the positive aspects of innovation. 

But innovation also has risks. 

The Internet of Things harnesses data to better understand customer needs and provide better customer service. The greater the capacity to process data, the more precise the products, policies and pricing that can be offered.

But increasingly we are seeing issues linked to fairness and consumers at risk of bias or exclusion.

And we need to find the right balance between enabling financial innovation and safeguarding consumer protection and financial stability. 

And for me, one thing is clear: Consumer outcomes should always come first. 

This is one of the reasons why EIOPA has set up its Consultative Expert Group on Digital Ethics in insurance. 

The group is looking at three areas – fairness and non-discrimination; transparency and explainability; and governance – and will report back later in the year.

We are not reinventing the wheel, or working in isolation, but rather we are looking at the work done by the European Commission on artificial intelligence and other international standard setting bodies and we are adapting the general principles to the specificities of the insurance sector. We aim to provide guidance to the market in the operationalisation of digital ethics principles for insurance.

Because at the end of the day, if companies cannot demonstrate that that they treat their customers’ data responsibility, then customers will not trust those companies with their business.

And innovation will have no value.

The role of the European Forum for Innovation Facilitators in supporting innovation

So how do we foster trust in innovation?

The role of this forum is vital.

This forum enables a valuable dialogue between supervisors, innovation facilitators and innovators.

Innovators can get better understanding of the regulatory landscape while supervisors can stay ahead of the latest technological developments within financial services.

This forum also plays a unique role in fostering cross-border cooperation between facilitators.

Through this forum, national competent authorities can meet regularly to share experience and expertise with their innovation facilitators. 

And through this forum we can contribute to reaching common views on the regulatory treatment of innovative products, services and business models.

Because, if Europe is to fulfil its potential and take a leading role in financial innovation, it is essential that there is a common approach to supervision and regulatory treatment of products and services.

And it’s true that the Single Market can be difficult to navigate. The reality is that the current patchwork of national implementations of conduct rules makes it very difficult to scale innovative solutions cross-border. We should ask ourselves if this is for the benefit of European consumers. I don’t think so. 

The European Commission has recently consulted widely to shape its Digital Finance Strategy. In fact, we   – along with EBA and ESMA – have contributed.

We should take advantage of the ambition of this strategy and appetite for innovation to renew our efforts to help innovators overcome the obstacles that they face in scaling up.

Because we need our firms to be able to compete worldwide in the field of innovation.

We have a good starting point. When we launched this forum in 2019 – on the basis of our report on regulatory sandboxes and innovation hubs – we set ourselves an ambitious agenda.

And we have made progress. I am pleased to say that since the inception of this forum there are now some 40 innovation facilitators in operation across Europe. This is double the number that we started with.

And – with commitment and cooperation – we can make more progress.

Because we really are at a point where financial innovation is taking off. The Coronavirus crisis has accelerated the trend towards digital transformation and we cannot afford to be left behind. Nor can we afford to leave consumers behind.

So not only do we need to foster innovation, but we need to foster innovation that consumers believe in.

And our success will depend upon our ability to offer practical solutions that help create the right environment for financial innovators to succeed and the right environment for consumers to benefit.

In conclusion

Let me conclude by sharing with you my own vision: Firms that can scale up their innovative digital solutions within Europe, selling simple and value for money products on a cross border basis without facing any kind of obstacles, for the benefit of European consumers. 
This vision demands two main elements:

• The development of a European 28th regime on the digital distribution of simple mass products that should include a set of distribution and disclosure requirements adapted to the lower risk of these simple products. These requirements should ensure a high level of consumer protection but at the same time significantly lower the current costs of distribution and compliance.
• Strong and intrusive European conduct supervision involving a network of National Competent Authorities to ensure that consumers of these products are indeed protected throughout Europe in a consistent manner. 

In the meantime, I see the EFIF as a forum that can take important steps into the right direction. Our work matters and it matters all the more so during this current crisis.

Therefore I encourage you to continue the work with the same level of enthusiasm that you have all shown since the inception of the EFIF.

Let me conclude by stating the obvious: Innovation is here and it is here to stay.

We need to work with it, so that innovation works for businesses and for consumers.

Because we need consumers to have trust in innovation.

And consumers will only trust in innovation if they have trust in the innovators. Innovation must empower consumers, but it must also protect them. 

And we can make sure that it does. If we work together, we can build on the achievements of this forum to make a positive and valuable change across Europe.

And with that, I will leave you to a morning of fruitful and energetic discussion.

Thank you.

The EU should play a “key role” in establishing pandemic insurance to protect businesses in future outbreaks, said Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority.

Bernardino said in an interview last week that Europe has an “opportunity” to head off divergent approaches around the bloc as some countries plow ahead with their own proposals.

The EU could provide a final layer of financial support for national insurance pools or create a blueprint to encourage countries to set them up, according to the Portuguese regulator, who’s headed EIOPA since it was established in 2011.

The Frankfurt agency is working with the insurance industry and businesses on policy options for pooling private and public money, to be published in the coming weeks.

Bernardino, 55, also said EIOPA is preparing in case the coronavirus crisis takes a turn for the worse. The agency is analyzing how insurers’ balance sheets would hold up under stress scenarios, including mass downgrades of credit ratings that would, among other effects, reduce the value and raise the risk profile of insurers’ securities holdings.
EIOPA is prepared to issue a declaration of adverse developments — which would give struggling insurers more time to rebuild capital levels — in case of a sector-wide shock, he told POLITICO.

What do you think a pandemic insurance scheme should look like?

We are trying to build together — insurance industry, businesses and also the brokerage industry — to talk together and to see if we can have some ideas, some common elements to try to build what we have been calling “shared resilience solutions.”

I believe that the insurance industry needs to have some skin in the game also on this. I think that makes a lot of sense up to a limit. We should also explore the possibility of capital markets, because that can increase the capacity … and then above a certain limit, let’s be honest, only the state can take care of this.

What we are also looking at and exploring is the possibility of having a kind of an ultimate EU layer in here — and it can have, of course, very different types of tonalities. If I may say, it can go from being a catalyst for the implementation of pooling solutions at a national level, developing best practices to have kind of a blueprint on how these frameworks can be put in place.

But, also, it can go to more, looking from a financing element, at an ultimate layer to ensure that there is capacity for member states to limit the economic damage.

In my personal view, I think that is really important — and this is a huge opportunity also for Europe to have a key role to perform in this area. I think it’s clearly about avoiding fragmentation within the EU of the EU economy in the different member states.

I hope that in a couple of weeks, we can come up with some definition of what are the possible solutions and then some options.

Do you think there’s political appetite for a European approach?

I believe that there is really an opportunity and a need also to be honest, to have a European approach to this. It can come of course with different nuances. I think it’s too soon right now to say if there will be appetite or not.

Do you think that European element has to come second after national schemes are set up?

It depends on the kind of framework that is defined at the end. For me, at least, it’s fundamental that Europe really is encouraging and being a catalyst for the development of these “shared resilience solutions.” It’s not definitely an optimal situation if, at the end of the day, only a couple of member states will have solutions, and then all the others will not have it.

Are these solutions aimed at the next pandemic?

If it would be possible to have in place a solution to cover the kind of second wave or third wave of pandemic, of this one, [that] would be the preferable solution. But that I think is speculating and I’m not in the business of speculating.
Are there many different pooling options?

As always in these schemes, it’s that the devil is in the details. You have a number of different policy options that you can have in these different layers — and so that’s what we are right now bringing to the table and trying to identify.

So, what businesses could be covered: It’s only for SMEs; it’s also covering big companies. How this is put in place — is it mandatory; it’s not mandatory; it’s voluntary. What type of limits will be there in terms of capacity, etc.

How do you think insurers have withstood the impact of the pandemic so far?

If you look at the current situation, the situation as it is right now, I think the insurance industry has weathered the crisis well.

Now, it’s clear that there’s a lot of uncertainty still there. There is uncertainty in relation to … the impact of the economic downturn. We have these GDP contractions of two figures. This is huge, this is unparalleled in history — so this will have an effect on the business model of insurers.

As supervisors, I think we need to be prudent and we need to have some caution on this. We are not yet out of the woods.

Are there any areas where you’re being particularly prudent?

We’re doing a lot of scenario analysis, and sensitivity analysis on the asset side, to understand what will happen, for example, if a certain levels of credit downgrades will happen in the markets. If defaults will happen, we’re looking at possible concentrations on certain types of businesses.

What if you did find sensitivity there?

We’re looking to test different scenarios in relation to possibilities of credit downgradings and to see how the system will react in terms of capital — if this will pose more challenges, to what kind of companies etc. So, to try to really have preventative work anticipating if the crisis evolves in certain adverse ways that we are prepared also from the supervisory side.

How are you looking into liquidity in light of the recommendation from the European Systemic Risk Board?

In face of the crisis, we had to decide at our level, at EIOPA, to put in place already for this particular situation a more dedicated, specific framework for collection of information in relation to liquidity that involves not only more qualitative assessment, but also some quantitative elements.

We don’t have any materialization of liquidity risk in the insurance sector until now.

Has the framework shown that liquidity buffers could have been useful?

At least in my personal view, it’s something that would not be needed across the board, but it may be relevant in relation to certain types of businesses and as the conclusion of an assessment process of liquidity.

Do you need stronger powers on dividends?

In these extraordinary situations, I believe that one of the lessons, at least for me from this crisis, is that there should be this more centralized power to make sure that there is a consistent approach throughout the market.

If there is a second wave, are there any steps that you are taking now?

The Solvency II regime has some layers of flexibility there in relation to what happens if and when companies breach their Solvency Capital Requirement. There is first the possibility to have a recovery plan. And then we’re working also with the national authorities to ensure that there is consistency in the way that these recovery plans are assessed and the way that they are then granted.

If the crisis deepens and if we see that a significant number of companies breach [the] Solvency Capital Requirement, we will be prepared — and that’s what we have been putting in place, all the operational elements — to have this declaration of adverse developments that will allow national authorities then to extend this recovery period to the company.

What would be the criteria for that?

That’s what’s fixed in the legislation, which is that there needs to be a significant number of companies breaching the Solvency Capital Requirement and this significant number needs to be capturing a good part of the market. These are the analyses and the indicators that we are using, that we are going be monitoring in the near future.
Right now there is no need of course to use this tool, things have been manageable, but we will be ready to take measures if needed.

Conduct of business supervision was one area where we significantly strengthened our work. This included finalising  two thematic reviews: one on the use Big Data analytics in motor and health insurance; and one on consumer protection issues in travel insurance, which resulted in a warning  to insurers and insurance intermediaries to tackle high commissions for travel insurance products.

We also undertook considerable work as part of 2020 Review of Solvency II to ensure that the landmark regulation remains fit for purpose. Following a wide-ranging consultation, EIOPA published its holistic impact assessment earlier this year and will deliver its Opinion in December 2020.

We continued to build a consistent approach to supervision and promote high quality supervisory practices through the implementation of our supervisory convergence plan, with priority given to proportionality, the supervision of internal models and the supervision of cross-border business.

As part of our work to identify trends and potential risks and vulnerabilities to the sectors, we regularly published insurance and occupational pension statistics, the risk dashboard and financial stability reports.
In the area of pensions, we conducted a stress test on the occupational pensions sector. For the first time, the stress test included an assessment of environmental, social and governance exposures. We also worked on achieving proportional and relevant application of the Institutions for Occupational Retirement Provisions – IORP II Directive throughout Europe.

In addition, we began work on a number of specific technical deliverables for the Pan-European Personal Pension Product (PEPP) and continued our work on cross-cutting themes of sustainable finance and InsurTech, digitalisation and cyber resilience, including a further investigation into the cyber insurance market in Europe.

These are just some of the highlights from last year and none of them should be seen in isolation as we have carried forward our work on many of these topics into 2020.

Looking ahead, the current crisis is one of the biggest challenges facing both the insurance and pensions sectors today. Both play a vital roles in society and it is in everyone’s interest to have strong and resilient sectors.

To meet this challenge, we need solidarity and a concerted effort from all actors: supervisors, governments, the European institutions and industry so that we can emerge from the crisis with an insurance industry that is well-equipped to rebound and serve the economy, businesses and people.

For the remainder of this year, we will continue to focus our effort to foster strong and resilient insurance and occupational pensions sectors in Europe that benefit people, business and economies across Europe.

Ladies and gentlemen

Introduction

It’s a pleasure to join you today in your conference to talk about digital responsibility and the role of actuaries.

I would have preferred to be with you in person, but thanks to our trust and reliance on digital technology, we can maintain communication in these exceptional circumstances.

We can do this because we live in a digital society.

And nothing has proved this more than the outbreak of COVID-19.

Offices, schools, shops and restaurants have all been forced to close to implement ‘social distancing’ measures.

And how has society reacted?

People have ‘gone digital’. Even the most reluctant have done so either out of curiosity or necessity.

Different apps are essential for keeping in touch. You can hold meetings online, have virtual drinks parties, and chat with you family and friends. Online shopping has never been more popular and instead of eating out, people are ordering take away through apps installed on their mobile phones.

Working from home has also become the new normal for many organisations, including EIOPA. And it is no different for insurance companies and intermediaries. Many of them have closed their physical offices and now communicate with their customers by digital means during the outbreak.

And, of course, the debate about data and digital ethics is very topical during this challenging time.

To stop the spread of COVID-19, public health authorities need to identify, track and isolate those citizens that may have been exposed to the virus. This has led a debate around ‘social tracing’ and how far governments should go, without becoming a ‘Big Brother is watching you’ society.

It’s true that contact tracing can certainly save lives, but it can also have a direct impact on people’s civil rights and privacy. So to protect these rights, this type of information needs to be handled in a responsible manner.

This brings me to the theme of my speech: the importance of digital responsibility in insurance. And today, I will cover three topics:

• The state of play of Big Data analytics in the insurance sector
• EIOPA’s work on digital ethics; and
• The role of actuaries in the digital age.

What is going on? The state of play of BDA in the insurance sector

Let’s start with looking at where we are with Big Data Analytics in the insurance sector.

First of all, we are seeing an increasing availability of data.

According to the European Commission, the volume of data produced in the world is expected to grow  from 33 zettabytes in 2018 to 175 zettabytes in 2025 i.e. it will multiply by 5 during this time. This has a direct impact on the insurance sector, where data processing has always been at the very core of insurance business.

Last year, EIOPA published a thematic review on Big Data Analytics. The review showed how traditional data sources used in insurance such as demographic data or exposure data are increasingly combined – but not replaced – with new internal and external data sources, like online media data or data from connected health devices or cars. This then provides greater granularity and frequency of information about consumer’s characteristics, behaviour and lifestyles.
We also have more powerful algorithms and data storage capacity.

The increasing availability of data is combined with the greater computing power, data processing and cloud computing storing capacity offered by new technologies.

This makes for a more frequent and more effective use of machine learning.

Based on the research for our thematic review, we found that 31% of participating European insurance undertakings were using machine learning and another 24% were at a proof of concept stage. Today, in some jurisdictions the level of adoption in the insurance industry is already 100%, higher even than in the banking sector.

The Big Data Analytics thematic review also showed that the use of machine learning is taking place across the whole insurance value chain – from improved product design and development processes to more accurate underwriting techniques or more efficient claims management and fraud detection procedures.

The developments present both opportunities and challenges.

Our thematic review concluded that there are many opportunities for both the insurance industry and for consumers.
Digital innovation helps reduce operational costs, frictions and bottle necks in the production and delivery of insurance products and services. It increases efficiency and competition in the markets, and broadens access to financial services. Thanks to innovation consumers can also benefit from a wider range and increasingly tailored insurance products and services.

But there are also risks.

They are not necessarily new risks, but their significance is amplified in the context of Big Data Analytics. This is particularly the case regarding ethical issues with the fairness of the use of data as well as regarding the transparency, performance, explainability and auditability of certain Big Data Analytics tools such as artificial intelligence or machine learning in insurance.

Role of EIOPA: EIOPA’s Expert Group on Digital Ethics in Insurance

EIOPA is working to address these issues.

Through our Consultative Expert Group on Digital Ethics in insurance we aim to provide guidance to the market in the operationalisation of digital ethics principles for insurance.

We are not reinventing the wheel, or working in isolation, but rather we are looking at the work done by the Commission on artificial intelligence and other international standard setting bodies and adapting them to the specificities of the insurance sector.

We have set up three workstreams within the group – all chaired by actuaries, I should add – to address:

• Fairness and non-discrimination – these are issues such as data bias and other fairness issues / grey areas / dilemmas that arise with the use of digital technologies in insurance.
• Transparency and explainability – preventing “black-boxes” and ensuring accountability by being clear on what data is be used, how and for what purposes
• Governance – ensuring adequate levels of human oversight, security and resilience of machine learning models

Given the principle of proportionality, it is important to follow a risk-based approach and adapt the governance requirements like the level of ‘human oversight’ or ‘explainability of algorithms’ to concrete use cases and to specific stakeholders, for example supervisors, consumers and auditors.

This is because the explainability requirements for pricing and underwriting models do not necessarily need to be the same as for those processes automating back office operations.  And again the information that needs to be provided to consumers is different to what is relevant for supervisors or auditors.

Any resulting framework should therefore take into account the new realities of the big data landscape. It should also be forward-looking and flexible so it can adapt to an ever-changing environment.

This last point is particularly important. The COVID-19 outbreak is showing just how attitudes change. While track and trace apps might once have seemed both unimaginable and unacceptable in Europe, perceptions are changing as our circumstances change.

But data ethics and data privacy are complex topics and the right answer is not always clear. Our group on digital ethics is working on how to find the right balance between enabling financial innovation and safeguarding consumer protection and financial stability. Consumer outcomes should always come first.  But it is a balance and we should also be willing to take some risk by means of acknowledging the positive aspects of innovation.

Role of Actuaries in the digital age

So what is the role of actuaries in all this?

Well, actuaries have always played an important part in ensuring effective systems of governance.

And in fact, the role of actuaries becomes even more important than ever in the digital age.

Today, the insurance companies have to deal with huge amounts of data and ever changing data analytics techniques.
Actuaries have deep expertise in data quality and data analytics and can therefore provide a measure of quality assurance through expert technical actuarial advice at a time when this is needed more than ever.

Furthermore, because of their strong analytics capabilities, actuaries can play an important role in new digital ecosystems, providing expertise on predictive-modeling and optimization to support quicker and smarter business risk decisions across all industries.

These are challenges that directly affect the actuarial profession.

What this means is that actuaries will need to adapt their skills through continuous training and learning processes and also learn to collaborate with new professionals starting to work in the insurance business.

Newly graduated actuaries might well have already acquired many of the skills related to new technologies at university, but they too will have to be ready to continue to learn. Because technology evolves and circumstances change. We are seeing now that those who can adapt are better able to cope in these difficult and uncertain times.

Look at how we are adapting to online conferences!

So I would say that for actuaries, new and experienced, it’s important to remain flexible and be ready to learn new skills so that you can always play a valued and important role in ensuring quality standards in the insurance sector and beyond.

In conclusion

Let me conclude by saying that COVID-19 is underlining what we already knew as we entered this crisis: Digital technology is here to stay and it is a great enabler. In this context, COVID-19 is likely to act as a trigger of acceleration of these significant trends.

The risks associated with digital responsibility remain and we must be sensitive to them. When we harness the power of big data, we must be sure that it is not at the detriment of consumers.

Earlier I talked about sharing our personal data to facilitate track and tracing in the fight against COVID-19. I am convinced that we will all be more tolerant to sharing our data if we know that it is treated responsibly.

So that should be our goal: to ensure that as we adopt and adapt technology, we do so responsibly.

The actuarial profession can play an important role in this. The enormous explosion in data availability in the digital economy can be an enabler to better assess risk and provide insurance solutions. Actuaries can combine data scientist skills with insurance business risk knowledge leveraging traditional concepts like mutualisation and fairness.

And in this way, you will be helping to make sure that citizens continue to have trust and confidence in the insurance sector and the insurance sector continues to serve the best interests of its customers and policyholders.

With Covid-19 the world has changed. The actuarial profession must also change.

Thank you.

The Coronavirus outbreak has created a huge disruption globally. What does this mean for the insurance and pensions sector in Europe?

Without doubt this is a challenging time for business and for people not just in Europe but around the world. Companies have had to radically adjust their business operations and people are coping with significant upset to daily routine. Added to this, there is uncertainty surrounding the magnitude of economic disruption, how long COVID-19 will continue to be a threat to public health, and when and how restrictions will be listed.

This has created an incredibly difficult business environment globally. 

The insurance sector must deal with challenging market conditions and maintain operations, while at the same time protecting employees and policyholders. The situation is similar for providers of occupational pensions who also have to maintain business continuity and manage operational risks.

It is therefore important that all economic actors now work together so that we can emerge from the crisis with the insurance and occupational pensions sectors well-equipped to rebound.

What has been EIOPA’s response to the crisis? 

Mitigating the effects of COVID-19 is the top priority, not only for EIOPA but for the European Union as a whole.
From the outset, we have been working closely with national competent authorities to ensure financial stability, market integrity and consumer protection and as part of our response, EIOPA has put in place measures that will help insurers to focus on ensuring business continuity and continuing to serve their customers.

These measures include recommendations on supervisory flexibility regarding deadlines of supervisory reporting and public disclosure by insurers. In providing operational relief in allowing for delays in reporting and public disclosure, insures will be able to concentrate on monitoring and assessing impact of Coronavirus/COVID-19 and maintaining operations. 

In addition, in the short term, EIOPA will limit its requests for information from and consultations to industry, focussing only on essential elements needed to assess and monitor the impact of the current situation in the market.
Where possible we are also extending deadlines, such as for the Holistic Impact Assessment for the 2020 review of Solvency II.

All the measures that we have taken are part of our overall role to enhance supervisory convergence, strengthen consumer protection and preserve financial stability. Our work puts us at the heart of insurance and pensions supervision and we will continue to work closely with the European supervisory community, European Union institutions and industry to ensure a well-functioning financial system.

What are you expectations from the insurance sector?

I want to acknowledge the actions that many Insurance companies and intermediaries have taken so that they can continue to serve their customers. Many have shown flexibility and consideration of the unusual circumstances that their staff and customers find themselves in.

However, we do have certain expectations from the insurance sector.

While it is true that, since the implementation of Solvency II, the insurance sector has better aligned capital to risk, it is still too early to understand the full impact COVID-19.

Given the overall uncertainty of the scale and duration of the crisis, it is important that insurance companies preserve capital. For this reason, we have urged insurers and reinsurers to adopt a prudent approach and temporarily suspend all discretionary dividend distributions and share buy backs.

This is a temporary measure but a prudent measure and the suspension can be reviewed as the financial and economic impact of COVID-19 starts to become clearer.

We have also asked insurance companies and intermediaries to remember their obligations to their customers and policyholders.

This is a confusing time for consumers, who may be anxious about their health, the health of their loved ones and their finances. They should not be anxious about the service provided by their insurance company.

Consumers still rely on insurance during this difficult time and it is essential that insurers continue to provide access to and continuity of service.

However, trust in the sector is essential for a strong recovery, so it is of paramount importance that insurers treat their customers fairly and use discretion where they can. 

We have set out our expectations in a statement on how we believe insurance companies and intermediaries should continue to act towards their customers and policyholders. We have stressed the need for clarity in communication – in being explicit about what is and isn’t covered and about contingency measures in place. 

In particular, we have asked them to take into account the very particular circumstances that people find themselves in – perhaps they cannot go to get their car serviced, or are unable to submit claims information easily. Insurance fulfils a vital role in society and it is in everyone’s interest to have a strong and resilient industry. To achieve this, we need solidarity and a concerted effort from all actors: supervisors, governments, the European institutions and industry.

How do you think this crisis will change the insurance and pensions sector?

What we are seeing – and this is not just for the insurance sector – is how digital technology is becoming more essential, more available and more normal. This is going to continue even after the pandemic disappears.

We have seen already that for many consumers, digital technology has been key in maintaining their access to services. Insurance companies are able to keep consumers informed of changes to policies and contingency measures through their digital channels.

I think that innovation will go beyond this, so that insurers will be able to respond to their customers changing circumstances more quickly. We have seen some insurers offering payments to their motor insurance customers because they are driving less. This could eventually lead to a growth in ‘pay-as-you-drive’ insurance.

We should also be cautious. We need to make sure that increased digitalisation does not put people at a greater risk to fraud or cybercrime or financial exclusion.  Policymakers and supervisors should therefore be looking to provide environment needed to support this transformation while mitigating the emerging risks. 

In terms of pensions, we will see the growth of digital first regimes pension and savings products suited to online cross-border sales, like the Pan European Personal Pension product, or PEPP. Simple products that can benefit from economies of scale through digital platforms and simplified distribution regimes fully leverage the opportunities of digitalisation and these products will play an important role in closing the pensions gap.

EIOPA continues to explore these topics through its InsurTech Task Force and Expert Group on Digital Ethics.

Across Europe, many people, including EIOPA staff, are now working from home. How are you adapting to your new working environment?

I have been very impressed in the way that organisations and their staff have been able to adapt to new circumstances.

At EIOPA, our staff have been working from home since mid-March. For many of us it has been a completely new experience. But I think we have adapted well. We also prepared well, testing our IT systems in advance to make sure that they were resilient enough to cope with all our staff accessing the system from outside the office. 

So while we are dedicating considerable resources to monitoring and mitigating the effects of COVID-19, we are also able to continue with our other priorities: the 2020 review of Solvency II, our work on digitalisation, cyber risk and cyber insurance, sustainable finance and contributing to Capital Markets Union.

Having said that, I am looking forward to the day when I see colleagues in person and can welcome our Board members back to Frankfurt. But until then, I – along with all my colleagues – will continue to be flexible so that we can continue to serve the financial sector in this difficult time.

Read more about EIOPA’s actions in addressing the Coronavirus crisis

Ladies and gentlemen

Introduction

Thank you for inviting me to today’s conference. It’s always so interesting to hear about the different aspects of FinTech and the pace of innovation. I’m also pleased to be here with the Chairs from my fellow supervisory authorities. Digital finance and FinTech are areas that we all follow closely.

We’ve heard a lot today about the vast potential of FinTech and how it is changing the lives of business and people.

The digitalisation of finance is dependent on many things, but the core drivers are technology and data. Data is valuable, especially the type of data held by financial institutions. And technology is vulnerable.

And that leaves companies and people open to the risks of cyber crime.

Earlier this morning we heard about the need for operational resilience and the importance of cyber security. The threat of cyber attacks are a serious risk to business. Ask any CEO what keeps him up at night, and cyber attacks and data theft are likely to be high on the list of answers.

So today, I would like to talk to you about two things: the importance of respecting data, and the importance of protecting the people through cyber insurance.

Data is power

Let me start with a few words on the importance of how we treat data.

In the old days, they used to say ‘knowledge is power’. Today, it’s more likely to be ‘data is power’.

In the world of insurance for example, products, policies and pricing are all powered by data.

This is what makes it so valuable: with data an insurance company is able to offer the consumer just what they need and hopefully at just the right price. It should be a win-win for provider and policyholder.

And more choice and lower costs are what makes consumers so ready to share their data.

But what happens when data is not used ethically?  When people find themselves excluded from insurance? Or when the holders of the data do not act responsibly?

At EIOPA, we believe that data needs to be respected. It must be used fairly and organisations holding data must act responsibly.

Because of this, last year we set up a consultative expert group on digital ethics in insurance to help us develop principles of digital responsibility in insurance.

We want these principles to have European values at their core while at the same time recognising the important role that insurance plays in our economy and also in our society.

So we are not reinventing the wheel. Nor are we ignoring the work on artificial intelligence being done by the European Commission and other bodies. Instead we want to operationalise best practice for the insurance sector.

In particular we are paying attention to:

• Fairness and non-discrimination – including data biases and the fairness around the use of price optimisation practices;
• Transparency and explainability – being clear on how data is used and any trade-offs with accuracy;
• Governance – touching on accountability, security and resilience.

Security of data is perhaps the most important thing here.

Because cyber attacks and data thefts cost.

They leave companies liable for fines of millions of euro. On top of that, there is the cost to a company’s reputation, which is harder to quantify and very difficult – sometimes impossible – to earn back.

So cyber resilience is essential for any organisation and an effective cyber insurance market is a core component of a sound cyber resilience framework.

The cyber insurance market today

A sound cyber insurance market is an enabler of the digital economy.

From raising awareness of the risks and losses that can result from cyber attacks to facilitating responses and recovery, a well-developed cyber insurance market can play a valuable role in risk management.

And the European cyber insurance market is growing rapidly.

This is in part due to the overall increase in written contracts offered by insurers, and also because of the growing number of insurers providing cyber insurance.

And we expect the market to continue to grow.

The increasing frequency of cyber attacks, coupled with stricter regulation regarding cyber security as well as continued technological developments are all expected to increase demand for cyber insurance in the near future.
It’s also likely that as businesses make their own investigations and investment into cyber security, they will become more aware of the growing need for insurance cover against cyber attacks.

Cyber underwriting to build European resilience

We need to work together to strengthen cyber resilience and create a strong cyber insurance market.

At EIOPA we have been studying the evolution of cyber insurance in Europe for some years now, including regular dialogue with insurance companies, and we have just published our cyber underwriting strategy.

Our strategy outlines the areas that we see need strengthening and sets out our approach and proposed actions.

First and foremost, we have seen that a lack of data is one of the biggest obstacles to a detailed understanding of the fundamental aspects of cyber risk and the provision of proper coverage.

It’s understandable of course that companies are reluctant to share information on their security measures and their history of cyber incidents. The information is extremely sensitive but it is also incredibly valuable to underwriters.

And this lack of quantitative information on incidents makes it difficult for insurers to properly price risk and estimate the liability of exposures. It also hampers cyber risk measurement and management for insurers.

Therefore, we believe that we need to develop at European level a standardised cyber incident reporting framework that enables the sharing of aggregated data, anonymised to protect sensitive information, so that insurers and reinsurers can develop adequate pricing and risk management models.

To do this, we will engage with different bodies, including national authorities, the EBA and ESMA, as well as ENISA to explore and promote the development of a harmonised cyber incident reporting taxonomy so that we can put the data to work to underpin cyber underwriting modelling.

We also believe that there needs to be a common understanding of contractual definitions. Policyholders and insurers must share the same understanding of contract terms. Clear and transparent cyber coverage is essential from a consumer protection perspective. This is just as important for big companies as it is for individuals.

At European level, EIOPA will work other EU institutions can help to accelerate and promote engagement between industry and consumer associations which, in the long run, will help to maintain consumer confidence and avoid the potential for disputes.

As a supervisor, we are also working closely with national supervisors to ensure that appropriate underwriting standards are in place and that national supervisors have the capacity to supervise these. Technology changes, the nature of cyber attacks change, supervisors must be able to keep pace with these changes.

Continuing European cooperation

Cyber attacks are complex. They are dangerous. And they are ever more sophisticated.

Because of this, cyber risk is seen as a potentially systemic risk for the financial system and the real economy.
So we need a common approach to mitigate this risk.

And this involves continuing to work together to find shared solutions. Because a shared approach will mean a more effective approach.

And so in addition to working with national supervisors to foster a common approach to supervision, we will also continue our very valuable dialogue with industry, consumer associations and other stakeholders to raise awareness of cyber security and insurance issues.

And at European level, we will continue our close cooperation, not only with the EBA and ESMA, but also with other EU bodies, so that we can strengthen Europe’s over all resilience to cyber attacks.

In conclusion

Let me say in conclusion that it is no surprise that cyber security and cyber risks are a top concern not only for the financial sector, but for all industry and, indeed, for all people.

The digital era, and digital finance in particular, has brought us many benefits. But if too many people suffer because they are not better protected, we will quickly lose faith not only in the company that caused the suffering but also in technology itself.

This should not happen.

Let’s work together to make sure that the risks resulting from digitalisation are considered and managed appropriately, including through an appropriate cyber insurance framework, so that digital finance continues to work for the people.

Ladies and gentlemen, thank you very much.

Executive Vice-President Dombrovskis
Ladies and Gentlemen

Introduction

It gives me great pleasure to join you today for today’s discussions on the 2020 review of Solvency II and it is an honour to open the proceedings.

I would like to thank the Commission for organising this event on the opportunities and challenges of this review.

The implementation of Solvency II has been a step change in how insurers approach their relationship to risk. Since its implementation 4 years ago the insurance industry has better aligned capital to risk, uses a risk-based approach to assess and mitigate risks, which means that it can better price them. Insurers have also significantly strengthened their governance models and their risk management capacity.

These are all positive outcomes that are both good for insurers and for consumers. After all it is consumers that the regime is designed to protect.

This review is a fundamental step in enabling us to continue to protect policyholders and in maintaining the credibility of the regime.

This review is an opportunity to:

1. Ensure that the regime continues to be fit for purpose by being capable to reflect the evolution of the market conditions.
2. To fine tune the regime to ensure that it is more proportionate to the scale and complexity of risks insured by different types of insurers and creates better conditions for insurers to develop new sound business models.
3. To complete the EU regulatory toolbox by introducing a macro prudential dimension and a minimum harmonisation regarding recovery and resolution and insurance guarantee schemes.

Let me touch on these three areas:

Reflecting the evolution of market conditions

Solvency II was designed in very different market conditions. The on-going ultra-low/ negative interest rate environment has a substantial impact on the business model of insurers, especially on the life insurance side.
So the current approach to interest rate risk in the Solvency II standard formula clearly underestimates the real interest risk rate in a low/negative yield environment.

This is something we have to fix urgently, and EIOPA will come with concrete proposals to do so in a sound technical way. And conscious of the impact of this adjustment, we will also propose a step-by-step approach to build the needed resilience.

The evolution of market conditions also requires an adjustment in the extrapolation of interest rates. The current approach does not reflect the market consistent nature of Solvency II and is conducive to the underestimation of technical provisions.

Proportionality and long-term nature of business models

Proportionality has always been an important element in Solvency II. Looking at the experience in the practical implementation of the regime, EIOPA believes that further steps can be taken to increase it, both on the requirements and in the supervisory process.

That is why we have consulted on possible changes in reporting and disclosure: increasing the application of risk-based thresholds that will reduce substantially the reporting requirements for less complex and less riskier undertakings; streamlining and standardising the public disclosure with a clear separation of the information for market participants and simple and short information for consumers; simplifying requirements for captives.

We are now working on ways to increase the effectiveness of the proportionality embedded in the supervisory review process.

But the review also gives us an opportunity to work on sound adjustments to allow insurers to better develop long-term products and long-term investments.

On the top of the consulted material we have been working on a number of elements that hopefully will be tested in the holistic impact assessment in March.

On the volatility adjustment, we are looking at the recalibration of application ratios with the aim that insurers are rewarded for holding illiquid liabilities rather than been penalised for holding liquid liabilities.

On the risk margin, we are exploring ways to reduce its size and volatility, especially for the long-term liabilities, based on the fact that the future capital requirements are not fully independent.

On equity risk, we are reviewing the criteria for the ability to hold equity long-term, by making a link with long-term illiquid liabilities and taking into account that equity investments are managed on a portfolio basis rather than on an individual asset basis.

We are also exploring ways to include a better recognition of non-proportional reinsurance as a legitimate risk-mitigation technique.

All of these adjustments will improve risk-sensitivity, facilitate the design of truly long-term illiquid liabilities and incentivise long-term investments.

Completing the regime

By introducing a macro-prudential dimension we will equip supervisors with better tools to monitor the building up of possible systemic risk in line with the recently approved international framework.

Another important area is the freedom of establishment and to provide services in the Single Market. While this freedom provides clear benefits to policyholders, we have also witnessed an unfortunately growing number of failures and near misses of insurers, many of them doing business on cross-border basis.

We need to act to stop misuse of these freedoms that has the potential to undermine trust in the Single Market.

Furthermore, we believe that the existing fragmented landscape of national recovery and resolution frameworks could cause significant barriers to the orderly resolution of insurers, particularly in the case of cross-border groups.

Similarly, there is the need for a minimum harmonised framework for insurance guarantee schemes in terms of scope, coverage and funding to protect policyholders in case of failure. This is a question of trust and confidence of European consumers in the insurance sector.

What are EIOPA’s next steps?

We are analysing very carefully the feedback received and engaging extensively with the different stakeholders.
In March, we will follow up with a holistic impact assessment.

This is an important step for us as it will enable us to collect information on the combined impact of our proposals. It is likely that the holistic impact assessment will still contain some options but I assure you it will be much more streamlined.

By then, we will be reaching the final leg of this part of the journey. Our Opinion to the European Commission is due by 30 June 2020 and we will keep that date.

In conclusion

Europe’s insurance sector is significant part of the financial sector. It finances the economy, it provides a large number of jobs and, most importantly, it provides peace of mind and protection for policyholders.

And ultimately, this is why we have Solvency II. So that we can better protect the policyholders.

So, to maintain a robust and credible Solvency II that is part of a Europe that protects and a Europe that puts finance at the service of the economy and citizens. That is our challenge.

Ladies and gentlemen, thank you for your time. Enjoy the debate.

Madam Chair, Honourable members of the European Parliament, 

I would like to share with you EIOPA’s work in strengthening supervisory convergence, the impact of the current financial and economic environment on the sectors and on our current focus on climate change, cyber risk and the completion of the Capital Markets Union.

So young people across the world are taking to the streets, urging leaders to
act and to act now. Make no mistake – they are appealing to us, here in this
room, to take steps and do something to improve their future.
And since our sector and society are subject to such rapid change, leadership
has never been so important.
Put simply, if we want to do right for the next generation, we cannot hesitate.
Instead we must lead the future.
And I strongly believe that we have it in our power to make a positive
difference. By ensuring that the guarantees made in the past to consumers will
be delivered despite the low for long interest rate environment; by adjusting
and alleviating the burden of the current regulatory regimes to incentivise
simpler, more transparent and cost effective products; by embracing
innovation and new technologies while preserving a high level of consumer
protection.

​Interview with Justin Wray, Deputy Head of the Policy Department of EIOPA, conducted by Evgenia Tzortzi for Kathimerini.