GIS Conference 2015
INSURANCE GLOBALLY UNDER PRESSURE?
On 8-9 September 2015, EIOPA in cooperation with the International Center for Insurance Regulation (ICIR), the World Bank and the Center for the Study of Insurance Regulation at St. John's University organised a fourth annual Conference on Global Insurance Supervision (GIS Conference).
The conference aimed at providing a platform for opinion exchange and discussions between supervisors, insurance industry and academia on an international level. The event took place in the Goethe University Frankfurt and attracted around 150 participants from 4 continents (except for Australia).
The GIS Conference 2015 was entitled "Insurance: Globally under Pressure?". Its speakers and participants were encouraged to reflect on such challenges for the insurance industry as the protracted low interest rate environment, development of recovery and resolution processes, future design of the international capital standard for insurance as well as enhancement of consumer protection worldwide.
The first day, 8 September, focused on two topics:
Insurance supervision in a global macroeconomic context
The speakers indicated that insurers and supervisors should prepare for possible long period of low rates, which creates several challenges for insurers such as the potential risk reversal or profitability concerns, especially what referred to certain business models. Industry was informed on how to take it into account when developing business strategies and designing insurance products. Among possible policy responses the speakers proposed to focus on the systemic relevance of life insurers and to have a more explicit regulation of interest rate risks for the banking sector. It was noted that in the insurance sector the interest rate risks are sufficiently covered by Solvency II. At the same time the speakers warned that market participants and supervisors should be prepared for a quick reversal scenario.
Recovery and resolution from the prospective of industry and regulators
This issue was discussed from both regulatory and industry perspective. The insurance resolution process was first explained in detail (including recovery and resolution tools) and several examples from different countries. The panellists agreed that in principle resolution should be separated from supervision. They discussed the need to have the specific resolution authority rather than going through the liquidation process by the court. Participants also spoke in favour of a harmonized European legislation for recovery and resolution.
The second part of the day was dedicated to 4 sessions covering the use of supervisory practices in different areas. The sessions resulted in a number of conclusions that will guide further work of supervisors and insurers with regard to:
Group supervision/exchange of information & functioning of colleges
The colleges provide an added value for both the supervisory authorities and the insurance groups. Efficient colleges need to base their activities on the working plans. They should also have the good quality of information and should have sufficient expertise to use this information in the framework in order to assess risks. Colleges should serve as a permanent platform for cooperation and information exchange, in order to facilitate the process of group supervision, where there is an important task for the group supervisor to coordinate these processes among the relevant supervisors. The colleges should not create a new level of complexity but should work as a tool addressing the existing complexity.
Modern international ORSA
Companies were advised to discuss with supervisors their expectations before submitting the ORSA Reports. It is important that company demonstrates the high level of risk culture by showing to the supervisor how it is using the ORSA in its decision-making process.
Effective implementation of risk-based supervision
The session participants agreed that risk-based supervision requires national supervisors to change mentality and to have professional staff. Therefore, sufficient resources are needed in order to properly educate and train staff so that they are able to timely identify and quantify risks and to challenge industry. It was also noted that the risk-based supervision would only be possible with the reliable and detailed data.
Governance in insurance groups
Participants concluded that entrepreneurial freedom within groups should be combined with the high level of responsibility and loyalty towards the clients. The principle of "controls over controls" was considered inefficient. Participants favoured a top-down approach for disseminating the business culture and values among the tools to influence employee's behaviour.
The second day, 9 September, was dedicated to two issues:
International capital standards
The panellists indicated the importance to have a level playing field for international capital standards (ICS) and national solvency regimes. The goal is to have common standards across the jurisdictions that would not differ substantially from domestic regimes and that will reflect risk sensitivity and economic reality.
The ultimate goal should be to replace national supervision with Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) and to have ICS instead of national standards for such groups.
Consumer protection: risk-based & proactive approach for conduct risks in insurance
It was emphasized that both industry and regulators have the same goal to protect consumers and, thus, should work "on the same side". It is important for companies to put themselves "in the shoes" of the customers. This consumer-centric philosophy implies providing clear and appropriate information and advice, ensuring that products suit clients' needs, continuously assess how products behave in the market and adjust them if necessary and manage distribution channels effectively. In this process the boards of companies should set the tone from the top. Another important part of the good corporate culture and philosophy would be to analyse customers' feedbacks and to adjust business activities in response to this analysis.
Macroeconomic Trends and Challenges 2015
Prof. Volker Wieland, Goethe University
Insurance Supervision in a Global Macroeconomic Context
Prof. Jean W. Kwon, St. John's University, New York
Financial Stability and Resolution in Insurance
Christian Thimann, Ph.D., AXA Group
Valuation: "True and Fair View" under Pressure?
Prof. Helmut Gruendl, ICIR, Goethe University
Key Issues and Challenges for a Global Capital Standard
Masamichi Kono, Financial Services Agency Japan (JFSA)