The European Insurance and Occupational Pensions Authority (EIOPA) published today its response to the European Commission’s consultation on the integration of EU capital markets. In its reply, EIOPA highlights that while the single market is already an operational reality in Europe’s insurance sector, more effective supervision at the EU level, which enhances trust among retail investors and mitigates consumer detriment, is indispensable for the success of the Savings and Investments Union (SIU) initiative.
The single market is alive and well for Europe’s (re)insurers. Large insurance groups conduct a significant portion of their business across multiple Member States: the 20 largest groups alone account for nearly 60% of insurance premia underwritten in the European Economic Area (EEA). Many insurance companies are also leveraging the freedom of establishment and the freedom to provide services to operate across borders using a single licence. Currently, cross-border activity represents 11% of all insurance premiums within the EEA – a figure that is steadily growing and expected to rise further as digital channels open up new opportunities.
However, challenges remain in a fragmented landscape. A complex supervisory framework, limited EU-level oversight, and inconsistent consumer protection across Member States continue to hinder the single market from reaching its full potential in the insurance sector.
The European Commission’s recent consultation provided a timely opportunity for EIOPA and its Members to deeply reflect on how the current framework could be further improved. EIOPA’s response offers an overview of the main issues and proposals for addressing them.
Overseeing cross-border business
Recent events have highlighted persistent challenges in the oversight of cross-border entities both at the national and EU level. Given that EIOPA’s legal instruments lack enforceability and rely heavily on the willingness and capacity of home supervisors to act, meaningful enhancements to the supervisory framework are needed to ensure timely supervisory action and to protect policyholders, regardless of where they live or purchase their insurance.
To address the limitations of fragmented national solutions, the majority of the Members on EIOPA’s Board of Supervisors (BoS) support reinforcing a range of existing tools – including Breach of Union Law cases, Recommendations and Collaboration Platforms – to improve the enforceability of decisions made by EIOPA’s BoS.
Simplifying the structure of supervision
Equal treatment of policyholders across the EU requires robust oversight, which rests on national supervisors having adequate supervisory and enforcement powers to ensure compliance with EU law. Nevertheless, divergences remain in how certain requirements are transposed at the national level, as well as in how national supervisors may exercise key powers. Moreover, supervisory responses often end up fragmented and duplicative when conduct risks arise across multiple Member States.
Against this background, the majority of EIOPA’s BoS Members agree that existing supervisory tools such as product interventions, warnings, technical assistance, and thematic reviews should be strengthened to enhance supervisory effectiveness.
Driving consistency in internal models
Another area where supervisory simplification could go a long way is the oversight of internal models, which are used by insurers representing more than half of all insurance premia in Europe. EIOPA’s recent work has shown that there is a need for greater consistency in both the approval and ongoing supervision of internal models to ensure comparable capital requirements in all Member States and a level playing field across the continent, thus enhancing competitiveness of the single market.
Though the majority of EIOPA’s BoS Members agree that the advice of EIOPA in the colleges on internal models is essential and needs to be considered carefully, they do not support enhancing the structure of colleges of supervisors or granting EIOPA the power to initiate and coordinate on-site inspections. Yet, some Members are open to discussing targeted enhancements aimed at promoting greater collaboration within supervisory colleges. This would include a more thorough consideration of EIOPA’s opinions in decisions related to internal model approvals – with the goal of ensuring that internal models accurately reflect the risk profile of a group, including in host markets.