Skip to main content
European Insurance and Occupational Pensions Authority
Speech29 August 2023

Keynote speech at the Croatian Financial Services Supervisory Authority (HANFA) conference “Insured Risks in Uncertain Times”

Keynote speech by Petra Hielkema at the Croatian Financial Services Supervisory Authority (HANFA) conference “Insured Risks in Uncertain Times” on 29 August 2023 / CHECK AGAINST DELIVERY

Dobro jutro, dame i gosopodo,  

Prije svega, dopustite mi da se zahvalim Anti Žigmanu i HANFi na organizaciji ove konferencije, kao i na večeri. Bio je to dobar način da se upoznamo i dotaknemo neka od pitanja o kojima ćemo danas detaljnije razgovarati.

It is my pleasure to join you all today in beautiful Opatija for this conference on insured risks in uncertain times.

To say that we live in uncertain times is to borrow an all-too-common expression, but one which nevertheless describes our reality fittingly. And this uncertainty will in all likelihood persist for some time.

Europe is grappling with elevated inflation, higher interest rates, and real wage declines. At the same time, many EU countries are also experiencing the dual challenge of an aging population and the shortage of workers. All of this has a direct impact on the insurance and pensions sectors.

In addition to these macroeconomic and social factors, we are also faced with environmental and technological ones: The increasingly costly effects of climate change constitute a significant challenge for the financial markets. And thus, there is an urgency—also in the insurance sector—to support a swift transition to a green and sustainable economy.

What’s more, the influx of new technologies and Artificial Intelligence, and the availability of Big Data are already beginning to alter the way in which insurers can collect and analyse information, assess risks, and interact with policyholders.

This too will create new opportunities, but also introduce risks of which we must be mindful, most notably around the protection of consumer data and its ethical use, and growing vulnerabilities to cyber-attacks. We need to discuss all of these topics.

And as such, I am pleased to see that this many National Competent Authorities are represented here, both from within the EU but also from the neighbouring countries. Indeed, the challenges that impact our economies and societies today are shared. And so it is vital that we meet and exchange views on the risks facing the insurance and pensions sectors and us, as supervisors, in the coming years.

Today I will focus my speech on sustainability and, in particular, Nat Cat risk and disclosures. I will then move on to the macro-economic situation and say something about the latest development in Solvency II and IRRD. Finally, I will discuss cyber risk and DORA, thereby following the topics of this conference.

Sustainability: Reducing the Nat Cat protection gap

Let us begin with the most pressing risk of our time: climate change. Europe is the fastest-warming continent in the world, warming at twice the speed of the global average since the 1980s. The effects—extreme precipitation or flash flooding, long-lasting heatwaves, wildfires, and windstorms—are growing more destructive.

We all have a role to play in managing the effects of climate change, and the insurance sector is well positioned to make a meaningful contribution to this collective goal.

Natural catastrophe insurance is a key tool to mitigate macroeconomic losses following extreme climate-related events. It provides prompt funding for people and businesses to recover and rebuild from devastating events.

Yet at the moment, a whopping 75 per cent of climate-related catastrophe losses in Europe are not ensured. For us as supervisors this is a serious concern, and a risk we must tackle now.

So why are so many Europeans not taking up natural catastrophe insurance? To better understand this, EIOPA has analysed factors impacting supply, and more recently, factors impacting demand. Last month we published a paper outlining our findings pertaining to consumer behaviour.

We found that the low uptake of natural catastrophe insurance has much to do with misguided consumer perceptions:

  • Firstly, they think that the coverage is unaffordable (that is to say, they think it is more expensive than it actually is).
  • Secondly, they are not fully aware of the magnitude of climate-related risks.
  • And thirdly, consumers believe that the state will intervene to a greater extent than it can.

These misconceptions keep many citizens and businesses from insuring themselves.

A number of these barriers can be overcome with better communication and easily accessible and understandable information about the risks. Simplified and more customer friendly processes, and more standardized products, would likewise help.

Nevertheless, as natural catastrophe risks are expected to grow and become difficult to insure, we will need more sophisticated frameworks to deal with climate emergencies and to minimise future costs to taxpayers.

Before summer, EIOPA and the European Central Bank published a set of policy options to increase the uptake of climate catastrophe insurance in Europe. We advocated for a comprehensive solution to expand coverage with four pillars:

  • adaptation and mitigation measures;
  • increasing capacity in the insurance market;
  • public-private partnerships at the national level;
  • and schemes at the EU level to cover losses that may be difficult to insure purely via market-based solutions.

Let me say a bit more about adaptation and mitigation. Clearly to make sure that climate change-related risks remain insurable in the future, both consumers and insurers need to contribute.

Insurers can do so by what we call ‘impact underwriting’: that is, by applying their data, expertise and risk assessment capacity to design insurance provisions that encourage consumers to reduce their vulnerability to climate-related risks.

Insurers and reinsurers must also continue to incorporate climate change risks in their own risk management for the long-term sustainability of their business model.

The goal is sustainable insurance, because this is what protects society in the long term.

To enhance the uptake of insurance against climate change risks, European consumers and businesses need accessible and affordable insurance products that adequately protect them from major risks, chief among them natural catastrophes, but also incentivize them to adapt and mitigate those risks.

What is also important is that insurers carefully and correctly identify and disclose the sustainability features of their products, and thereby avoid greenwashing and help build trust in the insurance sector.

Supervisors can help insurers manage increasing climate change risks and support the transition to a low carbon economy for example by providing insight in risks through its dashboard and develop models to assess risks. EIOPA stands ready to do its part.

When it comes to attracting private funding to help Europe make the shift to a net-zero economy, transparency is a powerful tool. The Sustainable Finance Disclosure Regulation (SFDR) sets out how insurers and other financial market participants must disclose sustainability information to investors. Having this information at hand helps to attract investors who seek to put their money into companies and projects that support sustainability objectives.

To help facilitate these disclosures at both entity and product levels, EIOPA and our two sister European Supervisory Authorities developed Regulatory Technical Standards on the content, methodologies and presentation of disclosures. These are embodied in Level 2 legislation.

We are now further revising those Regulatory Technical Standards to include new social indicators for entity-level disclosures, new product disclosure on targets for reducing greenhouse gas emissions, and to simplify product disclosure templates. 

EIOPA stands ready to support the Commission in its upcoming review of SFDR Level 1 legislation. Our aim is to is to ensure that, in the future, product disclosures can be simpler, more concise, and tailored to the type of products and sectoral disclosures covered under the SFDR framework.

Macroprudential and systemic risks

Now, much more can be said about ESG risk, but let me move on because a lot more is happening. Indeed, as supervisors—one of our roles is to be on the watch for risks to the sector so that we can prepare and react in time.

Our June 2023 Financial Stability Report shows that, even in the challenging environment, insurers and pension funds have remained resilient. European (re)insurers entered the year with robust solvency positions (similar to those of 2021) even in the face of sizeable natural catastrophe losses, weaker investment returns, and higher-than-expected inflation. This is good news indeed.

Despite the resilience of the European insurance sector, the economic instability means that businesses and households continue to be impacted by high inflation and lower purchasing power, limiting their ability to afford insurance. The latest Eurobarometer survey showed that one in five European citizens does not purchase or renew their insurance because they cannot afford to do so.

We must also be mindful of unforeseen risks. I recall the gilt crisis in the UK and the recent turmoil in the US banking sector caused by the collapse of two US regional banks. This led to a loss of confidence and a sharp repricing of financial assets globally and brought increased uncertainty into the European banking. We saw this with the subsequent Credit Suisse rescue acquisition by UBS.

If there is a lesson to be reaffirmed here, it is that effective supervision plays an important role in safeguarding the stability of the market.

We must watch out for the rippling effects of crises beyond Europe’s borders. The European economy is not immune to geopolitical risks, including those stemming from Russia’s invasion of Ukraine. These can be costly for trade and ultimately impair economic growth.

Thus, it is important that we work together to develop and implement effective regulatory frameworks that can support sustainable and inclusive growth. This is as true for the EU as it is for other jurisdictions, many of whom are represented here today. 

As concerns Europe, one cornerstone of meeting this goal is Solvency II, which was implemented in 2016, and which represents a shift forwards a truly risk-based supervision. Solvency II is now undergoing a review, in view of which EIOPA has provided its technical advice to the European Commission.

Last month the European Parliament reached agreement on the review of this Directive, which will allow the legislative process to move to the trialogue phase this fall.

One improvement to Solvency II we can expect to see is that smaller and lower-risk insurers will benefit from reduced requirements for reporting. Simplified processes and a lesser administrative burden, in accordance with the principle of proportionality, is very much in line with this risk-based approach and a change EIOPA welcomes.

We can also expect to see the easing of capital requirements. This means that insurers and reinsurers will be required to hold less in capital than before, with the objective of freeing it up for more long-term investments.

For EIOPA, the appropriate course of action here is to err on the side of caution at a time of ongoing uncertainties. Even though some easing in the context of long-term investments would be appropriate, as also stated in our Opinion on the Solvency II review, further capital relief for not truly long-term investments would increase risks for consumers and financial stability in times of uncertainty.

Moreover, where there is capital relief, it should be closely tied to moving the green transition ahead, something EIOPA will monitor going forward. Finally, with more easing coming into the framework, it is essential that we have a better view of the ability of individual companies to manage stress. As such EIOPA welcomes the proposal to publish individual results of our regular stress tests.

The European Parliament also reached agreement on a proposal for an Insurance Recovery and Resolution Directive, allowing for trialogues to start as well on this proposal that EIOPA greatly welcomes.

At the moment, recovery and resolution measures, as well as Insurance Guarantee Schemes, in the EU are rather fragmented or even absent. Policyholders can buy a product from the same insurer all over Europe; however, they receive different levels of protection in the event this insurer fails for the protection depends on the Member State in which the policyholder lives.

This needs to change, and this new Directive is a first step towards a minimum harmonisation of managing insurance failures in our internal market.

Cyber security

Finally, I would like to turn to another growing threat, which, like climate change, does not stop at borders and impacts consumers, businesses, insurers, and supervisors alike: cyber-attacks.  

Since the pandemic, cyber-attacks in Europe have become more frequent and sophisticated, driving up the demand for cyber insurance. And while the market is growing, the increase in losses caused by cyber-attacks has led some insurers to reconsider their offering. As a result, the share of insured losses remains rather small, resulting in a cyber protection gap.  

One of EIOPA’s goals is to protect consumers, and to support the insurance sector and supervisors in the process of digital transformation. This includes increasing our resilience to cyber threats.  

What we have found is that small and medium sized enterprises are disproportionately affected by the protection gap paradox I just described. For this reason, EIOPA is now launching a survey on the access to cyber coverage by small and medium sized enterprises.

The results will help shed light on the experiences, perceptions and behaviour of SMEs including potential barriers to access which might lead to complete exclusion. Understanding protection gaps is the first step in working to address them.

When it comes cybersecurity of insurance companies, the Digital Operational Resilience Act (or DORA) will be a game changer. DORA has introduced uniform and harmonised governing principles for the management of cyber risks. This means that in the future, the reporting on cyber incidents will be streamlined, and third-party risk supervised.

Finally, the speed of technological change has implications for national supervisors, too: they not only need to keep pace with innovation in the market, but also with the skills required to supervise it.

To support the European supervisory community in boosting its own cyber-resilience, last year EIOPA, together with the European Commission and our sister Supervisory Authorities, launched a new EU Supervisory Digital Finance Academy at the Florence School of Banking and Finance.

It offers a training programme to supervisors, enabling them to deepen their understanding of the complex digital transformation impacting finance. Many colleagues from National Competent Authorities have taken advantage of these courses and I encourage you to consider doing so as well.

Concluding remarks

Now let me move to my concluding remarks, but before I do, I would like to say that EIOPA values the cooperation with our regional partners. Earlier this year EIOPA hosted the Eastern Cooperation Conference, bringing together insurance supervisors from the European Economic Area with our colleagues in the Western Balkan as well as Ukraine, Georgia and Moldova.

Today I can reiterate EIOPA’s support for jurisdictions in the process of adapting or implementing EU insurance legislation and say that our exchanges are encouraging. Indeed, it is important that we work together to develop and implement effective regulatory frameworks that can support sustainable and inclusive growth, in Europe, and beyond.

And this is where I also would like to take the opportunity to thank HANFA for their very good cooperation in the region but also within EIOPA. The exchange we are having at the EIOPA tables but also today is very important. I see this conference as an excellent platform for us to share knowledge and ideas and learn from one another.

And so look forward to an open dialogue that will enhance our understanding of the risks we are facing and the steps we need to take to manage them. Starting from the belief that in the years to come the importance of insurance and pension provision will continue to grow in importance!

Thank you.


Publication date
29 August 2023