EIOPA consults on its supervisory statements on exclusions in insurance products arising from systemic events and on the management of non-affirmative cyber exposures

The European Insurance and Occupational Pensions Authority (EIOPA) published today two consultation papers on:

• the supervisory statement on exclusions related to systemic events such as pandemic, natural catastrophes or large cyber-attacks and
• the supervisory statement on the management of non-affirmative cyber exposures.

Draft supervisory statement on exclusions in insurance products in relation to risks arising from systemic events

There is an increasing risk that insurance products may become unaffordable, or unavailable for systemic events. At the same time products which may have had originally covered these events or which may have been silent in relation to the coverage for these events may explicitly exclude them in the future.

These systemic events also underline increasing consumer detriment caused by ambiguous contractual terms and lack of clarity on the coverage of losses arising from such events. This has led to disputes between policyholders and insurance undertakings, reputational risks for the sector as well as significant losses for all parties involved.

The aim of the supervisory statement is to promote supervisory convergence in how national competent authorities assess the treatment of exclusions in insurance contracts that arise from risks following systemic events. This should ultimately support that that insurers follow a customer-oriented approach in such events. 

EIOPA in its supervisory statement recommends national competent authorities to take into consideration the following: 

• Insurance product manufacturers should assess whether the applicable exclusions from coverage are clear, and there is contract clarity for policyholders;
• If the risk arising from a systemic event becomes uninsurable or there is lack of clarity as to whether the risk is covered or not, insurance manufacturers are expected to make an assessment of the terms and conditions and of the scope of coverage by considering the needs, objectives and characteristics of the identified target market;
• More broadly, when new products are developed, the target market’s needs, objectives and characteristics need to be taken into account vis-à-vis exclusions.

While there may be a limit regarding what can and cannot be insured, EIOPA is of the view that risks – including those coming from systemic events – can be properly managed and assessed when coverage is clear and aligned to the target market’s needs. Overall, putting consumers at the heart of the product development process brings significant benefits to society as a whole.

The consultation is open until 18 July 2022.

Learn more and respond

Draft supervisory statement on the management of non-affirmative cyber exposures

Cyber risk exposures could originate from both affirmative cyber insurance policies and cyber endorsements, for which some exclusions may not be clear, and in relation to insurance policies designed without explicitly taking cyber risk into consideration. In this consultation paper, EIOPA recommends national competent authorities to dedicate higher attention to insurance undertakings’ assessment of the terms and conditions of their existing insurance products.

The consultation paper focuses on supervisory expectations and emphasises:

• the need for a top-down strategy and risk appetite definition for (re)insurance undertakings to underwrite cyber risk;
• the need to identify and measure risks exposure with the purpose of implementing sound cyber underwriting practices, with particular regard to the management of non-affirmative cyber exposures;
• the importance of cyber underwriting risk management and risk mitigation, including the reinsurance strategy.

The importance of staff training, raising awareness of the administrative, management or supervisory bodies and the focus on on-going product development and monitoring represent the basis for making steps forward in providing insurance policies that create value added for the community and give assurance to policyholders on the risks against which they are insured.

The consultation is open until 18 July 2022.

Learn more and respond