- 26 Mai 2023
Petra Hielkema: "Consorcio de Seguros de España is an example for the whole of Europe”
First of all, Hielkema stressed, the strong solvency of the European insurance industry. "The average solvency ratio in Europe is 260% and in Spain the sector is at 240%. Although we always monitor these levels of capitalization, we are calm, despite the difficult macroeconomic situation.
Watch out for liquidity
One of the problems that the supervisor is focusing more on is the issue of liquidity. "Comparing what has happened with cases such as Silicon Valley Bank with what can happen in an insurance company in Europe does not make much sense, because they are two very different types of entities. In insurance companies, there is a very strict matching between the maturity of assets and liabilities. In addition, Solvency II regulation is very demanding. However, we have to be vigilant because in a generalized inflation process we may see how some clients draw on their savings in their insurance to face the rise in the cost of living. And insurers must keep this issue under control".
Another priority issue for the insurance supervisor is how the industry can help combat and mitigate the effects of climate change and natural catastrophes.
"In this case, the Consorcio de Compensación de Seguros (Consorcio) that operates in Spain is a benchmark for everyone, a clear example of how collaboration between the public and private sectors is essential to cover this type of damage, which is currently only 25% covered, notes Hielkema.
The Consorcio depends on the Ministry of Economy but is financed by small mandatory contributions from all insurance clients. Its purpose is to cover tail risks that are difficult for the private sector to reach. This is the case of catastrophic events (such as floods, hail, hurricane winds, snowstorms like Filomena), but also volcanic eruptions such as that of the La Palma. In the functioning of the Consorcio, the role of the insurers is fundamental, as they are in charge of collecting these surcharges and also of intermediating for the payment or advance of indemnities.
"Without this combined role of the insurers, who are the best at calibrating risks, and the State, which is capable of covering excess losses in very serious claims, the model would not work so well. That is why I think it works very well for dealing with natural catastrophes," explains the president of Eiopa.
The Consorcio also covers other types of exceptional risks, such as damage resulting from acts of terrorism, damage caused by uninsured vehicles (which are then claimed against the driver) and also covers novice drivers who cannot find an insurer.
Saving for retirement
The European supervisor also refers to the importance of Spain's further development of private pensions. "The system must be sustained both on public pensions and on personal and occupational plans. Otherwise, it will be lame, as is the case in Spain."
In her opinion, it is important that the State establishes a series of incentives to promote the second and third pension pillars, which encourage workers and companies to save more for retirement. "But it is important that all the measures taken are clear, simple and do not discourage other pillars."
The importance of an independent supervisor
In Spain, the supervision of the insurance sector is not carried out by an independent body, as is the standard in the rest of Europe. Here it is the Dirección General de Seguros y Fondos de Pensiones (DGSFP) that is entrusted with this task. But it is a department of the Ministry of Economy and its head is chosen by the government in office.
"I think it would be good for Spain to move towards a fully independent supervisory framework, and for the supervisory body to have more resources," says the head of Eiopa. The Dutchwoman considers that the DGSFP "plays a good role, and we have an excellent connection with them", but considers that it is essential for the supervisor to have more resources and more autonomy. "We have to do more and more things, on consumer behaviour, on climate risks, on financial stability, so we have to be very well prepared."
Hielkema also refers to the importance of insurance supervisors having more tools to control, not only the solvency of insurers, but also their conduct, to calibrate whether they are selling policies in a proper way. "I think insurance needs to be more transparent. The more it is, the more it will benefit customers and the less conflicts of interest there will be."
EIOPA has denounced some practices of the insurance sector, which in some cases is charging abusive prices. “It is important that the price assigned to a given policy is justified by the associated costs; it should not happen to charge just any price". They have also investigated the practice of offering better prices to new clients, which ends up hurting those who are more loyal. They have also drawn attention to banking, which often controls the life insurance business, and where highly inflated premiums are often charged.
Another of the issues on which the supervisor has also put its focus on is on rising costs, which has caused some companies to go into losses. "It is clear that the overheads of the industry have gone up, and so have the indemnities they have to pay. So it is normal that the price of premiums is going up. However, I believe that the solvency of the sector is guaranteed and that it will be able to adapt perfectly well to this inflationary environment," Hielkema concludes.
Read the interview in Spanish here.