Interview of Petra Hielkema

Interview of Petra Hielkema, Chair of EIOPA with INESE on sustainability, pensions, regulatory changes, digital transformation, personalisation and diversity. conducted by Susana Perez on 17 March 2022

INESE: You have just completed six months at the helm of EIOPA, what has been your focus during this time?

Petra Hielkema: I have had a good first half year. It has been easy because my predecessor did a great job. But, at the same time, it has been a rollercoaster because I had to meet with many people at a time when everything had to be through a digital format. However, the reception from the staff and all the members has been very warm. There has been many phone calls, including, of course, with my colleagues from Spain, to ask how the market was doing, and to find out what was important and what they expected from EIOPA. We have also had roundtables with consumers, we have talked to the institutions and we have talked to insurers. For me it has been a very positive start.

INESE: We are living in a challenging period, with COVID and the war in Ukraine, how does all this affect the economy and insurance?

Petra Hielkema:  Before the war we already had rising inflation and there are still many unknowns about it. Also before the invasion of Ukraine there was a more volatile market. Assessing the direct impact of the war on insurance, we see that it is very limited. The exposure of both insurance and pension funds to Russia is low.

After the invasion, which we totally condemn, our hearts are with Ukraine and with all the refugees in Europe. From our sector we have a dual role: to take care of all those affected by the conflict, but at the same time we have to monitor the market. Inflation is rising, also due to the rise in energy prices, which we cannot predict how it will evolve.

On a regulatory front there is the Solvency II review ongoing. I think the first thing is to have a robust framework, and we have that with Solvency II, where foresight is key.

It would be appropriate, yet prudent, to ease the capital requirements in terms of long-term investment, but we have to be vigilant that the situation remains robust; it is the basis on which we build and it works.

Also, we need more focus on conduct supervision because we are in a market where low interest rates are producing a shift from defined benefit to defined contribution in pension plans, in an environment where 1 in 5 citizens are not saving enough for retirement, coupled with life insurance where guaranteed returns are being replaced by unit linked. We have to work on that from now on, particularly in an era of digitalisation.

Finally, there are new challenges, including digitalisation, which includes cyber risks, cyber resilience and sustainability, which is very high on our priorities. New risks are real risks and we have to address them.

INESE: But there are many more risks to face (climate change, longevity...), aren't there?

Petra Hielkema: Yes, of course. When we talk about sustainability, for example, climate change and ESG risks are included. As far as climate change is concerned, we have launched guidelines on what we think is necessary. There will be new reporting requirements and while I am aware that the legislation on this is slowly coming out, which makes it difficult to know what needs to be done, there will be guidelines to help the industry. However, it will be vital that they are properly implemented to prevent another risk: greenwashing.

On the other hand, within Solvency II, we have to work on the natural catastrophe model, but also on the possible need to differentiate risk in the first pillar. Finally, we can not forget low interest rates, a risk that does not go away, even if inflation is high; we need to monitor this, and in this monitoring is to control the shift of risk to the consumer with unit linked, with more supervision of behaviours, including working on the concept of "value for money".

Embracing 'digi-personalisation'

INESE: And speaking of consumers and digitisation, are the products that are really in demand being offered?

Petra Hielkema: That is a difficult question. There are many products on the market and they must offer value for money. That is, to respond to consumers’ needs and their added risks; but to be proportionate in the cost. With digitalisation we see a growth of products personalised to the consumer's needs; we see it with the rise of pay-as-you-go car insurance, in 'connected' health and home insurance. Technology is being used not only to improve the customer experience but also to better address their needs.

There is certainly room for improvement. During the pandemic, telematics services started to be provided: such as telematic claims management, which is faster. Now they are using images that, through artificial intelligence, can be recognised as real images of a claim; that's great for those who are digital - but don't forget that not everyone is digital. There are also smart contracts with blockchain that, for example, if your plane is delayed or cancelled, they can compensate you on the spot.

There are many products that offer good value for customers, but there are also those that don't deliver the value you are paying for. That's one of the reasons we're doing this research; it's about costs and understanding products, particularly unit-linked products. Digitalisation certainly offers opportunities that will develop in the future.

Market Analysis: From pension plans to Solvency II

INESE: How do you see the future of pan-European pension plans?

Petra Hielkema: The first thing we have to realise is that European pension markets differ per Member State. We have agreed on the general principles but the details are left to the Member States to adjust to their diverse systems. I say, if you are old, you need a walking stick and two legs; in other words, you need three pillars for retirement. How are products like the PEPP going to help? First of all, they are much simpler than others, such as unit-linked or defined contribution. They have a cost of capital of 1%. There is reluctance from the industry with such a low cost, but there are already many products on the market with much lower costs; it can be done. Moreover, they are savings products for many profiles of worker.

As to whether they respond to consumer demand, the demand is not generated by commercial reasons, but by a need to save for retirement. There are two tools that can help you see what gaps there are; a national pension dashboard, where you know how much you have saved and if there is a gap, and a pension tracking system. With that, it gives you a picture of what you have and how much you might need. This can incentivise people to save more and PEPP products can help them do that.

INESE: The insurance market is stronger thanks to Solvency II. Will the reform deadlines be met and will some of the proposed amendments be accepted?

Petra Hielkema: It is very good that we have a revision of Solvency II. We are all used to it by now; it was a huge change, but we dealt with it as an industry and did it very well. New concepts were also introduced, such as internal model or group supervision. It is good that we look back and analyse what has worked and what has not to adjust to the new macroeconomic reality. This will be an evolution, not a revolution. In December 2020 we issued an opinion in which we said that, for long-term investment, it would still be prudent to lower capital requirements.

The current version of Solvency II could be improved by some, yet prudent, easing of the capital requirements for long-term investment. But, the Commission's proposal goes a bit further than what we have proposed; there is a concern from our side about prudence and that is something that will need to be looked at the political level. The concern is in those areas where the investments included to reduce capital requirements go beyond the long term and approach the medium or short term on some occasions. That is the risk. But if we are talking about purely long-term investments, yes, I think something could be done.

We are also missing from the Commission's proposal the Insurance Guarantee Scheme; we think it is an omission because, if you allow insurers to sell in the EU under their passports, it is strange that policyholders, the buyers of policies from the same insurer, are suffering from differences in coverage depending on which Member State they are in, whether they have a guarantee scheme or not. There are countries that do not have a system, others have one, but with limitations. We strongly believe that a minimum harmonisation of this is needed.

Sustainability, a unique opportunity

INESE: Is the insurance sector making the right bet on sustainability?

Petra Hielkema: There is a unique opportunity here for insurers. Insurance plays a very important role in long-term investments that are needed for a green economy. Also, insurers have the risk underwriting side, and here it is not going to be easy to analyse what you can underwrite, how to do it, whether people will buy the products etc.

In fact, EIOPA is now running a pilot on the capacity to insure catastrophic risks, but also on the behaviour of consumers in buying these products; we will publish it before the summer. I believe that insurance has a role, not only in helping consumers to cover their risks, but also to incentivise adaptation when they insure. On both counts, it can greatly help the green transition and play a key role. The good news is that insurance wants to do this.

Equality, closing the gap

INESE: Let's talk about diversity. How do you think the health economy and the social crisis have affected women?

Petra Hielkema: Many reports, reflecting concern about the impact of the health and economic crisis on women, conclude that it has affected them more than men. It has to do with the type of work they do. One major factor is that there are the differences in pay. Also, they are generally less secure jobs, so job loss is higher for women. But also, when compulsory teleworking was introduced, with children having to attend classes online, the combination of work and home duties has been hard for many women. I include myself, with three children and a husband who had to keep going to his workplace. It took a lot of effort to organise everything. There is still a lot to do and the pandemic has made it worse.

INESE: We will also have to think about the problem of women's retirement...

Petra Hielkema: Yes, the pension gap for women is bigger than for men. I come from the Netherlands, where women usually work part-time when they have children. I ask, do you count only your salary or also your pension? Because we often forget that when we work, we are also saving for the pension. If you stop working or work less, you are also reducing your pension. That's why, when we made our advice on pension dashboard we asked for a breakdown between men and women, because that would give a much fairer assessment of what the real gap is.

INESE: Has being a woman been an obstacle to reaching management positions?

Petra Hielkema: This is a question that, if you ask any woman of any age, the answer will differ. If I had been asked when I was younger, I would have said no, but as you go up the ladder, I look around and see hardly any women. Something is not right. It can't just be that we are not working hard and doing our best. Moving up is harder for women. There's that period when you want to have children and you're out of the world of work for a while. Then there are a lot of implicit or explicit assumptions, ambitions... that's when we lose female potential. Also in the following years, when they think it will be hard to move up. It's true that we don't raise our hands, that we don't push ourselves forward... There are many implicit things that should be made more explicit, that should be spoken clearly. Finally, we must have role models. For me, they have been very important. Having male colleagues who have supported me and a Parliament with quotas, with pressure to include more women, all these things have added up.

INESE: Is the maternal barrier perhaps the main handicap in reaching managerial positions or is there more to it?

Petra Hielkema: I believe that both men and women can reach managerial positions. In terms of qualities, in terms of work capacity, I don't see any differences. I see diversity, different styles, but there are also differences between women and men. So what is it? Sometimes it is because it is what we are used to, it is how it has always been. I mean, we choose to promote the people we know, the people we deal with. It's related to the culture we have. Sometimes political pressure can help to change it.

Also, there needs to be a dialogue between women and their companies if they want to get into leadership positions; they may be away from work when they have children, but they will come back and want to pursue their careers. I think it goes hand in hand with flexible hours and workplace flexibility. If I didn't have flexibility, I wouldn't be here. The organisation of childcare or caring for a sick family member, all of that will happen regardless whether you have a part time job or you go full time to the workplace. So I encourage you to develop the whole career.

It is also very important to talk about these things, as we are doing, to see examples of people who have done it and who show that it can be done and that it works.

Rather than giving up, prioritise

INESE: Have you had to give up anything during your professional career?

Petra Hielkema: Yes, there are certainly barriers, but barriers are there to be overcome. And I have given things up, of course. I work a lot, to be honest. But my free time is for my family, my children, my father, my sisters. When I wanted to move up, I gave up the volunteering I was doing at my children's school. I didn't have time. I did it for a period - and I still do some small things - but you have to choose, you have to prioritise.

INESE: And how do we solve the pay gap that exists in the financial sector?

Petra Hielkema: Again; by bringing it up again and again. Keeping it on the agenda. You have to ask your boss, be aware of the job categories. If, in your company junior, senior, responsible, etc. positions are in the same category, ask why; how can we eliminate differences? Pay differentials are not always generated at the beginning, when you join the company, but later, as you move up the ladder. The only way to find out is to measure, know and address the problem, ask for an analysis of salaries within your organisation and see the results.

Building for the future

INESE: What do you see as the main challenges for insurance, and for the future?

Petra Hielkema: I hope that as a group of supervisors, politicians, stakeholders, we will be able to generate a robust framework after the Solvency II review, which I hope will not take too long. Then we will have a basis to build on and also to do it focusing on the new risks, to be more sustainable as industry and also to contribute to the sustainability of society. That means we have to build knowledge, expertise in sustainability, social issues, the position of women and cultural aspects.

Sustainability and digitalisation are key and fundamental for the developments to come, but they come with risks. Finally, I think the concept of financial inclusion will become more and more important; we cannot leave people out as we move to digitalisation; not everyone is digital. And on the insurance side, we have to move towards a digital era without losing our strength, benefiting from the opportunities and not leaving anyone behind.