GFIA Annual Report 2022-2023

OPINION

INTERNATIONAL REGULATION

Global standards in a multi-crisis world

The IAIS responds to a changing insurance landscape

In a year characterised by economic uncertainties and evolving geopolitical and societal challenges, the International Association of Insurance Supervisors (IAIS) continued to play a crucial role in shaping the global supervisory response to a changing insurance landscape.

The role of insurance is critical in a multi-crisis world, both in terms of resilience and of recovery. Insurance supervisors seek to ensure that insurers fulfil this role in a sustainable way, in terms of insurers’ financial soundness, fair market conduct, management of financial stability risks and tackling protection gaps. It is clear that insurance supervisors need to be part of an effective insurance-sector response to this volatile environment — doing so requires global cooperation and collective action to address what are increasingly global challenges.

I am pleased to say that the IAIS rose to the challenge over the past year, with multiple key projects either coming to fruition or entering the home stretch.

FSB endorses IAIS Holistic Framework

A significant achievement was the endorsement of the Holistic Framework by the Financial Stability Board (FSB) as a more effective approach for assessing and mitigating systemic risk in the insurance sector compared to the previous method of annual identification of global systemically important insurers (G-SII).

The IAIS adopted the Holistic Framework in 2019 as part of a comprehensive set of reforms aimed at enhancing insurance group supervision and maintaining global financial stability. Since then, operationalising the Holistic Framework has involved comprehensive efforts by both insurers and supervisors. We were able to improve our global risk assessment thanks to the data collected through our annual Global Monitoring Exercise (GME), and supervisors have strengthened their practices related to macroprudential supervision. This was also confirmed by the report published in April with results of the assessment of implementation of the Holistic Framework supervisory material, showcasing good levels of observance of standards across jurisdictions. Taken together, the effective implementation of these global standards will promote a more resilient insurance sector.

Ongoing risk assessment through the GME

Through the GME, the IAIS monitors global insurance market trends and developments, detects the possible build-up of systemic risk and facilitates a collective discussion on the appropriate supervisory response at the sectoral and individual insurer levels. This data collection yields multiple points of valuable analysis.

In our efforts to increase transparency for participating insurers and the general public, the IAIS published an inaugural mid-year update of the Global Insurance Market Report (GIMAR) in July 2023. Interim results showed slight declines in solvency, profitability and liquidity among participating insurers during 2022, mainly driven by lower asset valuations. In examining the insurance sector's interconnectedness with banks, the analysis found no immediate significant impact from recent banking sector issues, but the update emphasises the need for ongoing monitoring. Two major themes for collective discussion this year are:

challenges faced by insurers in a demanding macroeconomic environment; and,
structural changes in the life insurance sector.

The IAIS uses data from the GME to analyse the potential impact of emerging trends and risks to the insurance sector and financial stability, reported on in “special topic editions” of the GIMAR. Earlier this year, the IAIS published such a report focused on the risks and trends associated with cyber insurance coverage and its financial stability implications. The report shows an increased demand for cyber insurance products pushing written premiums to record levels and improving profitability for insurers. It also highlights that the cyber underwriting activities of insurers are not currently assessed as posing a threat to financial stability; however, significant data gaps exist.

The potential macroprudential risks from liquidity have been highlighted by recent events such as the “dash for cash” in March 2020 and the occurrence of government bond yield market turbulence such as the events around the liability-driven investment episode in the UK in October 2022. Against this backdrop and after two years of development, the IAIS published liquidity metrics as an ancillary indicator for its GME. The liquidity metrics will serve as a tool to facilitate the IAIS’s monitoring of the global insurance sector’s liquidity risk and for the IAIS to assess insurers’ liquidity exposure from a macroprudential perspective.

“After the final ICS is adopted, the IAIS will assess its implementation across jurisdictions in a structured and robust manner, considering transitional periods where necessary.”

The journey to the ICS

After 10 years of development, three consultations, six field-testing exercises and three years of confidential reporting, the IAIS agreed in June 2023 on the candidate Insurance Capital Standard (ICS) as a prescribed capital requirement for a final public consultation. In addition to feedback on the standard itself, the IAIS is collecting input on the foreseeable economic impact of ICS implementation.

Once adopted at the IAIS Annual General Meeting at the end of 2024, the ICS will establish a consolidated global minimum solvency standard for internationally active insurance groups (IAIGs). It will also serve as a common language for discussions on insurance group solvency in a world where interconnected global risks prevail.

IAIS members are committed to the implementation of the ICS, and some members are already taking steps to embed the ICS in their regulatory regimes. After the final ICS is adopted, the IAIS will assess its implementation across jurisdictions in a structured and robust manner, considering transitional periods where necessary.

Climate risk and widening protection gaps

As the global community of insurance supervisors, the IAIS has sharpened its focus in six key areas: climate risk; cyber risk and operational resilience; conduct and culture; digital innovation (see Petra Hielkema’s article here); diversity, equity and inclusion (DEI); and financial inclusion. Over the past year, the IAIS has monitored trends and promoted proactive supervisory responses to developments in these areas through its Forums, published papers (issues paper on operational resilience, fintech and suptech reports, DEI stocktake report, climate chapter within the GIMAR), consultations and multiple papers in development.

In particular, the escalating risks of climate change desperately demand our attention. Extreme weather events, exemplified by record temperatures felt across much of the world, underscore the urgent need to address climate change — and to address the risks it presents to the insurance sector.

Through our Climate Risk Steering Group, we have completed the first of a package of consultations to ensure climate risks are effectively reflected in our supervisory and supporting material and thus effectively integrated into supervisory practices. Two further consultation papers will be published by the end of 2023. These will cover the topics of greenwashing and other market conduct issues related to natural catastrophe insurance, as well as climate risk scenario analysis, which is evolving as a key risk assessment tool to understand the financial impact of climate risks on insurers’ balance sheets.

In November 2023, we will also publish a report that considers the role supervisors can play in helping to address natural catastrophe protection gaps, on which my colleague and vice chair of the IAIS executive committee, Shigeru Ariizumi, provides more detail here.

“The escalating risks of climate change desperately demand our attention.”

Strengthening global supervision

Our collective efforts reflect the dedication and collaboration of our members, stakeholders and partners. Another recent priority initiative was the development of an enhanced IAIS Stakeholder Engagement and Consultation Policy, which we consulted on earlier this year. The policy affirms that stakeholder engagement is an integral part of the IAIS’s operations and recognises that to reach a wider range of stakeholders, the IAIS must continue to innovate in the way it engages.

We look forward to publishing that final policy and deepening our collaboration with all stakeholders as we work towards a sustainable insurance sector that is at the forefront of responding to societal challenges.

Print version

Awareness-raising campaigns

Insurers across Europe are involved in a broad range of awareness-raising campaigns. For instance, in Germany, risk-awareness campaigns are implemented jointly by state authorities, consumer protection organisations, the insurance industry, architects and other stakeholders. Their collaboration is built around a common goal: to raise awareness of the effects of climate change and natural hazards, of the benefits of loss prevention, and of best practices as regards natural catastrophe-resilient buildings. The high level of risk awareness in Germany is one of the reasons for the relatively low protection gap; indeed, the insurance penetration rate for natural perils such as storm or hail is more than 90%.
Most European insurance associations have initiatives to raise risk awareness, such as dedicated workshops, events and educational seminars, as well as frequent in-depth articles, themed newsletters, presentations and other publications.
Many French insurers have launched prevention campaigns and also support the campaigns of “Assurance Prévention”, an association founded by the French insurance association (France Assureurs). Assurance Prévention has produced numerous leaflets, infographics, quizzes, etc. to raise awareness of natural risks. Through its initiatives, it aims to develop a “culture of risk prevention” among students and teachers.

The Greek insurance association (HAIC) launched a digital awareness campaign — “Better to know than to think you know” — to provide consumers with useful information about private insurance and to set the record straight on some misperceptions. The campaign consists of six videos to educate the public about how private insurance works. Most of the videos emphasise the need for resilience in the face of natcat risks and the role of insurers in protecting private property. The videos are hosted on the interactive iknow-insurance.gr platform, which allows visitors to do a short quiz to test their knowledge of private insurance and then obtain additional information.
Insurance Sweden is currently working with its members on a common methodology for calculating carbon dioxide emissions during building repairs. The aim is to raise awareness of the impact on CO2 emissions of rebuilding after fire or water damage, and thus of the importance, from that perspective as well, of preventing such damages.
Insurance Sweden published a statistical report in October 2021 on how different municipalities and regions have been affected by damage caused by flooding, storm and fire.
Spotlighting the central role of municipalities in climate-change adaptation, Insurance Sweden ranks Swedish municipalities according to their adaptation work. The methodology is based on the European Commission’s Adaption Support Tool (2013). The ranking is released every other year, the June 2021 version is available here.
UNESPA, the Spanish insurance association, launched a dedicated website in October 2021 — “Naturalmente Protegidos” (Naturally protected) to explain how natcat insurance works in Spain. It focuses on 10 different risks (rain, flood, wind, drought, frost, hail, snow, earthquake, volcanic eruption and lightning) and details for each how insurance covers property, life, harvests and livestock. The website illustrates the success of the Spanish public-private natcat insurance model. It was jointly developed by private insurers (UNESPA), the Consorcio de Compensación de Seguros (CCS) government scheme and Agroseguro, Spain’s agricultural insurance system, and was launched within the framework of Estamos Seguros, UNESPA’s financial education campaign (running since 2016).
In collaboration with CEPYME, the Spanish confederation of SMEs, UNESPA launched in October 2020 “Prevenir para crecer” (Prevent to grow), a website with information on insurance for SMEs. The website highlights potential risks to which SMEs are exposed, including natcat-related risks, and provides advice on how to prevent them.
Insurance Ireland, the Irish insurance association, and a number of Irish insurers have launched consumer blogs and information repositories on their websites to share useful information with consumers about responsible and ESG investing.

Education

The European insurance industry works to increase financial literacy in relation to risk awareness, insurance protection and long-term savings:

The Croatian Insurance Bureau (HUO) launched a first educational project in 2009, “Financial literacy in the Republic of Croatia”, which was followed by a range of educational activities, often implemented jointly with independent insurers. One of these activities, “Safer Tomorrow”, was initiated in 2021, and aims to raise citizens’ awareness of the benefits of insurance. Within the framework of the project, HUO launched several videos and infographics, some of which specifically target young people.
The HUO organises a yearly competition for the best scientific paper, the best graduate thesis and the best undergraduate thesis in the field of insurance. HUO also publishes the “Croatian magazine for INSURANCE”, a scientific journal for professionals to advance good practice in the sector. Finally, some insurers in Croatia created a colouring book for children to promote financial literacy at a young age in a fun and simple way.
In Italy, the ANIA Academy, together with CeTIF (Research Centre on Technologies, Innovation and Finance of the Università Cattolica del Sacro Cuore), launched the second edition (2022) of the 2nd level master’s in insurance management to train professionals and enable them to respond to the challenges of the “new normal”.
ANIA is also collaborating with LUISS Business School to develop a major course in insurance management as part of its Executive Master in Financial Management.
Insurance Europe produces information for consumers as part of its “InsureWisely” financial education initiative. This includes one-pagers on different insurance topics, including how to limit the effects of natural catastrophes.
The French insurance association (France Assureurs) developed a series of educational booklets within the framework of EDUCFI (the French national strategy for economic, budgetary, and financial education), an initiative launched by the French Central Bank. These booklets help users to better understand how insurance works and what insurance products do and do not cover.
The Spanish insurance association (UNESPA) set up a financial education programme for schools, “El Riesgo y Yo” (“The Risk and I”). It involves 40 insurance undertakings and 164 volunteers and aims to give 2 500 teenage school students basic financial knowledge and insights into risk management.