GFIA Annual Report 2023-2024

Systemic risk

Signs of progress

Recognising insurance's unique role in financial services

By Angus Scorgie, chair of the GFIA Systemic Risk Working Group

Building on the president’s message in the foreword, Insurance: a unique sector has become a key reference for the working groups and other GFIA members and served as the foundation for the year’s advocacy efforts. The Systemic Risk Working Group developed the report to highlight why the insurance business model is distinct, how it differs from banking and other financial sectors and why a one-size-fits-all approach to financial services regulation is ineffective.

With this in hand, GFIA and its members were able to proactively advocate for appropriate, insurance-specific regulation. In terms of systemic risk, the key messages included in the report are:

Distinct business models require specific regulation: The insurance industry operates with unique risk profiles and stable balance sheets, making it fundamentally different from banks and other financial sectors. Applying banking regulations to insurers and extending concerns about non-bank financial intermediation (NBFI) to the sector is inappropriate and creates unnecessary challenges.
Comprehensive regulation already in place: Insurers are subject to robust, industry-specific regulation that reflects their critical societal role – pooling risk, providing financial security, and contributing to long-term investments. They face far fewer liquidity risks than banks, further underscoring the need for differentiated regulatory oversight.
The IAIS Holistic Framework as the right approach: The International Association of Insurance Supervisors (IAIS) Holistic Framework, introduced in 2019, better addresses systemic risks within the insurance sector, replacing the outdated G-SII criteria. This framework promotes appropriate regulation, avoiding excessive burdens while supporting a resilient insurance industry that continues to benefit society.

Challenging viewpoints through global outreach

The report’s thorough research and clear communication style resonated with policymakers and financial authorities worldwide, opening the door to discussions and positive policy change. GFIA actively communicated and organised meetings to share the report’s key messages with influential organisations such as the OECD, the European Commission and the IAIS.

In discussions with policymakers and standard setters, it became clear that the key messages from the report resonated and were broadly well-received. Indeed, one of the most encouraging outcomes of GFIA’s outreach of the unique sector report has been the recognition and positive reception by global financial regulators. Two clear examples of promising developments include recent statements from the Secretary General of the Financial Stability Board (FSB) and the EU Commission’s work on the NBFI sector.

Evidence GFIA’s messaging is resonating

The FSB has recently begun acknowledging that the diverse nature of the NBFI sector demands a more nuanced regulatory approach. In a speech by the FSB Secretary General, it was noted that treating NBFIs as a single entity is no longer effective. Instead, there is a pressing need to examine the wide variety of institutions and activities within this sector. This shift in tone suggests that GFIA’s messages on the need to differentiate the insurance industry from other NBFI sectors are starting to resonate.

At EU level, the Commission consultation on systemic risk is also good evidence. Its consultation on the adequacy of macroprudential policies for the NBFI sector highlights that the insurance industry is already well regulated through the EU’s Solvency II and complemented by the IAIS’s Holistic Framework. This again echoes the key messages outlined in the GFIA Unique Sector report.

GFIA and the Systemic Risk Working Group will continue to advocate for these key messages to important and influential organisations. It is hoped that this momentum in discussions about the NBFI sector will ensure that GFIA’s messages are well-headed and impactful.

“…treating NBFIs as a single entity is no longer effective. Instead, there is a pressing need to examine the wide variety of institutions and activities within this sector.”

“GFIA and the Systemic Risk Working Group will continue to advocate for these key messages to important and influential organisations.”

Consultations and collaboration with policymakers

In June, GFIA submitted its response to the IAIS consultation on draft revisions to supervisory material related to the Holistic Framework. GFIA highlighted the importance of a flexible, risk-based approach to recovery and resolution planning (RRP). Support was expressed for RRP requirements when justified, but concerns were raised about applying these requirements mechanically or expanding them beyond what is necessary. Specifically, GFIA emphasised that criteria for assessing RRP needs should be defined in jurisdiction-specific guidance to ensure alignment with existing supervisory frameworks.

Furthermore, GFIA mentioned the importance of coordinating RRP requirements across jurisdictions to avoid duplication and highlighted that resolution planning should primarily rest with resolution authorities. Proportionality, collaboration among supervisory bodies, and the significance of group-level plans were key themes in GFIA’s feedback.

Also in June 2024, GFIA responded to the FSB consultation on liquidity preparedness for margin and collateral calls. Generally, GFIA supports the FSB’s work included in the consultation paper and, in its response, recognised the recommendations proposed in the report as best practice for liquidity risk management relating to derivatives. Several points were raised to the FSB including the need to recognise existing standards and regulation, the desire for increased transparency from Central Counterparty Clearing Houses (CCPs) on how they calculate collateral needs and the need to expand the types of collateral insurers can use beyond just cash to improve liquidity and reduce systemic risks.

Angus Scorgie

Insurance Europe

Angus Scorgie

Insurance Europe

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.