How can the insurance and pensions sectors contribute to a strong and sustainable recovery... that not only makes us better placed to deal with the threat of pandemics, but also better placed to deal with the other pressing risks that we are facing, be they environmental, societal and technological.
Thank you for inviting me today to reflect on this year’s Global
Risks Report and to share with you some thoughts on how the insurance
and pensions sectors can help to mitigate these risks, as well as
EIOPA’s own work on these issues.
Without doubt, we are living in challenging times, complex times, COVID times.
And so it’s no surprise that infectious disease takes the top spot
this year in terms of risks by impact. Because it’s clear that COVID-19
has caused – and continues to cause – enormous disruption to societies,
economies and people across the world.
From the outset of the crisis companies, policymakers, governments
set out to minimise the impact of COVID-19. From short-term relief
measures to long-term recovery plans, the aim has been to make sure that
economy not just rebounds, but also becomes stronger.
This is certainly the case with the European Union’s Next Generation EU recovery plan.
And this is what I would like to focus on today: how the insurance
and pensions sectors can contribute to a strong and sustainable
recovery. A recovery that not only makes us better placed to deal with
the threat of pandemics, but also better placed to deal with the other
pressing risks that we are facing, be they environmental, societal and
technological.
Fostering a sustainable recovery
Let me start with the green agenda.
At EIOPA, when we placed sustainability for the insurance and
pensions sector on our strategic agenda, we wanted to raise awareness
on the powerful role that insurers and pension funds have in mitigating
the impact of climate change and facilitating the transition to a more
sustainable and resilient economy.
We wanted to draw attention to the indisputable fact that risks
associated with sustainability – the risks named in this year’s global
risk report, namely extreme weather, climate action failure,
biodiversity loss – these all affect the insurance and pensions sector
and put at risk the long-term sustainability of insurance and pension
fund business models.
Our work has been driven by two perspectives: the impact of the
sector on sustainability factors; and the impact of sustainability risks
on insurers and pension funds.
And we have made good progress.
We have set out how the sector should improve on its governance and
risk management practices to deal with sustainability risks, starting
with climate change.
We have also incorporated climate change-related risks into both our
insurance and occupational stress tests, and are establishing
methodological principles for climate change stress testing.
We have stepped into the international arena, joining the Sustainable
Insurance Forum and the Network for Greening the Financial System.
And, closer to home, our work supports the European Commission in
achieving its sustainable finance goals: from contributing to the
development of the EU taxonomy, to the European Green Deal and of course
helping to make a sustainable recovery.
Now, we have to harness the interest and momentum that is driving the
sustainability agenda globally, so that we can move to put policy into
practice.
We want to identify how we can ensure the availability and affordability of insurance in light of climate change.
This means looking at how the insurance industry can reflect
prevention measures in the design and pricing of products to incentivise
policyholders to reduce risks, as well as how undertakings should best
apply climate scenarios to assess their exposure to climate change.
There is also work to be done to close protection gaps related to
insurance coverage for natural catastrophes. Our pilot dashboard
assesses the drivers of the natural catastrophe protection gap, to make
sure we have the right tools at hand when deciding on potential measures
in light of climate change.
Improving data availability and identifying key performance
indicators for insurers’ non-financial reporting regarding
sustainability are essential to foster sustainable growth and to channel
funding in sustainable economic activities.
We are therefore currently consulting on proposals to require the
disclosure of key performance indicators on sustainability. We want to
have more information on the indicators that depict the extent to which
the insurer or reinsurer carries out taxonomy-relevant activities in
relation to its total assets.
Common standards for identifying sustainable economic activities are
also essential to incentivise responsible investment and prevent
greenwashing.
And here we have a powerful ally in the public. Climate change is not
a new phenomenon but it is currently attracting a lot of interest.
And we should take advantage of this to engage consumers in how their savings are invested.
We have a duty to make sure consumers – policyholders and pension
beneficiaries – are informed about the ESG profile of their investments,
so that they can make informed decisions.
We are working with our fellow supervisory authorities – the European
Banking Authority and the European Securities and Markets Authority –
to develop ESG disclosures under the Sustainable Finance Disclosure
Regulation.
Our recent consultation highlighted the challenges involved in
achieving a disclosure that is easily understood by consumers and, at
the same time, is aligned across financial market participants, who have
different needs and regulatory requirements.
But, if we can better engage consumers in how their money is
invested, we can foster demand for more sustainable products and
investments.
The opportunities and challenges of the digital agenda
And one way to engage people is by using digital channels.
Because over the past year, we have seen people’s relationship with
technology evolve. As lockdowns took hold, even the most reluctant
people went digital.
And as we have seen that the digital first approach is what consumers
want today, we should build on the accelerated adoption of digital
technology to develop more simple but scalable products that make it
easy for people to save for the long-term.
Products like the Pan European Personal Pension Product, or PEPP.
And I mention PEPP here, because I have also seen in this year’s
Global Risk Report that the young have suffered particularly through
this pandemic: their education has been disrupted and they will enter a
changed employment landscape, a landscape of gig working and self
employment.
And these are the people who will benefit from the PEPP. A
digital-first product that has been designed with today’s consumer in
mind. A savings product that is portable, transparent and cost
effective.
So we have to take advantage of this accelerated digital
transformation – and young people’s appetite for it – and engage today’s
savers in planning for their future.
But we cannot overlook the risks associated with digitalisation.
Risks like those outlined in this year’s Global Risk Report – digital
inequality, exclusion and cyber risk.
The benefits of better pricing and personalisation and usually driven
by data. This is what makes consumers so ready to share their data.
But what happens when data is not used ethically? When people find
themselves excluded from insurance? Or when the holders of the data do
not act responsibly?
At EIOPA, we believe that data needs to be respected. It must be used
fairly and organisations holding data must act responsibly.
Because of this, we established a consultative expert group on
digital ethics in insurance to help us develop principles of digital
responsibility in insurance.
In particular we are paying attention to:
• Fairness and non-discrimination – including data biases and the fairness around the use of price optimisation practices;
• Transparency and explainability – being clear on how data is used and any trade-offs with accuracy;
• Governance – touching on accountability, security and resilience.
Security of data is perhaps the most important thing here.
Especially as companies become more at risk of cyber attacks.
So cyber resilience is essential for any organisation and an
effective cyber insurance market is a core component of a sound cyber
resilience framework.
A sound cyber insurance market is an enabler of the digital economy.
From raising awareness of the risks and losses that can result from
cyber attacks to facilitating responses and recovery, a well-developed
cyber insurance market can play a valuable role in risk management.
And the European cyber insurance market is growing rapidly. This is
in part due to the overall increase in written contracts offered by
insurers, and also because of the growing number of insurers providing
cyber insurance.
And we expect the market to continue to grow. The increasing
frequency of cyber attacks, coupled with stricter regulation regarding
cyber security as well as continued technological developments are all
expected to increase demand for cyber insurance in the near future.
A strong cyber insurance market is in everyone’s interest.
Closing protection gaps through shared resilience solutions
COVID-19 has highlighted why we need to be able to protect people and
businesses against extreme and unexpected events, whether these are
health-related, such as this pandemic, stem from climate-related natural
catastrophes or large-scale sophisticated cyber attacks.
The wide-ranging systemic nature of pandemics means traditional
insurance risk transfer mechanisms are not always appropriate, making
them too great a burden to be shouldered by insurance companies alone.
Instead, solutions involving both the public and private sector are
needed. In short, we need to develop shared resilience solutions.
Last year, we set out different approaches to shared resilience,
following discussions with representatives from the insurance industry,
as well as commercial insurance buyers.
An effective shared resilience solution will need to encompass proper
risk assessments, investment in prevention measures, appropriate
product design, and residual risk transfer.
There is however no silver bullet. Our paper outlined a number of
possible options addressing how to assess and manage risk, improve
coverage and share risk. And more recently, we have published a paper
addressing measures to improve the insurability of business interruption
risk in light of pandemics.
At its heart, a shared resilience solution requires joint
cooperation. While public and private actors are the most obvious
partners, there is also a role for the European Union in mitigating and
sharing some of the risk. This type of involvement could range from
encouraging or promoting risk prevention, and incentivising and
coordinating national measures, to providing financial support for
recovery.
In conclusion
In conclusion, it is clear that the threats we face today do not stop
at borders. They are indiscriminate in their reach and they are too
great to be tackled individually by people, single companies or even
individual Member States.
While insurance companies cannot be expected to cover pandemic or
other major risks in their entirety, they should have skin in the game.
Insurance companies play an important role in Europe’s financial
services industry and economy and the strength of Europe’s economy is
underpinned by our ability to insure against the costs of future
pandemics.
It is in everyone’s interest to have a strong economy and a resilient
society. A society that creates new and exciting opportunities for the
young generations and reduces inequality. To achieve this, we need
solidarity and shared responsibility across all sectors of society:
governments, public institutions, industry and civil society. And this
is one our learnings from this crisis: Working together, with a common
purpose, we can find solutions and implement them.
And while there continues to be much uncertainty about how COVID-19
will evolve, we can be sure of two things: We will always have risks to
deal with and for a resilient society, insurance must be part of the
solution, not part of the problem.
Thank you very much.
EIOPA
© EIOPA