Gabriel Bernardino's (Former Chairman, European Insurance and Occupational Pensions Authority) presentation at FIN-FSA Conference on EU financial markets today and in the future

1. INSURANCE AMIDST
CHANGING OPERATIONAL
AND ECONOMIC
ENVIRONMENT
Gabriel Bernardino
2 November 2021

2. INSURANCE AMIDST CHANGING OPERATIONAL AND
ECONOMIC ENVIRONMENT
 Climate change, digitalisation, AI, low interest rate
environment, how is insurance coping with these
phenomena?
 Is regulation and supervision keeping pace with the
changes?
 Is there a need for a “SSM like” EU supervisor?

3. CLIMATE CHANGE,
DIGITALISATION, AI, LOW
INTEREST RATE ENVIRONMENT,
HOW IS INSURANCE COPING
WITH THESE PHENOMENA?
 Resilience to Low Interest Rate environment is due to Solvency II
 Sustainability is not only about social responsibility – it is good risk
management
 Post-covid world will lead to more exclusions from policies, increasing
the protection gaps
 Shared resilience solutions with public and private complementary
roles are the answer

4. THE REGULATORY
PENDULUM
 Reforms like Solvency II contributed to a more solid,
robust and transparent financial system
 However, they also led to an increase in the
complexity of regulation and supervision and to a
rise in the costs to market players
 It is essential to reflect on what can be improved
and what should be abandoned
 New context and new challenges – digital economy,
sustainable finance and climate change, post-Covid
economic recovery
 The danger is that the sensible desire to reduce
regulation drives the pendulum too much in the
other direction…
IS REGULATION AND SUPERVISION KEEPING PACE
WITH THE CHANGES?

5. PROPORTIONALITY VS COMPLEXITY
 Proportionality is a fundamental principle in risk-
based regimes - Regulatory and Supervisory
proportionality
 More regulatory proportionality implies more
complexity
 Different approaches to supervisory proportionality
in the EU: legalistic vs pragmatic
 Resistance by some supervisors to apply
supervisory proportionality
 Nature, scale and complexity of risks should
continue to be the basis of proportionality
 Supervisory evaluation and judgement is a key
instrument
IS REGULATION AND SUPERVISION KEEPING PACE WITH
THE CHANGES?

6. THE PARADIGM OF TRANSPARENCY
 Transparency is one of the pillars of the financial sector
regulation
 The principle is correct: Information to consumers should
be easy to read, understandable and comparable…
 But in practice: scale and complexity of the information
does not help consumers and increases costs
 A partial or incremental change is not the right answer
Ideas for the future:
 Substitute all existing public disclosure requirements
(Solvency II, IDD, PRIIPs) by information that consumers
can effectively use
 Clear separation between market and supervisor
information and consumer information
 Requirements adapted to the digital age
 Information radically simpler (available in layers; labelling)
 Reinforcement of market conduct supervision, including
the use of product intervention powers
IS REGULATION AND SUPERVISION KEEPING PACE WITH
THE CHANGES?

7. THE ATTITUDE TOWARDS
INNOVATION
IS REGULATION AND SUPERVISION KEEPING PACE WITH
THE CHANGES?  The digitalization of business models is a decisive
factor for competitiveness
 Clear benefits on the efficiency and cost reduction
through all the value chain
 Potential benefits to consumers: simpler products;
more attractive and user-friendly interface
 But…it is necessary to focus on the mitigation of risks
related with the ethical use of data and exclusion
 Regulators and supervisors with different attitudes:
Conservatives vs Catalyzers
Ideas for the future:
 Regulation more open to innovation
 Build a European simplified regime for digital
distribution of standardized products
 Increased attention to financial disintermediation and
decentralization (DLT, blockchain, crypto)
 Disruptive innovation is only starting (DEFI; smart
contracts)

8. IS THERE A NEED FOR A “SSM LIKE” EU SUPERVISOR?
 In a single market, supervision is as strong as its weakest
link…
 Different capacity of supervisors to put in place common
proactive and intrusive risk assessments, and deliver timely
enforcement
 Quality and effectiveness of supervision is strongly
influenced by the governance of the supervisor. In practice
there are still enormous differences on:
 Operational independence
 Financial independence
 Personal independence
 EIOPA contributed to 10 years of progress, but there is the
need for a deep structural reform to overcome the
remaining challenges
 Prudential supervision should be centralized in an “SSM like” EU Supervisor:
 Internationally active insurance and reinsurance groups
 Companies exercising cross-border business under the freedom to provide services
 Pan-European Products (e.g. PEPP)
 A system that combines a centralized component with joint supervisory teams is the best
solution
 Market conduct supervision to remain under the remit of national supervisors

9. QUESTIONS