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Interview of the week


Michaela KOLLER, General Director, CEA - European Insurance and Reinsurance Federation

The crisis wasn't generated by the insurance industry; we were more on the receiving end, when you look at the investment portfolio. But now regulators, policyholders, also supervisors who are acting in the interest of the policyholders and generally Governments feel that we need to scrutinize the different roles of the different players in the crisis, and even if we have more of a siderole, we are still part of the financial services sector, and in that context we are also under scrutiny.

XPRIMM: What has been the impact of the European financial and economic crisis upon the insurance industry in general?
Michaela KOLLER:
You obviously start with the trickiest question. This is clearly a time when we, the insurance and reinsurance federation, are experiencing every day the after-shocks of the crisis, but we experienced it more on the legislative side. When we look at our industry, I think we can say we have of course been affected - when you look at the investment portfolio of our members, we have obviously suffered -, but when you look at the overall picture of our industry, with very few exceptions, the industry has weathered the storm very well. The fact that has industry has been, to a certain extent, a stabilizer in a very uncertain environment does not necessarily help the industry, in the sense that we are now completely insulated from any legislative activity. There is a lot of legislative activity, not just at European level, but also at international level, and in that respect we feel the crisis, beyond the economic impact.
The crisis wasn't generated by the insurance industry; we were more on the receiving end, when you look at the investment portfolio. But now regulators, policyholders, also supervisors who are acting in the interest of the policyholders and generally Governments feel that we need to scrutinize the different roles of the different players in the crisis, and even if we have more of a siderole, we are still part of the financial services sector, and in that context we are also under scrutiny. From my perpective, I think the problem is to what extent will our sector be subject to new regulations. We are now in this phase where everybody is trying to draw lessons from the crisis, trying to find the best ways forward, and because the focus is obviously on the banking sector, a lot of the ideas that are developed for banks are ideas that we are also confrunted with, in the insurance sector.

XPRIMM: CEA sent a letter to the G 20 meetings that took place in Canada a few weeks ago, asking them to take into consideration the fact that banking and insurance are two different industries, and the new wave of regulations which is about to be discussed should take into consideration the difference between the two industries.
M. K.:
It is something we feel very strongly about. Our very recent experience in the aftermath and crisis digestion mode has shown that regulators look at the banking industry or at the unregulated market first. We want therefore to establish a level playing field. In this context, a lot of the ideas that are genuinelly developed in the different sectors or with a sector in mind are tested with us. Is it time, at this very moment, to come out and say: not everyting that works for banking or for a different financial services sector is also working for us. May be you can take some principles, but then you have to find distinct, different regulatory responses for our sector. We have a distinctly different business model, a distinctly different balance sheet, we have had so far different regulations. A different behavior is then triggered by the respective market players and we have also a very different risk profile than other financial services sectors.

XPRIMM: You are speaking about a new wave of regulations that will affect the insurance industry, too. What exactly are those pieces of legislation?
M. K.:
We see activity in 4 broad areas.
First, we have activity in the area of everyting that relates to stability and maintaining stability. I guess one of the big conclusions from the crisis is that, at international level, but also in individual countries and regions of the world, there wasn't sufficient focus on macroeconomic issues. So, regulators, supervisors, are now saying: we need to look at systemic risk and at systemic relevance, may be of institutions, may be of whole sectors, and we need to address this. This is one big workstream and insurance is also concerned by it, because we have big insurance or reinsurance companies that should be part of this debate. The insurance sector is a huge institution investor, so it can contribute to absorbing shoks, to stability. A recent report has stated that insurance has effectively worked as a shock absorber in the crisis, and in that respect we are keen on maintaining this model. We are also keen to participate in a debate to demostrate where insurance works differently than banking and how it can have this balancing mode that we believe is very important and proved its value in the last crisis.
The second big workstream is microprudential supervision. We already have a project on-going, in the insurance sector, on which we have also worked very intensely in the CEA - that is Solvency II, in Europe. We are now faced with a supervisory community that is very impressed by the crisis and wants to introduce higher levels of prudence to this system - and that is currently one discussion point. But we want to warn about the risk of introducing too much prudence in the system. We have also issued a report this year, where we warn about excessive capital requirements, because we warn about the bad impact it would have, not just on the insurance sector and the insurers, but on the economy overall, and ultimately on the policyholder.

XPRIMM: Is the insurers' community in Central and Eastern Europe prepared for implementing Solvency II, which has been on debate for the last couple of years?
M. K.:
Solvency II is a change of paradigm and it will involve a huge change for all the European markets. We have seen, and from the Federation's perspective this gives me confidence, that we have very high levels of participation in the quantitative impact study. In the last exercise assessment, QIS 4, we had 1,250 insurance companies, which represents a very hight level of participation in such an exercise, that indicates that there is not only an interest, but also a high level of preparedness, in the sense that companies want to test what Solvency II is all about, how it will affect their business, what will change. Is everybody already prepared? It is difficult to say, but clearly there is an interest in this sector and those who have not yet participated are strongly encouraged to participate this year in the quantitative impact study. The Commission is already telling us we should offer support for this exercise and, again from a federation perspective, we would encourage this, because this is the only way to find out if it fits our sector, if there are still problems that we need to identify. And, if we have the data available, afterwards, it will also help us with the final calibration of Solvency II.
In July we will send out the specifications for this study, then we will start throughout the summer, and then in the autumn we will have a deadline and results will be available next spring.

XPRIMM: There is a growing demand on debates regarding the consumer protection in the insurance market and there is growing focus upon this subject. Is it also or mainly because of the financial crisis?
M. K.:
I think it is a combination of the two. At European level, since February, we have now a new Commissioner, Commissioner BARNIER, and when he took the office he already made it very clear that he wanted to have a strong consumer protection focus in his work, so he has already asked the services to look into issues to protect individual consumers.
Then, you see the effects of the crisis. In some sectors there was a feeling that consumers didn't always understand when they were buying certain products. For example, the famous Lehman certificates - consumers weren't entirely aware that they were risking a big part, if not all of their money.
The 3rd workstream is represented by a debate we have now in 3 areas of consumer protection: first is to increase information, second is to look at distribution channels and to see to what extent they can be improved, from a consumer perspective and the third is insurance guarantee schemes - to what extent do we need an insurance guarantee scheme.
From an industry perpective, we do not have too little information, we maybe have too much, sometimes... I don't know how you feel when you read your insurance policies, but you don't really feel like reading it and you sometimes don't see the wood for the trees, so what we would argue is we need something shorter, to the point, the relevant information on one page, and we have proposed to the European supervisors a standardized information sheet, the Key Investor Checklist, as we call it, and we want to promote, basically, a more to-the-point information.
The issue of distribution is very tricky. Here, also, we are being confrunted with demands from other sectors, for exemple the securities market sector, where they say maybe we should have the same regulations as they have. But not everything that fits MIFID necessarily fits to our sector.
When we talk now about the second channel of distribution, I think it is important to notice that both the information and the distribution discussions are being held in the context of PRIPS (Package Retail Investment Products). This actually means another blank field debate: To what extent is the insurance product, specifically the life insurance product, so close to other products that they require the same regulation? And we would argue again that there is a distinct difference between different players on the market and different products on the market. We have put forward a standardized information sheet that has a couple of lines where specific insurance issues are being raised. After we have really insisted that the differences and the potential impact on our sector should be tested before we are being subjected to MIFID Law, they have now agreed to undertake a study. On the market, they test MIFID rules on insurance companies and they want to find out: does it make a difference? Does it have a negative impact? We expect the study results in the autumn.

XPRIMM: When exactly will the Package Retail Insurance Products Directive come into force? When will it become mandatory?
M. K.:
We are currently in the preparatory phase. So, the commission hasn't entirely decided to what extent PRIPs will be addressed. This is really a very intense consultation phase, so there is a lot of consultation, cost-benefit analysis, studies. And, at the end of this process (that is at least my experience), it improves the quality of the regulation quite considerably and the Commission will come forward with proposals in this respect. There will probably be a PRIPs directive for information requirements, and then there might be different directives where the distribution issue is addressed - a MIFID review for the securities markets part and an IMD review for the insurance markets part. But they should be very closely aligned, in terms of policy, objectives, but also, to a certain extent, in the regulation.

XPRIMM: Currently, there are talks about the second Insurance Mediation Directive. What are the key challenges or the main focuses on that?
M. K.:
The IMD is meant to be reviewed, because when it was adopted, in the text there was already foreseen a review period that has now expired, so the Commission, by law, is meant to revise it. But, obvioulsy, since the IMD has been adopted, a lot of other things have happened. We have had the MIFID Directive for the securities market, it has set a certain level of standards, hence there is a maximum harmonization approach, and IMD was the minimum, so the Commission feels that the IMD also needs to be brought up to a certain regulatory standard. So, that is one challenge.

XPRIMM: I really want to present to the Romanian insurance market some key features about your activity, about CEA's activity and also about the involvement of UNSAR in the Commission. Could you emphasize on that?
M. K.:
We, the CEA, are a federation of associations, so our members are the associations in 27 member states, the main associations, plus we also have members in 6 additional countries. These countries are the European Economic Area countries, Liechtenstien, Luxembourg and Norway, then we have Turkey as a founding member, Switzerland, Croatia. This is our membership. UNSAR takes a very active role in our organization, Florentina ALMAJANU is in our executive committee, she is a very active contributor, there are lots of proposals that are being launched by her, and in that respect we have a very fruitful cooperation.

XPRIMM: What would be your message for the Romanian and for the CEE insurers, in general, in times of crisis?
M. K.:
A message in times of crisis? The way I see it, we should be sending to the regulators the messages that the insurers have, so I don't think I should use this oportunity now, to try to send messages. So, I am very interested in getting messages from your market.

XPRIMM: Thank you!

Editor: Alexandru CIUNCAN | Published on 15.07.2010

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