Andreas Brandstetter: “The priority of the Insurance Sector is to continue to offer protection and savings products”

Ακολουθήστε μας στο Linkedin και συνδεθείτε με άλλους επαγγελματίες του κλάδου

An extensive and comprehensive interview was given by Andreas Brandstetter, Chairman of Insurnace Europe and CEO of UNIQA Group, to Cyprus Insurance News.

The President of Insurnace Europe speaks for a first time to our news portal and comprehensively outlines through his answers the challenges of the Insurance Industry and the environment in which Insurance Companies operate.

Responding to a question on the biggest challenges facing the insurance industry today, he said that “the industry’s priority is to continue to offer protection and savings products that people and businesses expect and need”.

Insurance Europe’s president answers our questions about the role of smaller countries like Cyprus in the decision-making processes and whether he believes that the Insurance Industry is over-regulated.

Read below the full interview with Insurance Europe’s president.

To start our interview, please provide an overview of Insurance Europe, highlighting its mission and primary objectives, as well as the key ways in which the organization influences and interacts with the European Authorities and the European insurance sector.

Insurance Europe is the European insurance and reinsurance federation and the voice of the European industry at European and international level. Through its member bodies comprising of national insurance associations, Insurance Europe represents all types of insurance and reinsurance undertakings, including pan-European companies, monoliners, mutuals or SMEs. Insurance Europe represents undertakings that account for around 95% of total European premium income.

Insurance Europe acts as a contact point for institutions, politicians and supervisors with a primary objective to help policymakers design regulation that is effective and efficient.  In the regulatory process it develops, promotes and defends industry positions that are supported by technical research and expertise. A strong vibrant insurance industry together with good regulation will create a positive political, social, business and economic environment.  

How do insurance companies and the broader insurance sector contribute to the economic growth and stability of the European Union? 

Insurers must hold a large portfolio of assets to back policyholders’ liabilities. The assets are accumulated through the collection of premiums. Insurers also hold significant shareholder equity, particularly because of the need for solvency capital, which likewise needs to be invested. Investing is therefore a fundamental aspect of the insurance business model. As a result, the insurance industry is one of the largest institutional investors in Europe with over €10trillion of assets under management.

Predictable aggregate liabilities — which are sometimes very long-term, sometimes 30 years or more for life products — and the continual flow of new premiums, even during periods of market volatility, allow insurers to invest in a wide range of assets, including long-term or illiquid investments such as property, infrastructure and private equity and debt.

Insurers’ business models and core asset-liability management give them a great deal of flexibility, allowing them to decide whether to sell assets, when to sell assets and which assets to sell. Insurers are therefore generally not economically exposed to the risks of losses from short-term market volatility. This means insurers investment behaviour can be counter-cyclical: avoiding selling during a market crash, and can even choose to buy assets that are temporarily undervalued during a downturn and can sell assets that are temporarily overvalued during a boom.

Therefore not only do insurers help fund economic activity, including the sustainable and digital transformations needed, they also add to financial stability.

Insurance Europe comprises of various member bodies from different European countries. Could you elaborate on how each member contributes to the organization’s overall mission?

Insurance Europe plays a supporting role for its members and provides information, analysis and guidance on issues of interest to the European insurance sector and the infrastructure that allows our members exchange views and information. Members bring their experience, expertise and specific issues to the discussion, providing input and feedback so that Insurance Europe can provide strong and evidence-based input to the policymakers developing regulations. 

Members also play a key role in supporting and amplifying Insurance Europe’s efforts to communicate and explain the positions to policymakers, in particular, at national level with their MEPs and finance ministries.     

In decision-making processes within Insurance Europe, how is it ensured that smaller countries, like Cyprus, have an equitable say and influence on the decision making process?

Insurance Europe has a very strong and inclusive governance process that ensures that all members have the opportunity to contribute with their views and specific concerns and all input is taken into account in developing positions. Often issues raised by one country are also concerns of others and so pooling knowledge, expertise and lobby activities has a bigger impact on policymakers and results in better regulation. Insurance Europe provides material such as one-page explanations and short positions notes to its members, and these can be of particular help to smaller members in their outreach to their local MEPs and European Council members.

In light of the evolving landscape, what do you consider to be the biggest challenges facing the insurance industry today?

• The industry’s priority is to continue to offer protection and savings products that people and businesses expect and need. In the current environment of increasing uncertainty, this includes contributing to closing protection gaps, be they known but growing risks such as natural disasters or pensions, or those that have emerged more recently such as cyber risks.
•  
• For example, natural disasters are increasingly more severe and frequent due to climate change, which needs governments, businesses, individuals as well as the insurance industry to work together to make our societies more resilient and to ensure risks are insurable and affordable. For insurers to play their role as both provider of protection and institutional investor, they need a fit-for-purpose and future-proof regulatory framework. The EU regulatory framework must recognise the real economics of the insurance business and the real needs of customers. It needs to be firstly tailored to the specifics of insurance products rather than putting insurance products in the same basket as other types of financial products, secondly fit for the digital world and finally reflects fast-evolving consumer demands.

Could you share Insurance Europe’s position on the recent developments regarding the EU Retail Investment Strategy, and how these changes are expected to impact the insurance sector?  

The European Commission presented its Retail Investment Strategy (RIS), which aims to increase retail participation in capital markets, in May 2023. The European Parliament and Council are currently discussing their positions as part of the legislative process.

Insurance Europe welcomes the RIS objective, but also the effort to make rules more digital-friendly, streamline consumer information, and promote financial education. However, many new proposals would make it much more complicated for consumers to access the capital markets and are designed with pure investment products in mind, thus not being fit for insurance.

For example, the journey of a consumer wishing to invest today is complicated and long, with too many questions, tests and information – the so-called information overload. Unfortunately, the Commission’s proposals will make this journey even longer and harder, adding new requirements, steps and tests, such as a so-called “best interest test”. How would this encourage consumers to invest? Moreover, the EC proposals add new disclosures and focus quasi exclusively on costs, with the risk to nudge consumers towards cheaper products, rather the products that best fit their needs.

We believe that the RIS should do exactly the opposite: it should improve the consumer experience by ensuring a short and simple sales process. It should streamline disclosures and make them focus on what matters most to consumers and can provide them with the safety and peace of mind they need to invest, ie the financial guarantees and risk coverage.

We also believe that consumers should have all choices available on how to invest and prepare for retirement, and it is therefore crucial that the RIS does not impose rules, such as an EU-wide ban on certain types of remuneration of distributors, which could inadvertently restrict consumers’ access to advice, to investment-based insurance products and to the insurance protection many consumers need.

A major concern is also the introduction of pan-EU value for money benchmarks. Authorities might find it useful to further develop their supervisory tools to identify outliers in their market, but the benchmarks, in the form the Commission proposed them, would have a major impact on the market, and lead to product standardization and reduced insurance offering, which would all be to the detriment of consumers.

We very much hope the EU legislators will improve the RIS proposals, and make them workable for insurance products and consumers.

What is Insurance Europe’s perspective on the current regulatory environment in the European insurance industry? Do you believe the industry is over-regulated, and if so, how does this impact its efficiency and innovation capabilities?

The European insurance industry has been highly regulated at national level for a long time.  In recent years, what we have observed is that almost every aspect of insurance has also been impacted by developments in European regulation. This includes Solvency II, PRIIPs, IDD, MIFID, MID, GDPR, DORA, CSRD. A lot of acronyms but a lot of impact and costs, too. The insurance industry welcomes good European regulation because it can help maintain trust and confidence from customers, harmonise requirements and allow cross border growth and competition.

However, in Europe there is a tendency to go too far, to create too many and too detailed requirements and this results in unnecessary operational burdens and costs.  The costs ultimately have to be borne by the customers through higher charges or few products offered.  Excessive regulation also diverts scarce resource and expertise from the core business to compliance roles, reducing companies’ ability to focus on innovation and actually managing the risks.

We welcomed the EC’s recent commitment to reduce the regulatory reporting burden by 25% and have made a range of concrete suggestions on how this can be achieved. We will be following up to make sure this welcome recognition from policy makers of the need to reduce the regulatory burden delivers real improvements.

In your opinion, how well do current regulations in the insurance industry reflect the principle of proportionality, especially considering the varying sizes and capacities of countries and companies within the European Union?

Unfortunately, while the importance of proportionality is widely recognised, it is not often achieved in practice.  Preventing overly burdensome and costly requirements is essential to avoid unnecessary complexity and costs which ultimately must be borne by customers. It is also necessary to preserve a diversified market.

If we take the example of Solvency II, the EU prudential framework for insurance, although a key principle of this regulation, there has been very little or no application of proportionality.  Therefore, Insurance Europe welcomes the recent Solvency II review agreement which better embeds proportionality in the framework – this should help reduce some of the burdens for small and non-complex insurers.

Are there any efforts by Insurance Europe to address the employment gap and talent shortage within the EU insurance industry, and how does this challenge affect the sector’s growth and innovation prospects?

Skills gaps and a broader talent shortage are all challenges facing the industry. Failure to address these issues will result in loss of competitive edge, jeopardizing the long-term sustainability of the sector. Strategic workforce planning, upskilling and reskilling of existing employees and investing in technology are all key to helping the sector adapt and drive efficiency.

Insurance Europe and its member associations have long been actively engaged to address the employment gap and talent shortage. We are a key member of the Insurance Sectoral Social Dialogue Committee (ISSDC) which is a European level forum in which insurance employer and employee representatives, with the support of the European Commission, discuss and share best practice developed at national, sectorial and company topics of common interest,.  This includes skills shortage, demographic challenges, AI, telework and the effects of the COVID-19 crisis.

Diversity and inclusion (D&I) are also important factors in successful modern workplaces. More diverse companies are better equipped to attract the best talent and improve employee satisfaction, engagement and decision-making.  Insurance Europe recently launched our DEI Hub which showcases a wide variety of examples of how Europe’s insurers are working to support D&I in their workplaces and to embed DEI in their culture.

What initiatives are in place for financial education and consumer protection?

Insurance Europe and its member associations have long been actively engaged in efforts to raise levels of financial literacy, specifically in relation to risk awareness, insurance and long-term saving for retirement. Since 2018, Insurance Europe’s financial education activities are brought together in its “InsureWisely” campaign. The campaign makes use of materials such as videos, booklets and infographic factsheets to encourage consumers to find the insurance products and services that suit them best.

Examples of the industry’s engagement in financial education are showcased in Insurance Europe’s Consumer Hub, available on the federation’s website. This Hub also highlights the continuous efforts across Europe’s various insurance markets to innovate and to enhance products and services for consumers in a number of important areas, such as digitalisation, and conduct of business.

Furthermore, Insurance Europe is a driving force behind European Retirement Week, which provides a platform to debate the future of pensions in Europe and to raise citizens’ awareness of the need to save — and save enough — for their retirement. European Retirement Week takes place annually in the last week of November.

Finally, Insurance Europe also supports and participates in Global Money Week, an OECD initiative teaching children and youth about financial literacy and empowerment through annual activities.