09 December 2013

EIOPA/Montalvo: Solvency II will help us to overcome possible future challenges

The financial crisis affected every economic field. How much did it weigh on the European insurance market?

[Although not] originated by insurers, the crisis has affected the insurance sector as well. On the assets’ side the markets constantly went down and despite some improvement as of spring 2012, the situation for insurance companies still remains fragile. On the liabilities’ side, the crisis affected life insurance companies, which in my view should trigger the revision of the business models that some life insurers are currently following.

Do you think the insurance market has been able to react to the crisis and use it for going forward and improving services and proposals?

Knowing better your customer and offering those services and products that are needed and demanded certainly will be a competitive advantage. A lot of work still needs to be done in this area, yet the crisis should have been a wake up call.

Which are the most demanding challenges European insurance companies must face today? Are there any structural reform Italian insurance market should deal with in order to win tomorrow’s challanges?

The most demanding challenge for insurance companies is twofold: they should adopt their business models to the market conditions and the existing demands, while at the same time implementing in their business the regulatory changes foreseen by the new framework Solvency II.

We have now around two years for preparation. And we in EIOPA are convinced that both supervisors and insurance undertakings should benefit from this two-year time and make every effort in order to comply with all the Solvency II requirements, once the framework is applicable. A bit of personal advice: don’t let time go thinking that you can leave things for tomorrow, but get on and prepare today.

And it is exactly Solvency II that will help us to overcome possible future challenges: only with a strong risk-based supervision we have a good chance to preserve financial stability and enhance consumer protection in the EU.

Banks represent the most significant distribution channel in the life insurance market in Italy. This characteristic permitted to deeply exploit this specific market, but on the other side sales’ levels depend more on banking partners decision and strategies than insurance players. Do you think a different balance is necessary?

Having access to different distribution channels makes sense and avoids over-reliance. If you are overexposed to one single channel, whatever it is, you may face a risk. The last years we have seen examples of a potential conflict of interest between banks and insurance. Where the bank needed liquidity, it would normally offer to the customer to open a bank deposit rather than to invest in an annuity contract. That makes full sense from the bank point of view, but at the same time shows why insurance companies should make sure that there are alternative distribution channels for their products. An over-reliance on single distributors may put their business models at risk. And this is another excellent lesson from the crisis – don’t put all the eggs in the same basket.

Managers’ expertise could be a key factor in the insurance market. Did EIOPA organise special education programmes for managers in a long life learning point of view?

The added value that EIOPA brings with this regard, is in our Reports on good practices where we analyse the behaviour of different companies and indicate those examples that can be taken into account by all the other undertakings. Last year for example we published the Report on good Practices for Disclosure and Selling of Variable Annuities. And this year, following the public consultation, we are finalising Good Practices Reports on Comparison Websites and Knowledge & Ability of Distributors of Insurance Products.

Full interview

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