On 11 May 2012, EIOPA published a speech by Gabriel Bernardino, EIOPA Chairman, on the work carried out by EIOPA, how Solvency II can contribute to the improvement of risk management, and the loss adjusting profession and its relevance for the insurance market.
Bernardino begins his speech by explaining that EIOPA is an independent Union body with legal personality, accountable to the European Parliament and the Council. EIOPA’s mission, Bernardino explains, is to protect the public interest by contributing to the short, medium and long-term stability and effectiveness of the financial system. In order to fulfil their objectives, EIOPA has some important powers which include: developing technical standards that are binding for all insurance undertakings in the EU; issuing guidelines and recommendations on a “comply or explain” basis; settling disagreements between national supervisory authorities; monitoring the correct application of EU law in Member States, and coordinating crisis situations.
Bernardino goes on to explain EIOPA’s involvement in a number of regulatory issues. In relation to Solvency II, EIOPA has been advising the EU Commission on the Level 2 implementing measures and developing draft technical standards and guidelines on around 40 different areas of Solvency II. In addition, EIOPA has contributed to the Commission’s revision of the Insurance Mediation Directive (IMD) by conducting an extensive survey of national laws providing for sanctions for violations of the provision of the IMD. Bernardino explains that consumer protection and financial innovation are priority areas for EIOPA and notably, EIOPA has prepared Guidelines and a Best Practices Report on Complaints-Handling by Insurers, due to be finalised in the second quarter of 2012. In relation to financial stability, EIOPA had an active role in assessing the resilience of the EU insurance sector to major shocks through the EU-wide stress test exercise, and publishes bi-annual Financial Stability Reports.
Bernardino then discusses the Solvency II regime, and in particular risk management. He argues that insurers need to rely on strong risk management capabilities in order to deal with the various challenges they currently face. Solvency II, Bernardino explains, has transformed the view that risk management is not a relevant element of the insurance regulatory regime. He recognises that, in addition to the risk-based capital requirement calculation, the regime’s heavy reliance on robust risk management practices is a key element of Solvency II. Insurance and reinsurance undertakings are required, under Solvency II, to have in place an effective risk management system that comprises strategies, processes and reporting procedures necessary to identify, measure, monitor, manage and report, on a continuous basis, the risks to which they are or could be exposed. Bernardino notes that this is an ongoing process and risk management should not be viewed as a “point in time” procedure. In light of the financial crisis, Solvency II identifies a number of elements relevant for an effective and robust risk management system. The system should be documented and communicated to the relevant management and staff and integrated into the organisational structure of the undertaking and its decision-making process. Furthermore, it must cover all material risks the undertaking might be exposed to. Finally, the undertaking’s management body has ultimate responsibility for ensuring the system is suitable, effective and proportionate to the nature, scale and complexity of the risks inherent in the business.
In the final part of his speech, Bernardino concentrates on the loss adjusting profession and its crucial role for insurance business. He recognises the contribution of the European Federation of Loss Adjusting Experts (FUEDI) in maintaining high standards of professional conduct and competence, high educational standards and unified standards of customer services. Bernardino acknowledges the role of self-regulation in this area, however, he argues that some basic principles should be incorporated in the EU regulatory framework. This speech indicates the likelihood that the loss adjusting profession, currently outside regulatory scrutiny, may be subject to closer scrutiny in the future.
For further information: EIOPA, Solvency II and the Loss Adjusting profession