EIOPA annual report 2023

On 14 June 2024, EIOPA released its Annual Report for 2023. The report highlights the authority's key achievements and ongoing initiatives in sustainability, digital transformation, prudential and conduct supervision, advisory to European institutions, and financial stability.

 

Sustainability

To protect consumers, strengthen financial stability and actively contribute to the transition to a sustainable economy, EIOPA focused on integrating climate and ESG risks into the risk management policies of insurers and pension funds. Specifically, EIOPA has:

• published the Progress Report on Greenwashing at the request of the European Commission, and developed specific supervisory tools to identify, monitor and address greenwashing cases effectively;
• released the EEA-wide Dashboard highlighting the insurance protection gap for natural disasters;
• launched pilot exercises on impact underwriting, focusing on how underwriting policies can address climate change adaptation; and
• collaborated with other European authorities to draft regulatory technical standards (RTS) aimed at revising certain aspects of the SFDR delegated regulation (Reg. EU 2022/1288).

These initiatives mark significant progress towards enhancing the sustainability of the insurance sector. But there are still challenges. Combating greenwashing requires ongoing updates to supervisory tools and international collaboration to standardize definitions and detection methods.

Regarding natural disasters, the EEA-wide Dashboard is expected to increase awareness of the insurance protection gap (with only 20% of financial losses from natural disasters between 1980 and 2022 covered by insurance) and promote a more scientific approach to risk management. Based on these insights, EIOPA is expected to guide national supervisory authorities to play an active role in promoting insurance products that enhance resilience against extreme weather events related to climate change.

IVASS recently released a market survey on the availability of insurance for catastrophic risks. The survey aims to provide useful insights for companies preparing to comply with the upcoming requirement, introduced by the 2024 budget law (still to be implemented), to secure insurance coverage for such risks.

 

Digital transformation

EIOPA continued to monitor the increasing use of technology in the insurance sector, seeking to identify ways to protect consumers without stifling innovation.

In addition the Digital Operational Resilience Act (DORA), which came into effect on 16 January 2023, EIOPA worked on a new holistic Digital Strategy, which includes:

• the Digitalisation Market Monitoring Survey, which tracks innovations and trends in the insurance sector;
• the Discussion Paper on "Open Insurance: an exploratory use case in the insurance sector" which examines the developments, risks, and benefits of open insurance;
• a study on access to cyber insurance for SMEs, analyzing the challenges small businesses face in protecting against cyber risks;
• suptech projects for advanced supervision, including developing a system for collecting and aggregating information from standardized documents and a natural language processing (NLP) tool to enhance SFDR reporting;
• the Paper on "Methodological Principles on Insurance Stress Testing – Cyber Component," which provides methodological principles for insurance stress tests, focusing on cyber risk.

Throughout 2023, EIOPA also participated in the work of the European Forum for Innovation Facilitators (EFIF) and played a key role in international innovation efforts as the chair of the IAIS FinTech Forum.

 

Prudential and conduct supervision

In its role promoting common supervisory policies to ensure a high level of uniform and consistent consumer protection across Member States, EIOPA has:

• issued several reports on the Solvency II and IORP II Directives, monitoring the implementation of reporting and disclosure requirements, and publishing monthly technical updates and quarterly risk dashboards ;
• released the EIOPA Supervisory Convergence Plan for 2023 which highlights priorities such as the practical implementation of key aspects of a common supervisory culture, monitoring emerging risks with a specific focus on ESG and digital transformation risks;
• published various supervisory convergence tools addressing topics such as reinsurance, reverse branching, ESG disclosures, and unfair differential pricing practices in property insurance;
• enhanced collaboration with national authorities to ensure consistent use of internal and standardized models, conducting comparative studies and updating monitoring tools;
• conducted peer reviews with national supervisory authorities to promote convergence and consistency in supervisory practices; and
• implemented a supervisory framework focusing on product design and value for money.

 

Advisory to European institutions

In its advisory role to European institutions, EIOPA:

• continued to provide technical input and advice in the broader context of the Solvency II review negotiations;
• published technical advice on the review of the IORP II Directive, in response to a call for advice from the Commission;
• continued its work on the Insurance Distribution Directive (IDD) by issuing its second report on the IDD's application and updating the Q&As to promote greater consistency in interpretation across Member States; and
• on the international front, (i) strengthened cooperation with countries in the Eastern and Western Balkans and organized the Eastern Cooperation Conference, highlighting its support for countries aligning with EU insurance legislation; and (ii) contributed to the development of global standards, including the Insurance Capital Standard (ICS), in the IAIS.

 

Financial stability

To ensure the financial stability of the insurance and pension sectors, conducts monitoring activities aimed at facilitating or coordinating necessary supervisory actions. EIOPA specifically identifies trends, potential risks, and vulnerabilities. These findings are published in the Insurance Risk Dashboards every quarter and in the Financial Stability Reports biannually, contributing to the preparation of the JC-SRC Risk Report, which is published semi-annually.

In 2023, EIOPA focused on the impact of inflation, risks related to natural disasters (section 1.2 of the Financial Stability Report), and potential risks arising from increasing digitalization, particularly in the form of cyber attacks (section 1.3 of the Financial Stability Report). EIOPA continued to publish statistics on the insurance and pension markets, improving the methodological framework of stress tests to include cyber risks.

Overall, EIOPA has strengthened its role in safeguarding financial stability and adapting its supervisory activities to emerging challenges in the European landscape. This ongoing commitment is crucial for addressing the evolving dynamics of the sector, ensuring integration, and protecting consumers.

 

Conclusions

In recent years, EIOPA's role has grown significantly, having an inevitable impact on the activities of individual national authorities, especially in the insurance sector. Despite being non-binding, EIOPA's opinions, investigations, and guidelines profoundly influence the regulatory landscape of the insurance sector in the EU.

This influence extends beyond supervisory activities to include enhanced consumer protection and the harmonization of regulations across the EU. This regulatory convergence is partly driven by EIOPA's continuous advisory efforts.