EIOPA head warns of more complex world of risk

While the insurance and pension sectors deal with risks regularly, the pace and complexity of risks have increased, demanding more from supervisors, insurers, and policymakers, according to Petra Hielkema, chair of the European Insurance and Occupational Pensions Authority (EIOPA).

Speaking at FERMA Forum 2024, Hielkema offered a comprehensive overview of the key challenges and opportunities facing the insurance and pensions sectors, especially in light of rapid global changes such as climate change, cyber risks, and digital transformation. 

She emphasised that one of the fundamental purposes of insurance is to provide peace of mind to individuals and businesses by managing risks effectively, allowing them to focus on their core activities. However, this role has become more challenging due to the evolving nature of risks, particularly those related to climate change, social dynamics, and technological advancements. 

Hielkema noted that today's risks are increasingly interconnected, with climate change and biodiversity impacting other areas like property and societal risks. These cascading risks require a holistic approach to risk assessment and management, highlighting the importance of rethinking traditional narratives and scenarios to account for new realities. She emphasised the need for insurers to identify and manage these risks effectively, recognising that some risks are not always immediately apparent or easy to quantify. 

A central theme in Hielkema’s remarks was the importance of data in understanding and managing risks. She stressed that without sufficient and reliable data, supervisors and insurers cannot assess risks accurately. Data collection, analysis, and sharing are essential for improving risk assessment and decision-making, particularly in emerging areas such as climate change and cyber risks. She highlighted EIOPA’s efforts to act as a data hub, not only collecting data but also sharing it with stakeholders to enhance transparency and collaboration. 

Addressing protection gaps, or areas where insurance coverage is insufficient, was another key priority for EIOPA. Hielkema noted that protection gaps exist in several critical areas, including climate-related risks (such as natural catastrophes), health risks, and cyber risks. She explained that the increasing reliance on digital infrastructure, particularly cloud services, has introduced new vulnerabilities that the insurance industry must address. While large companies may still find coverage, small and medium-sized enterprises (SMEs) often struggle to access adequate cyber insurance. 

Hielkema also highlighted the growing importance of cyber risks, noting that as more companies move their operations to the cloud, the risks associated with cyber-attacks and data breaches will increase. She highlighted the introduction of the Digital Operational Resilience Act (DORA), which sets standards for managing IT risks, including oversight of cloud providers. This regulatory framework is designed to enhance the resilience of insurers and other financial institutions by establishing clear rules for managing digital risks. 

In tackling these complex challenges, Hielkema stressed the need for collaboration between the public and private sectors. Public-private partnerships, especially in areas like climate resilience, are vital for addressing systemic risks. She mentioned ongoing dialogues with various stakeholders, including the European Commission, G20, and International Monetary Fund (IMF), to explore ways to mitigate risks and develop sustainable solutions. 

On regulatory frameworks, Hielkema discussed the implementation of Solvency II, which has provided a solid foundation for managing risk in the insurance sector. However, she acknowledged that there have been creative interpretations of the regulation, particularly concerning reinsurance treaties. EIOPA is committed to ensuring that these frameworks are applied consistently across the European Union (EU) to maintain a level playing field. 

Hielkema also noted the growing role of captives—small, self-insured entities that provide risk coverage for larger parent companies. Captives are increasingly being used to manage more complex risks, including cyber risks and reinsurance arrangements. EIOPA is closely monitoring this trend to ensure that captives are properly regulated and do not pose undue risks to the wider financial system. 

Looking ahead, Hielkema stressed the importance of creating simple, accessible, and affordable insurance products that meet the needs of consumers and SMEs across the EU. She expressed support for the idea of a European label for pension and cyber insurance products, which could help streamline cross-border sales and enhance consumer protection. This aligns with broader EU goals of fostering long-term investment in the transition to a sustainable economy. 

In closing, Hielkema underscored that while the insurance and pensions sectors must evolve to meet new challenges, it is crucial to avoid regulatory “revolutions” that could disrupt the industry. Instead, she advocated for a balanced approach that focuses on implementing existing regulations effectively while making necessary adjustments to address emerging risks. 

FERMA Forum Today is in partnership with Captive Review, part of Newton Media.

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