The Geneva Association’s Programme on Regulation and Supervision (PROGRES) Seminar is an annual platform for conversation between insurers, policy makers, regulators and supervisors on key policy and regulatory topics. The Geneva Association director of public policy and regulation Dennis Noordhoek reports.
Discussions at the 2020 PROGRES Seminar underlined that the different priorities of customers, insurers and regulators are not necessarily mutually exclusive ones: Financial stability and economic growth; consumer fairness and innovation; sustainability and profitability. By bringing together a range of perspectives, the seminar looks for common ground on what actions can ultimately improve peoples’ lives and ensure a thriving insurance sector at the same time.
Contribution of insurers to achieving the UN Sustainable Development Goals (SDG)
A panel explored the role and commitment of the insurance industry in making the SDG a success and the world a better place to live.
- The SDG in seven words: ’prosperity for all on a healthy planet.’
- Many SDG stem from increasing economic inequality – an issue where insurers, as providers of protection against existential risks such as premature death or the disability of a family’s breadwinner, make a difference.
- The insurance sector has many touchpoints with the SDG, but they should focus their efforts where individual companies can ‘move the needle’.
- The new International Association of Insurance Supervisors (IAIS) strategic plan is well aligned with inclusion, innovation, infrastructure and climate.
- Although the mandate of insurance supervisors is policyholder protection, several initiatives engage the industry on sustainability, e.g. climate disclosures and stress-testing.
- Realising the SDG can potentially generate $12tn in value across energy, cities, food and agriculture, health and well-being and create 280m additional jobs by 2030.
Insurance for a better world
The Geneva Association’s research roadmap consists of: Climate change and emerging environmental topics, health and ageing, socio-economic resilience, new technologies and data, cyber, evolving liabilities and public policy and regulation.
The IAIS’ new five-year strategic plan addresses: Climate risk, financial inclusion and sustainable economic development, technological innovation, cyber resilience and conduct and culture.
The two organisations’ agendas are converging on a number of issues, from different yet complementary angles.
A fireside chat with The Geneva Association and IAIS revealed opportunities for collaboration between the insurance industry and the IAIS when dealing with these issues.
Ethical issues related to the use of AI and big data analytics in insurance
Digitalisation and the use of AI are changing the way we live, communicate and do business and the way insurers do their job. A number of ethical issues need to be addressed.
- ‘Fairness’ in insurance means setting prices based on cost; avoiding intentional or unintentional discrimination; and adhering to the principle of risk pooling.
- In considering the merits of self-regulation vs hard regulation approaches to data ethics, according to an audience poll, a little more than the majority of participants favour ‘self-regulation’.
- Particularly in the context of new technologies such as AI and big data analytics, the self-regulation approach enables companies to deal with issues more quickly, compared to hard regulations, which take a long time to develop. In particular, self-regulation can come in the form of corporate governance.
- Two thirds of the audience considered it fair for insurers to use behavioural data to exploit customers’ willingness and/or ability to pay.
Climate-related financial disclosures
A recent IAIS-Sustainable Insurance Forum survey indicated that awareness of climate change risks among insurers is high, but awareness and understanding of the recommendations by the Task Force on Climate-related Financial Disclosures (TCFD) is relatively low. Against this backdrop, the panel addressed the adoption of the FSB TCFD recommendations among insurers, the respective challenges insurers face and whether TCFD disclosures should be mandated.
- The TCFD promotes transparency and offers investors valuable information.
- The TCFD discussion is overly focused on insurers providing information, while the disclosures were initially intended to furnish investors (including insurers) with information.
- The TCFD’s biggest impact is to help insurance companies move their climate agenda away from a ‘marketing’ approach to a more holistic and strategic approach.
- The panel was divided as to whether TCFD uptake should be mandatory.
- When it comes to transitioning to a low-carbon society, the problem is not a lack of will but a lack of know-how.
A view from the US on global insurance markets
Assistant secretary of the Treasury Bimal Patel emphasised the importance of insurance trade agreements, in particular the recent US-EU covered agreement. He pointed to the Financial Stability Oversight Council’s work related to the activities-based approach to systemic risk and to new and emerging risks, and the way US Treasury addresses them. Of these emerging risks, cyber is a crucial one, not least because of the threat to critical infrastructure. Long-term care is another priority for the Treasury, and a new task force will focus on federal policies that complement those at the state level.
Treasury expects to engage fully with the IAIS on improving the international Insurance Capital Standard (ICS).
The evolving cyber frontier
This session discussed cyber terror and cyber warfare from a technical, policy and insurance angle, the changing nature of cyber attacks and what this means for insurance.
- There is a major rise in the sophistication of attacks as well as a significant proliferation of capabilities, both at the end of state actors as well as criminal organisations.
- At the same time, cyber attacks are increasingly targeted, and corresponding damages more costly.
- Damages from cyber attacks are also evolving and potentially include the loss of lives, massive damage to infrastructure and the ability to destabilise companies and societies.
- With cyber insurance, acts of war are excluded from cover; cyber terrorism, however, is generally covered. The difficulty is in distinguishing cyber terrorism from cyberwar. There is also the complexity of cyber attribution.
- When companies experience a ransomware attack, paying the ransom may encourage adversaries, but on the other hand, many companies confronted with such an attack do not really have a choice. Most insurers cover ransom, with the expected benefit that this engages experts and helps mitigate the risk.
- Diversification does not exist for cyber as it does for Nat CAT: A large-scale event could affect many across the globe simultaneously. Pools can exist on national levels but the transnational nature of cyber requires an approach beyond national pools.
Trade wars and their impact on insurance
This session explored evolving international trade relations and how they affect insurance.
- Insurance is local in nature. But the line between goods and services is blurring as more services are now embedded in goods.
- Trade tensions between the US and China as well as Brexit are examples of moves towards de-globalisation – which is harming the global economy.
- Insurance treaties negotiated between the US and Europe have been difficult but will bring significant benefits to all parties.
- In Europe, the single financial market creates market access for insurers through either cross-border selling or through the establishment of subsidiaries.
- There is a need for clear rules on trade in insurance. The WTO is the only place where all relevant parties sit together.
International standards on capital coming closer
This panel addressed some of the open questions surrounding the major standards developed as part of the post-financial crisis policy agenda, including the ICS version 2.0.
- The participation of Internationally Active Insurance Groups during the monitoring period of ICS is important, so they can provide feedback and influence the process.
- Industry participants indicated that the IAIS’ 2023 economic impact study may be too late for the results of this exercise to be considered in the design of the ICS, and that a robust impact analysis should be comprised of several comprehensive and multifaceted studies.
- Panel participants from the supervisory community pointed to the ICS as one of several ‘tools in the supervisory toolbox’ and a new lens through which the capital of an insurance group can be assessed, but not a replacement for solo, legal entity-based approaches.
- Industry participants pointed to the importance of the ability to use internal models under the ICS.
- The IAIS is establishing an infrastructure task force to analyse whether infrastructure investments should be addressed within the ICS. A
Mr Dennis Noordhoek is director of public policy and regulation at The Geneva Association.