Insurers call for improvements to EU rules to support aims of Capital Markets Union


Insurance Europe has today published its response to a consultation by the European Commission on the Capital Markets Union (CMU) High Level Forum’s (HFL) final report.

Insurance Europe welcomes the HLF’s recommendation that, to encourage investment – particularly in SMEs – improvements to Solvency II are needed. While Solvency II is strongly supported by the industry, it currently creates unnecessary barriers to the provision of long-term investments and products.

The current review of Solvency II provides an opportunity to make focused improvements that would help insurers to continue playing a key role in supporting Europe’s investment needs, in line with the objectives of the CMU. These include:

  • Enhancements to the risk margin (RM) and VA are needed to further increase insurers’ investment capacity. As highlighted by the HLF, the RM reduces available capital for the industry by 189bn EUR. Improvements to the VA are needed to better mitigate artificial volatility and to reflect the returns insurers can and do earn above the risk-free rate.
  • The criteria for new long-term equity investment should be reviewed to remove unnecessary barriers to investing in equities and support increased equity allocations within portfolios.
  • A dynamic VA mechanism should be included in the standard formula to align debt capital charges with the true risks that insurers face when holding corporate bond and loans over the long term.

The HLF’s acknowledgement of the deficiencies with the current disclosure regime for insurance-based investment products are welcome. Any legislative reform in the field of disclosures must be adequately tested and evidence-based to ensure better outcomes for retail investors. On the contrary, rushed, interim changes to the information provided – such as the mini-review currently considered for the Key Information Document (KID) for Packaged Retail and Insurance-based Investment Products (PRIIPS) - would only confuse consumers and undermine their trust in financial services.

Insurance Europe also generally welcomes the HLF report’s focus on pensions. Member states should encourage participation in supplementary occupational and personal pension schemes. However, while the EU has a role to play, its actions should not disrupt well-functioning pension systems. For example, national rather than EU level action is appropriate in areas such as auto-enrolment or reporting.

It is unfortunate that the report calls for strict alignment between the Insurance Distribution Directive (IDD) and MiFID, as well as for a ban on commission for sales, even where independent advice is offered. This does not reflect the diversity of national insurance markets and blanket bans on commission are not universally accepted to be beneficial to consumers. The report also fails to note the significant improvements in consumer protection brought about by the IDD. These have been achieved because the carefully designed IDD rules are workable within the diverse distribution system for insurance products.

Finally, Insurance Europe remains of the view that EIOPA does not need any further significant changes to its powers to fulfil its mandate. The Board of Supervisors (BoS) should remain the main decision-making body, so that the ultimate responsibility for supervision remains with NCAs and the principles of subsidiarity and proportionality are not undermined.

NCAs are vital elements of the supervisory system given their local expertise, direct contact with entities and, crucially, local accountability. Therefore, the current separation between indirect supervision by EIOPA and direct supervision by national authorities is an indispensable cornerstone of the European supervisory system.