Insurance Europe

The Insurance Recovery and Resolution Directive (IRRD) is due to come into force on 30 January 2027, leaving just a year for companies and supervisors to prepare. Yet there remains a lack of clarity on fundamental aspects of the regulation, including which companies will be in scope of the requirements, what the definition of critical functions will be and who will pay for it and how.

Stop-the-clock on the IRRD

With so many outstanding questions, Insurance Europe argues it is irresponsible for the Commission to continue to target an implementation date of 30 January 2027. Proceeding with the current proposals also risks introducing an overly detailed, burdensome and largely unnecessary framework which goes beyond international standards. These excessive requirements will put the European (re)insurance sector, a global champion, at a competitive disadvantage to other global players.

Insurance Europe has therefore called for a stop-the-clock initiative to allow time to answer the questions outlined above and for the Commission to conduct a comprehensive, evidence-based impact assessment of what is truly necessary to protect policyholders and beneficiaries and preserve financial stability in Europe, beyond the existing safeguards.

Targeted and impactful changes are needed to simplify and improve IRRD

As input to this comprehensive assessment, Insurance Europe has identified ten practical measures to simplify and improve the IRRD:

1. Postpone the timeline and phase in requirements: allowing an iterative, collaborative implementation and removing the clash with Solvency II review implementation.
2. Scale back mandatory reporting: The twenty mandatory reporting templates currently proposed are too extensive and burdensome.
3. Clarify and limit the scope of critical functions: The definition of critical functions provided by EIOPA is so broad that almost all functions of an insurer could be within scope.
4. Ensure a risk-based scope: A risk-based approach is in line with international standards and consistent with the approach in other jurisdictions.
5. Streamline recovery plans: Recovery planning must be proportionate to the risks being addressed, taking into account the existing Solvency II safeguards.
6. Simplify the resolvability assessment: a more flexible and proportionate process avoids the risk of the assessment becoming a tick-box exercise.
7. Minimal interference with business as usual: the pre-emptive powers to remove impediments should only be used in truly extraordinary circumstances.
8. Maximise use of existing processes: The comprehensive risk management and monitoring processes required under Solvency II should be leveraged as much as possible when implementing the IRRD.
9. Perform a full cost-benefit analysis: The impact of the substantial administrative burdens posed by IRRD need to be quantified and set against the expected benefits.
10. Ensure appropriate treatment of reinsurance: Reinsurance is an essential risk mitigation tool for insurers, and the IRRD should not impede its use.

“A stop-the-clock on the IRRD is needed to allow for simplification and rationalisation of its requirements. The insurance industry recognises the need to be well prepared for situations of financial distress, but this should not come with unwarranted burdens on insurers and increased costs to consumers,” said Angus Scorgie, Head of Prudential Regulation & International Affairs. “Our proposed changes are a set of practical recommendations to ensure the IRRD meets its objectives in a pragmatic and proportional way.”

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