On 7 February, a report summarising the ESAs’ (European Supervisory Authorities) issues in response to the European Commission’s invitation to supply recommendations on points associated to the world of digital finance was revealed on the EIOPA on-line portal. The report supplies some cross-sector and a few insurance-specific recommendations to make sure that the EU regulatory and supervisory framework is customized to the digital age. With reference to the insurance market, EIOPA, in cooperation with the different ESAs, has offered two particular recommendations.
Recommendation 1, on the insurance enterprise in the gentle of digitisation
The report firstly factors out that, in the gentle of digitisation, the definition of insurance and insurance-related actions must be questioned once more.
Article 18(1)(a) of the Solvency II Directive supplies that the company object of insurance undertakings must be restricted to “the business of insurance and operations arising directly therefrom, to the exclusion of all other commercial business”. In apply, nonetheless, it might not be really easy to determine which of the actions that aren’t strictly insurance-related could also be carried out by an insurance firm. This is just not a brand new difficulty, nevertheless it appears to come up with explicit frequency with the growth of digitalisation and InsurTech, which in flip is related to a shift from a mannequin primarily based on danger safety/protection to at least one that depends extra on prevention/recommendation (as seen, for instance, in the cyber danger market).
EIOPA recognises that the above-mentioned article, by additionally referring to the operations that “derive directly” from the insurance exercise, may already present a chance to incorporate a collection of recent providers which are the results of digitalisation, however that, at the similar time, this definition can’t be thought of exhaustive.
This could possibly be the case, for instance, of purely IT software program/API growth actions carried out instantly by the firm, however supplied to different insurers or intermediaries (EIOPA offers the instance of the middleman that develops its personal comparability device for inner use, however then affords it to different intermediaries as a white-label service).
A potential answer could possibly be that (digital) actions instantly associated to insurance actions and insured dangers, equivalent to these directed in direction of danger prevention or danger administration providers supplied to shoppers (well being apps, rehabilitation providers, teaching) are thought of as insurance or ancillary actions.
EIOPA will take into account additional evaluation, together with an in-depth examination of what’s thought of as “activities directly related to insurance” in a number of Member States, so as to have the ability to present clarification on this difficulty, considering the potential impression on customers, the insurance business and its supervision.
Recommendation 2, on the dealing with of P2P insurance
EIOPA has already examined peer-to-peer/P2P insurance in its “Report on Best Practices on licensing requirements, peer-to-peer insurance and the principle of proportionality in an InsurTech context”. This is a mannequin that’s spreading, during which, in a logic of sharing economic system, a bunch of people with widespread pursuits or related danger profiles pool their “premiums” as a way to insure themselves in opposition to a sure danger at extra beneficial situations (in the most widespread mannequin, for minor claims the insurance cowl is just not activated however is drawn from the capital pooled by the group of people, as if it have been self-insurance, whereas for main claims a traditional insurance cowl is activated, stipulated by the group).
In this Report it was famous that, following an method primarily based on the kind of exercise carried out, three completely different P2P insurance enterprise fashions may be discovered: (a) P2P insurance bought instantly via a licensed insurance firm; (b) P2P insurance bought via a licensed/registered insurance middleman in collaboration with a licensed insurance firm; and (c) service/platform suppliers appearing solely as system directors for risk-sharing teams, with out an underlying insurance service and with out performing insurance distribution actions (e.g. some DLT/Blockchain-based options).
Due to the present comparatively low market penetration of P2P insurance enterprise fashions and the reality that the majority enterprise fashions seem like lined by current regulation, EIOPA doesn’t take into account that there’s an pressing want for new regulatory approaches or explicit modifications in relation to P2P insurance.
However, EIOPA means that the Commission could take into account new laws in the future, significantly in view of the additional growth of P2P insurance or related enterprise fashions. New laws may, for instance, embody the definition of standards and thresholds to determine when P2P is an insurance product and when service suppliers are appearing as intermediaries. In basic, any regulatory response to manage P2P insurance must be (1) impartial by way of how a services or products is distributed; and (2) proportionate with respect to the enterprise mannequin, danger profile, dimension, systemic relevance, and complexity and cross-border exercise of the regulated entities.
The ESAs’ observations on the adequacy of the present regulatory framework with respect to new enterprise fashions undoubtedly supply attention-grabbing insights into whether or not progressive services developed by insurance corporations and intermediaries must be thought of regulated actions. However, the circumstance that the matter is, to this point, regulated by minimal harmonisation laws, particularly the Solvency II Directive and the IDD, unavoidably implies the chance of various approaches to the matter by nationwide authorities. In order to cut back the proliferation of various options to widespread points, an motion at EU stage could possibly be an efficient answer for a full and uniform growth of recent (digital) insurance services inside the EU.