The high amount of new regulations entails some onerous obligations, says Bernard Spitz, president of the French Insurance Federation
What do you see as the regulatory changes that will affect the French insurance industry most in the coming years?
French insurers, like most of their counterparts in Europe, will be decisively affected by the Solvency II European Directive. It makes complete sense to ensure that insurance companies’ investments are not so risky that they imperil their capacity to pay out their commitments, or indeed their very survival. However, not to over-insure the insurers so that they are hampered in the normal performance of their activities is also key.
Solvency II came into force on 1 January 2016. Its very deep and comprehensive provisions are based on the risk profile of the various insurance companies, with a view to enhancing comparability, transparency and competitiveness. It is a very complex set of regulations. Understandably, the project required a great deal of effort and time. The very time that was spent assessing its impact and calibrating it helps explain that some of its dispositions have become obsolete. It therefore requires some necessary adaptations.
Major changes in terms of simplification and assessment of the risks associated with long-term investments, such as equities, will need to be made during the 2018 review of the Directive. They are essential to help insurers do their part in financing businesses, in order to stimulate economic recovery and growth in Europe.
Another key piece of regulation is the Insurance distribution directive (IDD). This reorganises the distribution of insurance products throughout Europe. It will come into force in February 2018.
IDD’s chief goal is to protect consumers. It regulates the activities of all distributors of insurance products: intermediaries, insurance companies and their employees, non-insurer intermediaries (such as travel agencies, car rental companies…), including online distribution. It determines which information is to be communicated to them before concluding an insurance contract, imposes on distributors certain rules of transparency and conduct of business, and deals with the supervision of distributors of insurance products.
Mainly inspired by another directive, IDD suffers from the differences between the natures of these two separate industries. IDD aims to harmonise various rules applicable to the different financial sectors. It would require a deep, costly and sometimes unnecessary reorganisation of the French market.
Finally, we are concerned about the reform of data protection rules. Its principles are sound. The General Data Protection Regulation (GDPR) will apply from 25 May 2018 onwards, and will be directly applicable in all EU Member States without the need for implementing national legislation. Personal data must be processed lawfully, fairly and in a transparent manner. It must therefore be collected for specified, explicit and legitimate purposes. Such collections must be adequate, relevant and limited to what is necessary; they must be kept in a form which permits identification of data subjects for no longer than is necessary.
Again, this reform bears significant costs, and can be redundant with dispositions already taken by the industry, such as, in France, the current “CNIL 2014 pack”. Compliance with GDPR will be one of the issues of concern to the insurance industry.
Are insurance companies ready to meet the requirements of these new regulations?
Yes. Insurance companies have already demonstrated their capacity in that respect in their adaptation to Solvency II, which is quite a heavy regulation. Nevertheless, such an amount of new regulation entails some onerous obligations, many of which will take time to prepare for, and require a very significant effort in terms of complex workforce re-training. One additional burden is that overall, the compliance aspects increase substantially across all the directives.
What impact will PSD2 have on the insurance industry?
The new payments regulation is all about opening up the banking industry to new technologies. Consequently it will have a huge impact on their business model. PSD2 will of course impact our industry as well, but insurance is much less concerned about this than the banking sector.
How will the French insurance market be affected by Brexit?
Even before assessing the full costs, we know that a hard Brexit, as seems now possible in view of the British Prime Minister’s statements, will have an impact on any operator in the European Union. Yet nothing is certain: as long as the negotiations are ongoing, this uncertainty has a cost. It weighs on business sentiment and confidence. It may also affect growth and exert a pressure on central banks to maintain the low interest rates environment that already hinders insurance activities.
Our strong sentiment is that a main priority for the European Brexit negotiators must be avoiding any risk of fiscal and regulatory dumping from the UK, in order to preserve a level-playing field between financial actors. On the other hand, after Brexit, France will become the main insurance market in the European Union. Paris, as one of the Union’s major financial centres, must seize the opportunity to attract new competitors moving to the continent to maintain access to the EU single market.