Insurance Europe

Insurance Europe is working on four fronts:

• Identifying challenges — Working closely with its member associations in the national markets to identify developments that affect insurers and their clients, and to identify areas in which coordinated action by national authorities may be needed at European level.
• Liaising with the EU institutions, in particular the European supervisory authority, EIOPA — Ensuring there is a clear understanding of both developments in the markets and responses coming from supervisors.
• Sharing best practice — Providing a platform for its member associations to raise issues and share solutions to the challenges faced by the industry.
• Discussing solutions for future pandemics — Working with its members to examine how insurers can engage with national and European authorities to contribute to making societies more resilient against future pandemics.

Insurers are taking additional steps to support their customers, society in general and the economy. The many and wide-ranging actions taken by insurers include:

• Communication and fraud prevention
  Insurers have made extra efforts to keep their customers well informed during the crisis by setting up dedicated websites and engaging in targeted outreach. Some companies have also made additional efforts to help protect customers from fraud, particularly the online fraud that has increased during the crisis.

• Premium/insurance contract flexibility
  Insurers’ day-to-day focus is on responding fairly and responsibly to customers and on offering flexibility, particularly to those most adversely affected by COVID-19 or by national lockdowns. Often on a case by case basis, insurers have agreed delays in premium payments for a variety of policies and for different periods to best take account of the various national situations and individual needs. Switching between tariffs may likewise be permitted, as is allowing policy cancellations and suspensions, where appropriate.

• Process and deadline flexibility
  Where possible, insurers have been providing the flexibility needed to maintain customers’ insurance cover, paying special attention to the practical consequences of the crisis. This includes taking into account that customers may not be able to fulfil certain aspects of their contractual obligations, such as requirements to:

• submit paper documents;
• submit claims by a given deadline; and,
• renew tests, certificates or licences.

• Insurance contract goodwill actions
  Insurers are also supporting both their customers and society in general through additional, voluntary goodwill actions. Examples of these many and varied nationwide and company-level actions include the temporary extension of cover and services beyond contractual obligations — by, for example, providing free health cover to medical staff.

• Support for the economy
  

Insurers also continue to play a key role in supporting the economy. For example, some of Insurance Europe’s members are participating in government-backed trade credit schemes to ensure the continuity of commercial supply chains and are making swifter payments to their service providers.

Insurers can mobilise their considerable long-term investment capacity, which can be particularly helpful during periods of market turmoil and when investment is needed to accelerate recovery and boost growth.

Europe’s insurers also remain as committed as ever to supporting the transition to a more sustainable society and to tackling climate change. These fundamental ambitions must be pursued despite the huge, new challenges created by the current pandemic.

• Non-insurance goodwill initiatives
  These initiatives, too, are many and varied. They include contributing financially to health and research initiatives, donating medical equipment and amplifying government mental and physical health messages.

All these actions have been developed taking account of both the financial capacity of the insurers involved and the needs of the local market. They reflect the different national welfare systems and variations in social security, unemployment and health systems, which create different roles for insurers in each market.

Each country has been affected by COVID-19 differently, with differing levels of government lockdown and advice, and this also affects the steps insurers can take to offer support. For example, an initiative by motor insurers in a country where driving restrictions are in place would not be appropriate in a market where individuals are being encouraged to use their vehicles more to avoid public transport. Likewise, initiatives taken by health insurers are linked to the specific role played by the insurance sector in that market.

In addition, each insurance company is different in terms of its size and risk profile and is impacted differently by COVID-19 and the lockdowns. Every company’s first duty is to ensure it can honour its promises to its customers. This means prudent management of its capital, particularly during economic turbulence, in order not to put at risk its ability to meet contractual promises. It is therefore important that solidarity actions that go beyond current and future contractual commitments remain voluntary.

The insurance industry brings significant value to society through the wide range of risks it covers. Policymakers should avoid imposing measures that could threaten the financial stability of the insurance industry or limit insurers’ ability to pay those claims and benefits.

For example, EIOPA warns against measures that would require insurers to retroactively pay claims that are not covered under existing policies. Insurers’ duty is to pay the legitimate claims contracted with their existing policyholders. Retroactively requiring insurers to pay for losses for which they have not reserved could jeopardise both their ability to pay legitimate claims and the financial stability of the entire sector.

Policymakers must also draw lessons from the crisis in their review of the European insurance regulatory framework, Solvency II. While it has many very good features, Solvency II does not correctly capture the real economics and risks of insurers’ long-term business. This leads to an underestimation of solvency strength and excessive volatility in the solvency measures. These flaws are particularly relevant now because COVID-19 has triggered high market volatility and, during such a period, they can push insurers into unnecessary procyclical behaviour. The issue of volatility is already known and is part of the current review of the prudential framework. It should certainly not be used to justify a further tightening of the framework in the middle of the current crisis.

The review should result in focused improvements, including fixing the volatility adjustment mechanism and significantly reducing the risk margin, while keeping the euro risk-free rate calibration and methods unchanged.

Pandemics are a systemic risk that cannot generally be covered through the existing insurance model under which the claims of the few are shared by the many. Standard insurance policies typically provide protection only against risks that cannot all happen at the same time, as these can be offered at prices that customers can afford.

In practical terms this means that, although specialist and limited markets do exist for this type of cover, insuring a very large group of individuals and businesses against a pandemic cannot be done relying exclusively on the normal principles of insurance.

We must now begin to think about new solutions. A pandemic, by definition, especially if it comes with widespread lockdowns imposed by governments, leads to claims from a very wide range of business sectors and individuals at the same time. The normal insurance model of pooling the claims of the few to be shared by the many simply does not work in such a situation.

For this reason, it was so far only possible to cover pandemic risk in specialised insurance policies covering limited situations and with clear cover limits. In a wide range of non-life policies, pandemic risk is not covered and thus has not been included in the premiums, has not been reserved for and has not been taken into account in setting the solvency capital.

Removing existing limits or providing broad, general cover for pandemic risk is therefore not possible for the insurance industry alone. Here is an example to illustrate why: current business interruption premiums in some markets would need to be collected for over 100 years to cover two months of COVID-19-related business interruption costs.

Events such as pandemics require the joint involvement of the insurance sector and of the state. The industry has significant expertise here, having already joined forces with governments to develop workable and affordable solutions for other huge and difficult-to-insure risks, such as flooding, terrorism, earthquakes and nuclear energy.

Insurance policies and policy wordings differ between EU countries and between companies within each national market.

Insurance Europe’s member associations are providing advice and guidance for customers in their national markets. You can find their contact details in the “About us” section of our website.

If you are unsure about what your policy covers, then please check directly with your insurer or insurance intermediary.