Home > Speakers' views
Resilience of the EU financial sector in the global context - Systemic risks in the insurance sector: key outcomes of the IAIS consultations
Global convergence for insurance – fair and with the citizens’ support
By Goulard Sylvie - MEP, ALDE Coordinator in the Economic and Monetary Affairs Committee, European Parliament
Regulatory and supervisory cooperation at the global level is necessary and important. It is for bodies such as the Financial Stability Board or the IAIS (International Association of Insurance Supervisors) to provide an input to elected decision-makers in order to enable them to make a well informed choice when defining the degree of supervision or when drafting the rules.
Yet, this approach to systemic risk has quite a few puzzling aspects to it. When working on the setting up of the European Systemic Risk Board (ESRB) a few years ago, the most common view was that systemic risk was by nature evolving and we should at any cost avoid “freezing its definition”, otherwise it would quickly become outdated. Now, at the global level, there is a trend which is to list systemic players (bank and insurance, but not asset management). Let us assume that such an approach is the most appropriate – one prerequisite would be to avoid focusing solely on big players and, by this, potentially allowing for lots of smaller risks of a destabilising nature through their aggregation; it has been done in the banking sector because the regulatory and supervisory practices are quite similar across the globe. But what about insurance? The EU has chosen to go down the road of a risk-based system. The EU has agreed, even though sometimes the process has been painful, on Solvency 2 and Omnibus 2 and already on some of their delegated acts. But what about other jurisdictions? Not all of them have made the same choices. To agree on a few broad principles may prove useful but any attempt to go more into detail at this stage could be counterproductive. The regulatory and supervisory practices are so diverse across the globe, with a strong centralised supervisor in the EU and fragmented supervision in the US for example, that it could lead to a distortion of competition. The economic landscape in which the European insurance companies evolve is also quite different from those of other jurisdictions: the relations between banks, asset managers and development banks are different in nature and, for example, in some Member States insurance companies act as pension providers. In addition to that, key elements have, so far, been missing during the reflexion: the differential tax treatment or the impact of local social and legal rules, for example.
The rules and their origin have to be legitimate, fair and understandable to both the stakeholders and the citizens.
Studies commissioned for the European Parliament in the framework of my report on the EU’s role in international economic fora have, among other things, shown that the standards are too often a bit too “central bank” inspired or do not give enough room for consultation with the sectors involved.
It is worth working for more principles-based convergence. Yet, the recommendations formulated by the global standards setting bodies should allow taking into account legitimate differences of the various economic models across the globe which do not hamper financial stability. The rules and their origin have to be legitimate, fair and understandable to both the stakeholders and the citizens. Such rules may provide a feeling of financial stability but if they fail to be felt as legitimate then they may create resentment and instability.