2022 witnessed significant developments in the EU regulatory and business environment for re/insurance business, ranging from the negotiations of a comprehensive reform of the EU's re/insurance prudential framework (Solvency II), the adoption and entry into force of multiple sustainable finance regulations, and the regulatory initiatives in the area of digitalization and digital finance. Multiple reforms will continue in 2023 and several new initiatives will be proposed.
The EU co-legislators will continue negotiating the proposed revision of the Solvency II Directive. While the Council already adopted its negotiating position in summer last year, the European Parliament is still considering the proposals put forward by the Commission. The discussions to date have revealed several significant contentious areas of the reform, such as the calibration of the quantitative capital requirements and the integration of the climate change risks in the Solvency II framework. The upcoming Solvency II reform negotiations between the Council and the European Parliament in 2023 should be complex and may produce unexpected results.
In 2023, the EU co-legislators will also continue negotiating another core pillar of the EU regulatory framework for re/insurers, i.e. the proposed Insurance Recovery and Resolution Directive (IRRD). Similar to the Solvency II review, the adoption of the IRRD proposal will not be a straightforward process given the criticism that the current proposal is too similar to the existing EU recovery and resolution framework for banks.
The EU rules for the distribution of re/insurance products should also be revised in 2023. The review of the Insurance Distribution Directive (IDD) was originally foreseen in 2021. However, due to late transposition of the IDD in some Member States and the Covid-19 pandemic, a comprehensive review of the IDD is currently scheduled for the first half of 2023. Among other topics, the review may lead to changes to the scope of the IDD, amend the requirements relating to conflicts of interest and transparency in the non-life insurance market, and impact the remuneration practices in the life insurance market.
Re/insurers should also expect further regulatory/supervisory initiatives in the area of sustainable finance. In 2023, the focus of the EU agencies – the European Insurance and Occupational Pensions Authority (EIOPA) and the Joint Committee of the ESAs - should shift to the proper implementation and application of the recently-adopted rules on the risk management, reporting and disclosure of sustainability risks and factors. Work should also continue on addressing protection gaps and greenwashing risks.
2023 will also see further legislative and regulatory initiative in the area of digitalization and financial innovation. The Commission is expected to publish its proposal for an open finance framework in the second quarter. Meantime, EIOPA intends to start preparing for the application of the recently-adopted Digital Operational Resilience Act (DORA). Further EU focus areas include a safe use of artificial intelligence applications in finance, open insurance and the development and impact of platforms within the insurance value chain.
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