Time to examine EIOPA’s power grab 

The European Insurance and Pensions Authority (EIOPA) was established to promote financial stability in the insurance and pensions markets, support coordination between national regulatory authorities, ensure the consistent application of EU laws, and protect the rights of insurance policyholders, pension scheme members, and beneficiaries.

EIOPA describes itself as “an advisory body to the Commission, the Parliament, and the Council”. 

Day-to-day supervision of the insurance industry across the EU member states is the exclusive competence and responsibility of the national competent authorities (NCAs). NCAs are designated by each member state under national law. 

EIOPA has been very open about its ambition to change that. It has argued for concentrating more power at European level. 

In the coming months as member states are making arrangements for implementing agreements reached in the Solvency II review, national Parliaments will have the opportunity to review EIOPA’s ambitions and performance. That opportunity should not be missed, writes Dick Roche.

EIOPA’s ambition to control the application of an EU Treaty right

The right of establishment and freedom to provide service provisions in the EU Treaties are pivotal for business and professional mobility within the EU. They are the foundation on which cross-border insurance sales are based, a part of the insurance business that EIOPA is determined to bring under more central control. The issue has been a particular focus of EIOPA’s current Chairperson, Petra Hielkema.

 In a lengthy interview in October 2023, Hielkema argued more powers were needed  “at European level” to control how the freedom to provide services is exercised within the insurance business to ensure the appropriate protection of European Citizens.

In the same interview, Ms Hielkema acknowledged that “there are no problems” in most cross-border services, and that “in cases where supervisory concerns arise, the cooperation amongst supervisors with the support of EIOPA enables us often to mitigate and resolve (those) issues” adding in the “few cases where issues cannot be resolved and EIOPA believes the national supervisory authorities need to do more, we have further legal tools we can deploy with the support of our Members. In most cases this enabled us to solve issues, but unfortunately not in all.”

A month later, addressing an EIOPA conference, the Chairperson suggested the move by European insurance groups to cross-border sales meant that EIOPA needed to be able to step in when “national supervisors cannot or will not stop detriment to consumers”. In such cases, she said,  EIOPA “ needs to have at least the same powers as national supervisors.”

The call was repeated in a speech by Ms Hielkema in November 2024.  It appears again in  EIOPA’s 2023 Report on Supervisory Activities. Released in April 2024 it argues that “the existing legal powers and tools at EIOPA’s disposal have not been sufficient to address some issues in an effective and timely manner.”

A striking aspect of the multiple calls for giving EIOPA  “at least” the same powers as NCAs concerning cross-border insurance sales is the failure to produce evidence to support the radical power shift.

EIOPA has not published evidence of the extent of the ‘problem’ with cross-border sales that needs to be addressed. It has also failed to identify or quantify the number of non-cooperating  NCAs.

EIOPA’s move against quota share reinsurance contracts

 Cross-border is not the only area where EIOPA is anxious to push out boundaries. It has also turned its sights on quota share reinsurance contracts which are widely used and seen in the insurance industry as a simple-to-use and effective tool in risk and capital management. In what is portrayed as a new prudential approach, EIOPA is moving towards the gradual regulatory disallowance of quota share reinsurance contracts. The move is being taken on a case-by-case basis with no public consultation and with little if any engagement with stakeholders.

While the impact of EIOPA’s campaign against cross-border insurance will be most heavily felt in member States with a lot of cross-border business, such as Ireland, Luxembourg, and Malta, the impact of limiting quota share reinsurance will be widespread.   Insurers across the EU will be forced to scrabble for € billions to substitute quota share contracts. It could also trigger capital and market difficulties for the industry and produce a potentially major loss of underwriting capacity in social lines of business such as motor insurance. 

Limiting quota share reinsurance will inevitably trigger premium increases leading to cost of living pressures and inflation. It will undermine the free movement of financial services, limit competition, and undermine the competitiveness of EU operators in comparison to international competitors.  Wider impacts will include more competition for the capital the insurance industry will need to address future challenges such as climate change.

Capacity, competence and accountability

EIOPA is a small agency with roughly 200 staff.  Changing its remit by making it responsible for policing cross-border insurance activity or expanding its involvement in industry practices such as quota share insurance will require considerable upscaling. 

There are, however, issues of more significance than EIOPA's size: questions as to its competence, judgment, and performance. While EIOPA produces a constant flow of publications, much of it rather self-congratulatory,  very little of that output provides material for a full qualitative review of its performance.

A case cited in EIOPA’s 2023 Report on Supervisory Activities provides some insight into how EIOPA perceives itself and about its behaviour.

The report refers to an “independent own technical assessment of the valuation of technical provisions (gross and net of reinsurance) for the motor third party liability”.  This assessment is presented as one of EIOPA’s “key public milestones” of 2023. 

The report in question was completed by EIOPA in March 2023 in highly controversial circumstances. It has not been published.  Access to it was withheld from Members of the European Parliament.  Parliamentary Questions tabled over many over many months about it were batted aside or received derisory responses. Despite EIOPA's efforts to draw a veil of secrecy around the report, a key conclusion was revealed, apparently accidentally by the Board of Appeal of the European Supervisory Authorities. That showed that according to EIOPA’s calculations, the company under review had a deficiency of the net best estimate for the MTPL business at 30 September 2022 that ranged between €550 million and €581m.

EIOPA’s view of the financial position of the company is out of line with the views of the ‘home’ NCA of the insurance group whose subsidiary was at the centre of the case. It clashes dramatically with the views expressed by the European Bank for Reconstruction and Development (EBRD). It clashes with the figures in a series of reports published over the three years before EIOPA’s intervention by the ‘host’ NCA at the centre of the dispute and differs dramatically with figures published only six weeks earlier by that same NCA which alleged shortfalls of €400m and €320m respectively.

An independent review commissioned by the EBRD from one of the world’s leading actuarial consultancies and finalised within days of the EIOPA report, concluded that the company in question was solvent with no capital gap.

Neither EIOPA nor the EU Commission which ‘ran cover’ for it when MEPs sought answers about the case made any effort to reconcile the different conclusions.

Because EIOPA has not published the report in question and failed to provide any insights into the data it used in its analysis it is impossible to reconcile the dramatic divergence between EIOPA’s negative views with the positive views of EBRD, of the group home NCA or the independent consultant’s analysis. It seems improbable however that EIOPA ‘got its sums right’ while everybody else was wrong.

An opportunity too good to miss

The European Parliament approved the final text of the Solvency II Review in October 2024, and the Council gave its final approval shortly afterward. The four-year-long review was established to ensure that the EU regulatory framework was robust and fit for purpose, to foster a more competitive and innovative insurance market, and to address any unintended consequences of the original directive.

In framing the agenda for the review process the EU Commission, in its own words built “extensively on technical advice provided by EIOPA”. The role and functioning of EIOPA was part of the Solvency II review process. EIOPA’s resources, expertise, and governance structures were examined. Reinforcing EIOPA’s authority, enhancing its supervisory capacity, and maintaining “robust internal governance” all featured in the Review.  Transparency also got a reference, albeit a passing one. There is however no indication that the issue of lack of democratic accountability or the unhealthy secrecy that featured in the case that EIOPA labelled its  “key public milestone” received any consideration.

Full implementation of the changes agreed in the Solvency II review process is expected before the end of 2026 or early in 2027. In the coming months, member states must put together the measures necessary to implement the changes agreed in the review. That will offer Members of the EU’s national parliaments the opportunity to question the democratic deficit demonstrated during the last European Parliament when efforts to probe the facts about EIOPA were frustrated and, perhaps to get the answers that were denied to MEPs.  The opportunity is too good for parliamentarians to miss.

Dick Roche is a former Irish minister for European affairs and a former minister for environment, heritage and local government.

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