EIOPA responded to the EC consultation on a new digital finance strategy for Europe. In its response, EIOPA highlighted that a sound approach to financial innovation should strike a balance between enhancing financial innovation and ensuring well-functioning consumer protection and financial stability frameworks. EIOPA espouses further improvements in the areas of fit-for-purpose insurance regulations, ethical and transparent use of data, a common cyber incident reporting framework, and data standardization.
In its response, EIOPA emphasizes that insurance regulation must be fit for purpose. For this reason, it is crucial to understand how new technologies and business models drive new risks and opportunities. Improvements and clarifications can be introduced, for example, on paper requirements by default, on the definition of insurance, and on outsourcing requirements. Additionally, there must be a fair, ethical and transparent use of data. Data is a key driver of financial innovations such as those enabled by artificial intelligence. Data analytics governance frameworks are crucial to engender trust and ground the use of data in common ethical principles. This is an area where stakeholders have called for more guidance, so EIOPA is working with an Expert Group on Digital Ethics in insurance to bring further clarity on fairness, explainability, and governance aspects of artificial intelligence and similar use cases. EIOPA also states that access to relevant datasets is critical for insurance. In this area:
- EIOPA has recently started a broader discussion with stakeholders on possible balanced, forward-looking, and secure approaches to Open Insurance and its risks and benefits to the insurance industry, consumers, and supervisors. This work is ongoing and EIOPA sees some potential for the sector if handled sensitively. Different Open Insurance solutions could further facilitate the uptake of suptech.
- EIOPA encourages EC to promote the interoperability of applications and portability of data between different platforms (that is, reduce lock-in effects) and to improve the power of consumers to switch between providers.
- EIOPA explains that a common cyber incident reporting framework is critical for sharing knowledge about incidents and to encourage the development and growth of sound underwriting practices.
- EIOPA believes it is critical that future standardization is built on what has already been achieved. EIOPA has extensive experience in this regard and is ready to be closely involved in future discussions on data standardization. Innovation and digitalization could also benefit from a wider adoption of existing standards (for example, the Legal Entity Identifier). The elements EIOPA considers as useful in terms of standardization are metadata management including schema and variables, data formats and common data models, and data exchange protocols and APIs.
- EIOPA has not yet done detailed work on regtech; however, it has developed a suptech strategy. One of the areas commonly referred to when addressing regtech is supervisory reporting. In this case, the lack of harmonization of EU rules, namely consistency across definitions, formats, and processes within the financial services reporting legislation, needs to be achieved to contribute to further development of such tools. EIOPA considers that translating financial services legislation into machine-readable and executable reporting requirements could benefit both, the reporting entity and the supervisor. It is likely that the long-term future compliance with regulatory and reporting requirements will be largely algorithm/code based.
Keywords: Europe, EU, Insurance, Fintech, Regtech, Suptech, Cyber Risk, Reporting, Solvency II, Machine-Readable Regulations, Digital Finance Strategy, EC, EIOPA
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