Q: Which is the importance of insurance industry for the European economy? What is the role of the insurance industry in supporting the general economic landscape?
Michaela KOLLER: Insurers provide many important benefits to the European economy. One is the cover they provide to policyholders. By pooling the risks faced by policyholders, insurers spread the financial impact of an event that could be disastrous for one policyholder across a wider group, where it is more easily absorbed.

Pooling in this way also allows insurers to combine different risks to reduce their exposure to any one risk in particular. This, in turn, allows them to keep the price of policies at reasonable levels.

From an economic perspective, insurance provides people and businesses with financial protection, so that when something bad happens they can maintain a certain standard of living, and public finances need not be burdened. It, therefore, makes sense for policymakers to enable as many people and businesses as possible to take out suitable insurance cover.

Millions of individuals, families and businesses across Europe benefit from insurance. In 2013 insurers paid out €952bn in benefits and claims. That is equal to €2.6bn being paid out to people and businesses every day.

Insurers are also Europe's largest institutional investors. In 2013 they had over €8.5 trillion of assets under management. That is roughly equivalent to 60% of the entire Gross Domestic Product (GDP) of Europe. Insurers hold approximately 25% of all European government bonds and approximately 21% of European corporate bonds, as well as a significant percentage of all listed equities, and billions of euros in other assets.

Through making such significant long-term investments, insurers encourage stability and growth by enabling governments and companies to make investments themselves. Therefore, insurers' investments are important for the whole economy, especially when refinancing banks and the real economy. Insurers also contribute directly to important infrastructure projects, such as bridges, hospitals and new housing. While these don't make up a large percentage of insurers' investments, they are certainly an asset class that could be suitable for more investments in the future.

Insurers also help to defend against downturns. People and businesses tend to keep paying their insurance premiums during times of economic downturn. This constant flow of premiums enables insurers to continue to fund the economy during difficult times. It also enables them to buy suitable assets that others need to sell, which in turn helps to kick-start recovery. In this way, insurers help to reduce volatility in the financial markets.

Q: How will Solvency II impact insurers' abilities to keep on delivering these benefits?
M.K.: While there is wide-spread industry support for Solvency II, there are some important details that need improving. In particular, there are significant concerns that this new regulation treats insurers as if they invest like traders, and are faced with the same risks as traders.

Insurers invest to match the promises they make to their policyholders, and for most of their business this makes them very long-term investors, which is the opposite of traders. Treating insurers like traders, therefore, exaggerates the actual risks involved in long-term investing.

As a result, the capital requirements related to long-term investments in Solvency II are set too high. This will create unnecessary costs and problems for insurance companies wanting to offer long-term products to policyholders, where they have to invest long-term to match their promises to policyholders.

This will make long-term insurance products (such as pension products with guaranteed returns) more expensive than needed and could also reduce the availability of such products. It will also limit insurance companies' ability to maintain their traditional role as patient long-term investors, providing stability in times of financial crisis, as well as reducing their ability to invest in long-term assets, such as infrastructure. The regulatory requirements governing insurance business must, therefore, take into account the long-term perspective.

Q: What other challenges does Solvency II pose for insurers?
M.K.: The industry has and continues to work extremely hard in order to comply with Solvency II and, overall, I believe that it will be in good position to begin operating under Solvency II requirements from 1 January 2016.

The main challenge from an operational perspective remains the implementation of reporting requirements. This is because the final quantitative reporting templates (QRTs) will be published in either June or July 2015, only five to six months before the start of Solvency II. Some of the new data requirements are likely to be difficult to report in the short-term, due to the additional operational costs that they will impose on insurers.

Additionally, the current timeline regarding financial stability reporting is extremely worrying, as solo and group undertakings will only have six weeks to report on quarterly and yearly information. This timeline is not realistic and is considerably shorter than the timeline enshrined in the Solvency II framework. The industry is, however, working with the European Insurance and Occupational Pensions Authority (EIOPA) to find a way forward on these issues.

The implementation of reporting requirements will, in any case, be extremely challenging. It will need to be carried out in parallel with other work to comply with Solvency II on quantitative and qualitative requirements, as well as companies' normal business activities. This will lead to an extremely busy last quarter of 2015 and first quarter in 2016.

Q: What are some of the other regulatory challenges that insurers face at a European level?
M.K.: One concern is that proposed and impending regulations will cause an information overload for insurance consumers. Ensuring transparency that effectively helps consumers compare products and make informed decisions is a key milestone to better consumer protection. However, the disclosure of too much information is counterproductive, and risks distracting and confusing our consumers and, eventually, moving them away from informed decisions.

The focus of regulation should, therefore, be on providing a high quality of relevant information to consumers, rather than just a high quantity.

Regrettably, this is not the path that the EU is on today. The latest legislative developments at EU level will dramatically increase the amount of information that insurers will be required to provide to consumers.

For example, currently a consumer willing to purchase an insurance-based investment product online from a broker has to be provided with 75 different pieces of pre-contractual information under existing EU legislation. As things stand, the total number of information disclosure requirements is set to double. With the new Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation, the Solvency II Directive and the European Commission's (EC) proposal on the Insurance Mediation Directive (IMD 2), consumers will end up being provided with 147 different pieces of pre-contractual information.

When broken down into its component parts, the number of pre-contractual product disclosures will increase from 20 under the Life Directive, to 66 under Solvency II and the PRIIPs Regulation, representing a 330% increase, while the disclosure requirements for sales rules would rise from nine under IMD 1 to 35 under IMD 2, representing an increase of 388%. Moreover, numerous additional examples of duplicative requirements can be found, including duplication of pre-contractual information between the PRIIPs Regulation and the Solvency II Directive, and disclosure of costs and charges between the PRIIPs Regulation and IMD 2. In practice, it means that consumers risk receiving twice the same type of information, but in a different wording and format.

Of course, this is of no benefit to our consumers or our industry.

There is a key and pressing need for "smart regulation" here. The new EC has identified smart regulation as one of its priorities, thereby committing itself to delivering EU laws that bring the greatest possible benefits to people and businesses in the most effective and coherent way.

It is, therefore, crucial that the EC considers the cumulative impact of the overload and duplication of requirements, and takes steps to remove them where they exist.

Trialogue negotiations between the EC, the European Parliament and the Council of Europe on IMD 2 are now underway. The first meeting took place on 26 February and further trialogue discussions will take place over the coming months with the aim of reaching an agreement by the end of the Latvian Presidency of the EU at the end of June.

Data protection legislation, currently being considered, also poses some challenges to Europe's insurers. The industry is particularly concerned that proposed rules on profiling do not take into consideration the way that insurance works. As part of the underwriting process insurers process personal data to assess the risk consumers wish to cover. In other words, insurers need to be able to profile their potential policyholders in order to evaluate the risks they wish to transfer to the insurer, and to then tailor cover to the their needs and demands.

For example, if someone wants to take out a car insurance policy, the insurer will need to know how many years they have been driving and how many car accidents they have had in order to calculate the risk they pose. Any restrictions on profiling could, therefore, translate not only into higher insurance prices and less insurance coverage, but also into an inability to provide consumers with appropriate insurance. The new data protection Regulation should, therefore, be amended to allow insurance-related profiling at the pre-contractual stage and during the performance of the contract.

Another concern is that the proposed Regulation could restrict insurers' ability to share information in order to combat fraud, which exists in all lines of insurance and is estimated to represent up to 10% of all claims expenditure in Europe. One of the ways in which insurers detect suspicious activity is by examining policyholders' previous claims history; for example, whether someone has made multiple claims of the same nature.

If insurers are not able to share claims history data, their efforts to protect honest consumers against the consequences of insurance fraud would be obstructed. The proposed Regulation should, therefore, explicitly recognise the need for organisations, including insurers, to process and share information for the purposes of fraud detection and prevention.

Q: What challenges do Europe's insurers face at a global level?
M.K.: The International Association of Insurance Supervisors (IAIS) is developing a Common Framework (ComFrame) for the supervision of global insurance groups (IAIGs), including an international capital standard (ICS), which the IAIS aims to have finalized by 2016.

Considering experiences in Europe, where the Solvency II project has taken more than 13 years to develop, the three year timetable for these international standards is particularly ambitious.

Developing effective regulation requires effort and engagement from both regulators and the industry to design and test a risk-based system that aims to capture the true risk profile of the insurance business, while minimising unintended consequences that could arise from approaches that would focus more on simplicity and less on measurement of real risk.

The insurance industry supported the initial objectives of ComFrame, ie to ensure that all large IAIGs have high-quality governance and risk management covering all their group-wide activities. The industry also welcomed ComFrame's focus on ensuring all groups have a lead supervisor and a well-functioning college of supervisors ensuring supervisory oversight for all group wide activities.

However, the initial objectives of ComFrame have been changed and a new focus is being placed on developing global risk-based ICS. Work on the ICS is being developed against particularly ambitious deadlines, given the significant differences that currently exist between solvency regimes across the world.

Insurance Europe therefore believes that the IAIS should take a "stepping stones" approach and aim for achievable incremental progress in the ICS development. We expect that input received on the consultation, together with the results of the field testing exercise that will be conducted in a few months' time, will trigger the IAIS to make a reconsideration of timeline and a more clear definition of milestones.

Interview taken by the National Association of Insurance and Reinsurance Companies in Romania - UNSAR.