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Opinion article by the Deputy Governor of the Bank of Greece Christina Papaconstantinou entitled: “The role of the insurance sector in Greece” in a special edition of the newspaper “Next Deal”

31/05/2023 - Articles & Interviews

Private insurance contributes to economic growth and to the improvement of social prosperity via two interconnected functions performed by insurance undertakings.

First, insurance undertakings, through their life and non-life insurance activities, provide households and businesses with insurance products and coverage against short-term and long-term risks.

Second, insurance companies are able to pool together sizeable funds, which they channel into the financial system, while at the same time assuming the associated insurance and financial risks. This makes the insurance sector a key institutional investor in the economy, and in fact one with a rather long-term investment horizon.

An essential condition for private insurance to fulfil its important role is public trust in the insurance industry. This trust is built through, among other things, insurers’ high solvency.

Based on 2022 data, the insurance undertakings established in Greece hold 84% more capital than required by the European solvency framework. Furthermore, their total assets amount to EUR 18.7 billion, of which EUR 12.5 billion are held in their investment portfolio, largely consisting of high-rated government (38% of the portfolio) and corporate (15%) bonds. It should be noted that 95% of these government bonds and 88% of these corporate bonds are rated BB- and above. Overall, the investment choices of insurance undertakings can be seen as conservative, as they are guided by high standards of asset-liability management.

The reliability of the insurance market and people’s trust in it also depend on whether the products available on the market offer value for money (i.e. a fair relationship between the costs and benefits) and match customers’ real needs. In fact, the Product Oversight and Governance (POG) process requires that customer value be considered throughout a product’s lifecycle. This aspect and, in a broader sense, sound business conduct are a top priority for supervisory authorities in the European Union (EU), including the Bank of Greece.

The scope for private insurance in Greece to develop even further is significant. The pandemic and the recent natural disasters have revealed an insurance protection gap in Greece. This gap is partly due to Greek consumers’ perceptions of private insurance, but also due to the state failing to recognise the role of private insurance in covering financial losses from personal or commercial risks; this role would be complementary, and not competitive, to the existing state-provided and social protection mechanisms.

Pensions, health care, protection against the risk of death and coverage of natural disasters are lines of business in which insurance companies have long been active. All of the above are very sensitive areas for policymakers. But they are also areas that can benefit from public-private partnerships. Such partnerships, in order to be successful, should be part of a long-term national policy framework and should have clearly defined and transparent terms for all stakeholders.

The challenges faced by the Greek insurance market are related, among other things, to climate change and technological advances and innovation.

The Bank of Greece has repeatedly stressed the important contribution of private insurance to addressing the impacts of climate change. Insurance undertakings can contribute in two ways: (i) by underwriting climate change-related risks (e.g. floods, wildfires) and absorbing losses that would otherwise be borne by natural and legal persons or by the government budget; and (ii) in their capacity as institutional investors, by tilting their investment towards greener and more environmentally friendly choices (e.g. green bonds, renewable energy sources).

Meanwhile, the Greek insurance market can greatly benefit from utilising the available new technologies and innovative tools. These will help insurers to upgrade their functions, products and customer experience, as well as to strengthen their competitiveness by taking advantage of gains which stem from a more comprehensive risk assessment, a better pricing of insurance products, reduced costs through the automation of certain operations, the prevention of insurance fraud and, last but not least, better and personalised customer service.

As part of its commitment to promote financial innovation, the Bank of Greece has developed two important tools. The first one of those is the Innovation Hub, which started operating in 2019 and allows firms interested in introducing innovative financial products, services or business models to submit enquiries and receive feedback about regulatory requirements. The second tool is the Regulatory Sandbox, which enables, under certain conditions, companies to test innovative products, services or business models according to a specific testing plan.

In the light of the above, it is clear that private insurance in Greece is well positioned to fulfil its important role in the economy and society, as well as to effectively address future challenges, taking full advantage of the emerging opportunities to further develop and grow.

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