Good policy is based on sound business operations that customers, other institutions and parties can rely on. Good regulation, external supervision and a good system of self-regulation contribute to this. As a trade association, the Association puts current issues on the agenda, offers members a platform for discussion, shares good practices and represents the sector in the public debate.
For insurers, the customer is at the heart of everything they do. A robust system of laws, rules, regulations and the associated supervision of compliance via the Dutch Central Bank and the Netherlands Authority for the Financial Markets contributes to protecting customers, monitoring the quality of products and thus ensuring a stable sector. Europe supervises European insurers through the European supervisory framework Solvency II.
Vision on supervision
There are three pillars at the basis of sound business operations: transparency to the outside world, insurers who are accountable for their own performance and that internal supervision is effectively anchored in the organisation. In addition to external supervision by DNB and the AFM, members of the Association are subject to self-regulation .
Principle-based supervision
Since the financial crisis, insurers have had to deal with increasingly strict legal rules, more intensive supervision of compliance and a sharply increasing role from Europe in this area.
Laws and regulations should be principle-based as much as possible. This means that insurers endorse the usefulness and necessity of laws and regulations, but at the same time the legislator must keep an eye on their practical implementation. In other words, the legislator must also enable insurers to tailor laws and regulations to their specific situation, i.e. tailor-made solutions to enable efficient and effective business operations.
Efficient and effective external supervision, that is what the Association is committed to at national and European level (through, for example, the umbrella organisation Insurance Europe). The Vision on Supervision contains 10 important principles:
- Supervisors ensure proper sizing
- Regulators manage public expectations
- In their communication, supervisors pay attention to the balance between openness and confidentiality
- Supervisors supervise effectively: risk-based with an eye for value for money
- Regulators do not take the place of the legislator or the insurer
- Supervisors only conduct and coordinate investigations that are absolutely necessary
- Supervisors work well together to avoid overlap
- Supervisors spend most of their financial resources on their primary task: supervising
- Supervisors supervise horizontally as much as possible
- Supervision by the AFM and DNB will not be replaced by a single European supervisor
Plea for better practicability and cooperation between the Sanctions Act and the Wwft
At the end of March 2024, during a roundtable with MPs from VVD, NSC, D66 and PVDA/GroenLinks, the Association's general director Richard Weurding pleaded for better practicability and more cooperation with other gatekeepers on the Sanctions Act and Wwft.
During the roundtable, Weurding emphasised several times that the effectiveness of the Sanctions Act and the AML can be much improved if there is more room for a risk-based approach. As an example, Weurding mentioned the broad relationship concept in the Sanctions Act, as a result of which insurers carry out an average of more than 40 million UBO checks and 500 million sanctions checks every year, while the revenue is meagre. That is why the Association Director argues for a risk-based investigation obligation with less severe research into relationships with an inherently low risk, such as government agencies and private non-life insurance in the Netherlands. Weurding would also like to see the concept of 'relationship' within the SW regulations framed by law because the concept is open to interpretation and therefore open to discussion.
More collaboration on the front end
According to Weurding, a similar issue arises with the AML. Gatekeepers (such as life insurers, brokers, and banks) need to re-identify and verify each new customer. That means extra work and it is annoying for the customer because they have to provide the same information every time. Moreover, this check, on unusual transactions by life insurers, also yields very little. That is why the gatekeepers argue for more cooperation in the chain to prevent duplication of work by various gatekeepers, in accordance with the KPMG report Joined forces, presented at the end of last year, towards a more effective and efficient interpretation of the gatekeeper role in the Netherlands.
The report focuses on mutual (public and private) cooperation, discusses what gatekeepers can do themselves and where they need support from the government.
Good practices
Good practice in calculating bankruptcy value
Many insurers provide information to DNB in its role as resolution authority. One of DNB's information needs focuses on the so-called bankruptcy value of both life insurers and non-life insurers. The good practice shows how insurers can give substance to the valuation according to the Decree. The document outlines the choices an insurer can make to meet the goals of a calculation. The document also shows how the insurance industry (non-life and life insurers) wants to meet the legal requirements of the 'Decree on the Valuation of Insurance Claims in Bankruptcy' .
Good practice in cost allocation
DNB has calculated how much investment institutions and investment firms must contribute to the supervisory costs. The Association has drawn up a good practice cost allocation with positions that are a concretisation of the current laws and regulations and a further elaboration of the assumptions used by DNB from their cost study. More explanation and information can be found in DNB's Q&A.
Good practice reviews
DNB assesses whether (prospective) directors and supervisory directors are suitable to perform their duties and whether their reliability is beyond doubt.
DNB's assessment of (prospective) directors and supervisory directors leads to sound and ethical financial institutions that meet their obligations. The Association has drawn up a good practice assessment with building blocks for directors and supervisory directors to be well prepared when nominating candidates to DNB.
Recovery and Resolution
When it comes to protecting customers in the event of an insurer going bankrupt, we have taken an important step in the Netherlands in recent years. The Recovery and Resolution of Insurers Act stipulates that every insurer that must comply with Solvency II must draw up a preparatory crisis plan. This plan is then approved by the Dutch Central Bank (DNB). DNB is also drawing up a resolution plan for large Dutch life insurers. In this respect, Dutch law goes further than the framework prescribed in Solvency II .
The Preparatory Crisis Plan and the Resolution Plan
A preparatory crisis plan ensures that an insurer thinks about the measures to be taken in financially healthy times for the situation in which its financial position seriously deteriorates. In the event of a significant deterioration in the financial position, this will at least:
- an imminent or actual breach of the Solvency Capital Requirement (SCR),
- an imminent or actual breach of the minimum capital requirement (the MCR),
- an imminent or actual deterioration of the liquidity position.
Crisis plan
The preparatory crisis plan contains measures to get the insurer back on track. The purpose of the plan is to investigate and have available solutions for potential crises and describes the financial, operational, and legal feasibility of these solutions. Good preparation allows the insurer to take immediate measures in the event of financial problems. If the measures do not improve the insurer's situation, or do so insufficiently, it will be settled by DNB or will go bankrupt.
Resolution plan
A resolution plan describes how DNB intends to resolve an insurer or insurance group prior to bankruptcy. It describes the instruments used by DNB and how, and what obstacles there are to resolution. Important characteristics of the insurer that are relevant to the settlement are also described, such as derivative contracts or the presence of unit-linked insurance policies. An insurer must periodically review the settlement plan. On the basis of the resolution plans, DNB assesses the resolvability of the insurer and may require the insurer to take specific measures to remove obstacles.
Preventing bankruptcy
Both plans aim to avoid bankruptcy. In the unlikely event that an insurer does go bankrupt, the plans must protect the customer as well as possible. The Dutch Insurers Recovery and Resolution Act has not gone unnoticed in Europe either. A number of Member States are looking at whether they can adopt the Dutch model for recovery and resolution.
Insurers and crisis
What happens if an insurer goes bankrupt?
Non-life insurers
Non-life insurers, like all other financial institutions, can be affected by, for example, a crisis. However, the non-life insurance company must immediately reserve the premium money in order to be able to pay out damages. That is why a non-life insurer must always have a relatively large amount of liquid assets at its disposal. A non-life insurer invests only a limited part of the incoming funds, including premiums. For this reason, non-life insurers are less sensitive to fluctuations in the financial markets.
Non-life insurer bankrupt?
If an insurer goes bankrupt, you as a policyholder must take out a new contract with another non-life insurer. This insurer will assess and process your application in the same way as other applications. Health insurers have an acceptance obligation for the basic health insurance.
Ongoing claim with bankrupt non-life insurer
In the event of bankruptcy, a customer's claim against his non-life insurer must be submitted to the trustee as a (preferential) claim. A special arrangement has been included in the Health Insurance Act for basic health insurance. The government does not guarantee claims that have been submitted and are no longer paid out. An exception is the motor traffic guarantee fund, which compensates the injured party if an insurer is unable to meet its obligations under the compulsory motor vehicle liability insurance.
Health insurers
Health insurers are non-life insurers. That is why what has been said above about non-life insurers in general also applies to health insurers.
If a health insurer goes bankrupt, the basichealth insurance will be continued with another health insurer. They are obliged to accept you under the same conditions. For ongoing medical treatments, which are covered by the basic insurance and started before the health insurer went bankrupt, a separate regulation has been included in the Health Insurance Act. These medical treatments are paid out by the Health Insurance Board in full accordance with the policy conditions. So you do not have to file a claim with the bankrupt health insurer.
Life insurers
Life insurers, like other financial institutions, can be affected by a crisis. For example, because the value of their invested capital decreases when stock market prices fall. However, the solvency requirements set by the European supervisory framework are high, which means that a life insurer will not easily run into liquidity problems (too little cash to pay out to customers). In addition, unlike banks, life insurers do not run the risk of a so-called 'bank run'. They have long-term contracts with their customers that customers cannot cancel free of charge.
Annuity policy/endowment insurance in case of bankrupt life insurer
If the life insurer goes bankrupt, the policyholder has a preferential claim on the estate as large as the claims accrued up to that point. If there is not enough money in the estate, there is a chance that the trustee will not be able to pay the entire claim to the policyholder. The government does not guarantee claims that have been submitted and are no longer paid out.
No guarantee scheme for the insurance sector
If a customer lacks confidence in their bank, it is relatively easy for them to switch to another bank. If this happens en masse, a so-called "bank run" occurs. Even a perfectly healthy bank can get into trouble due to a "bank run". To prevent this, the deposit guarantee scheme has been introduced. Customers' savings are guaranteed (even if a bank goes bankrupt) up to a certain maximum amount.
The nature of insurance business is fundamentally different. Life insurers generally enter into long-term contracts with their customers and the timing of the payout depends on a particular event. Terminating a life insurance policy prematurely usually costs money. This makes it less attractive for customers to switch insurers in the meantime. A 'run' is therefore less obvious. That is why the insurance industry does not have a guarantee scheme.
If an insurer goes bankrupt, the current priority scheme (preferential claim of policyholders) ensures that policyholders receive a refund of an amount that is a percentage of their claim against the insurer. This could be more than the current €100,000 under the deposit guarantee scheme for banks.