BigTech in insurance | Cyber Insurance | Blockchain Sandbox | EU Digital Wallet | Open Insurance | Financial Inclusion | Differential pricing

How should BigTechs' involvement in finance be regulated and supervised?

On 8–9 February, the Bank for International Settlements (BIS) hosted the conference “Big techs in finance – implications for public policy”.

The conference served as a forum for policymakers, regulators, supervisors and academics to reflect on and discuss various aspects of the regulation and supervision of BigTech firms in finance.

Videos of all keynote speeches and panel discussions are now available here.

If you are interested in the topic you could also check Joint ESAs Report on Digital Finance where the three European Supervisory Authorities (EBA, EIOPA and ESMA) put forward proposals aiming at maintaining a high level of consumer protection and addressing risks arising from the transformation of value chains, platformisation and the emergence of new ‘mixed-activity groups’ i.e. groups combining financial and non-financial activities, including BigTechs.

Available here.

The European Blockchain Regulatory Sandbox has been launched.

The sandbox establishes a pan-European framework for regulatory dialogues to increase legal certainty for innovative blockchain technology solutions.

Legal advice and regulatory guidance will be provided in a safe and confidential environment.

The sandbox will annually accept cohorts of 20 blockchain use cases.

They will be matched with relevant national and EU regulators for a safe and constructive dialogue on the most relevant regulatory issues.

Use cases will be selected on the basis of the maturity of the business case, legal/regulatory relevance and their contribution to the EU’s wider policy priorities.

Those initiatives are only successful if they reach to relevant innovators so please do share it with innovators who might find it useful.

Read more here.

In 2021 European Commission proposed EU Digital Identity Regulation - a personal digital Wallet for EU citizens and residents.

According to the proposal it will be available to EU citizens, residents, and businesses who want to identify themselves or provide confirmation of certain personal information.

The Wallet will be secure and convenient way for identification (managed at the click of a button on the phone) and it can be used for both online and offline public and private services across the EU.

What is EU Digital Wallet, how it might influence financial and insurance services and what is the state of play of the project? Read more here.

Recent European Union Agency for Cybersecurity (ENISA) report analyses current perspectives and challenges of Operator of Essential Services (OESs) related to the acquirement of cyber insurance services.

What are essential services? These are the entities that provide a service which is essential for the maintenance of critical societal and/or economic activities.

It includes for example sectors such as energy, transport, banking, financial markets, health, water supply and digital infrastructure.

The work is particularly focused on the analysis of OESs as acquirers of cyber insurance products and services.

The report provides recommendations to policymakers and OES on possible ways to face these challenges.

Recommendations to policy makers:

• Implement guidance mechanisms to improve maturity of risk management practices of OESs;
• Promote the establishment of frameworks to identify and exchange good practices among OESs, specially related to identification, mitigation and quantification of risk exposure;
• Encourage initiatives, including standardisation and guidance development, to provide assessment methodologies on the quantification of cyber risks;
• Develop collaborative frameworks with public and private partners to enable skills frameworks and programmes for cyber insurance, particularly in areas such as risk assessment, legal aspects, information management and cyber insurance market dynamics.

Recommendations to OESs:

• Make progress towards the maturity of risk management practices;
• Allocate or increase budget to implement processes on identification of assets, key metrics, conduct periodic risk assessments, security controls identification and quantification of risks based on industry best practices;
• Improve knowledge transfer and sharing with other OESs.

?Read full report here.

The Aspen Institute has published a detailed roadmap for U.S. policymakers to deliver first National Strategy for Financial Inclusion.

Drawing on lessons learned from other countries, the paper outline a set of guiding principles, an implementation guide and a measurement framework to inform the development of a strategy.

Five Guiding Principles for developing the strategy as highlighted in the paper:

1. Prioritize traditionally underserved or excluded people and communities.
2. Measure progress based on people’s financial outcomes from the financial system.
3. Address the full suite of financial services and products that people need to achieve stability, resilience, and long-term financial security.
4. Take a holistic approach that considers the linkages between the financial system, private and public benefits, and enabling infrastructure.
5. Evaluate, use, and harmonize the full range of tools available to the U.S. Federal Government.

While the paper is targeted for U.S. policy makers it might also provide inspiration for other jurisdictions working on financial inclusion or planning a dedicated strategy.

Read full report here.

EIOPA has published a supervisory statement on differential pricing practices with the aim of eliminating price-setting strategies which lead to the unfair treatment of customers.

According to the press release, the price customers pay for insurance coverage typically reflects the individual risk profile and the overall costs incurred by insurers.

However, some manufacturers adjust prices based on characteristics that are related neither to the underlying risks nor the cost of service.

Large data sets and increasingly sophisticated analytical tools and technologies such as AI enable manufacturers to deploy differential pricing practices on a large scale.

Of particular concern are products where premium increases take place repeatedly based on reasons that are not related to the risks or cost of service.

These practices unfairly affect vulnerable customers such as the elderly, those with limited access to digital channels and those with limited digital literacy.

EIOPA’s supervisory statement clarifies supervisory expectations to pre-empt unfair differential pricing practices.

Read full statement here.

Financial Planning for Singaporeans enhanced with insurance data

Over the course of February and March I did not capture too many policy or regulatory developments directly related to open insurance. However there were still some interesting developments.

Since the end of last year consumers in Singapore are able to digitally access and aggregate information on their life, accident and health insurance policies held across different insurers.

The inclusion of insurance data adds to existing banking and investment data that individuals can retrieve, making it easier for individuals to identify insurance protection gaps.

Consequently consumers will?have a more comprehensive view of their financial status and will be able to make more informed financial planning decisions.

Consumers can retrieve in a consolidated view following information:

• Product type
• Policy details including surrender value and maturity dates etc.
• Coverage details including plan type, sum insured, hospitalisation limit and coverage expiry date etc.
• Premium details including premium mode frequency, premium payment term and total premium paid etc.
• Payout details including total accumulated income amount and payout frequency etc.
• Fund details and its projection including fund cash value and guaranteed value at maturity etc.

Read more here and here.?

Open finance legislation in New Zealand

The New Zealand government is progressing work on a consumer data right (CDR) framework and will explore banking as the first sector for this to apply to.

A CDR is a mechanism that would require data holding businesses to safely and securely share data with an accredited third party, should a consumer request it.

The government notes the CDR will support competition, productivity and innovation and increase consumer welfare.

Giving consumers more control over their data will make it easier for them to shop for services and give them access to new and innovative products and services.

It will also allow consumers to have greater trust that when their data is shared, this is done safely and for their benefit, with their prior knowledge and consent.

Banking should be the first sector nominated for designation under the CDR.

Also called ‘open banking’, a CFR in the banking sector would allow customers to consent to securely sharing their data with third parties that provide value-added services, such as payment services or financial analysis, helping them make better-informed financial decisions.

For small businesses, this could unlock more integrated day-to-day services, including business monitoring, inventory management, reporting, e-commerce, and payment systems.

The options for nomination considered by officials were banking, insurance, other financial services, energy (electricity and gas), health, the primary sector, telecommunications, and loyalty schemes.

The following criteria were applied:

• The opportunities or benefits that a designation could realise and problems it could solve or mitigate in the sector.
• The ease and speed with which the CDR could be implemented in the sector.
• Whether data sharing in the sector is likely without regulatory intervention.

As the CDR will be rolled out on a sector-by-sector basis, other sectors that ranked highly, such as financial services including insurance, energy and health, could be logical next steps.

Work is now underway on the design options for the regime to ensure it is safe, simple, and cost effective for participants and government.

The next step will be industry engagement and consultation, which will include the release of an exposure draft Bill presumably over the course of this year.

Read more here.

Data portability in open banking: privacy and other cross-cutting issues

Recent OECD paper brings together the views of private and public experts from a wide variety of countries to explore opportunities and challenges of open banking.

It looks open banking from financial regulation, privacy protection, and competition perspective.

The paper discusses the different approaches taken by jurisdictions across the globe, and the importance of regulation and standards.

It will inform OECD work to consider how cross-sectoral cooperation between financial, competition and data protection authorities could help further open banking.

Read full report here.

Combining Open Finance and Data Protection for Low-Income Consumers

According to the recent CGAP paper, open finance gives low-income consumers greater control of their personal information, helping make their data work for them, giving them access to more products at lower costs through multiple and easy-to-access channels, and allowing for remote consumer onboarding.

Under open finance banks and financial service providers would be required, based on explicit consent, to share consumer data with other financial services providers and/or third-party providers, such as FinTechs or InsurTechs.

The ability to move entire financial histories both empowers consumers and poses risks.

For example, data users might pass on data to another party without consumers having much control over it or assurance that it will be used in their interest.

Also, in the wrong hands, data could be used to commit fraud or cause other harm, undermining consumers’ trust in open finance and leading to low adoption.

This recent GAP note lays out the data protections that would help develop consumer trust and confidence in open finance by identifying connections and potential choices regulators can make to incorporate adequate protections into open finance regimes.

Read full report here.

The provision of information to consumers about the processing of vehicle-generated data

There is a lot of ongoing discussion around in-vehicle data, its access and (re)use.

This recent report presents the findings of a study on the provision of information to consumers about the processing of vehicle-generated data.

The goal was to gain insight into the legal requirements (from an EU consumer law perspective) and consumer expectations when it comes to the provision of information about data processing that occurs as part of the connected cars.

The study compared these requirements and expectations against actual practices among large car manufacturers in a selection of European markets that sell connected cars.

This comparison formed the basis for an analysis of these manufacturers, in order to identify best practices and areas where improvement is needed.

This, in turn, formed the basis for the formulation of concrete recommendations about actions that manufacturers could take in this regard.

Read full report here.

Regulation can serve as an enabler by setting clear guidelines and standards that encourage innovation and competition, drive innovation by addressing market failures and promoting sustainability, consumer protection and level playing field. It can shape the future of insurance.

In this personal monthly newsletter I will share with you most recent InsurTech regulatory and policy insights in the EU and beyond.

I hope those insights contribute directly or indirectly to good consumer outcomes and ultimately increase innovation and trust in insurance industry.

Disclaimer: Views expressed in this newsletter are exclusively my own.

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