Mr. Vladimir Savov, Deputy Chairperson of the Financial Supervision Commission, Head of the Insurance Supervision Department, participated in an international conference on “Risk-based insurance supervision – the way forward in the post-pandemic world”, organized by the Croatian Financial Services Supervisory Agency (HANFA). The event brought together representatives of regulatory authorities from Central and Eastern Europe, who discussed insurance risks and prospects in the post-pandemic environment.

In his presentation, Mr. Savov drew attention to the major challenges in supervising the market behaviour of insurers and insurance intermediaries, the growing digitalization of the insurance sector following the Covid-19 pandemic, and shared the experience in supervising the insurance sector by the Financial Supervision Commission in Bulgaria.

He told the conference that “Despite the unprecedented global situation caused by Covid-19, the insurance market must find a balance between protecting consumer interests on the one hand and maintaining financial stability on the other.” Mr. Vladimir Savov also pointed out the advantage of digitalization in the insurance sector, noting that insurers have responded adequately to the pandemic and have imposed various workable solutions to facilitate insurance service users. He concluded that regulators must also adapt to the constraints and risks posed by the Covid-19 pandemic, adapt their supervisory practices to dynamically changing conditions, identify the effects on supervised entities ahead of time, and use technological solutions and develop their capacity to be able to make timely and effective decisions.

The Deputy Chairperson of the Financial Supervision Commission, Head of the Insurance Supervision Department, took part in the program Money.bg on Bulgaria On Air TV. In the interview, Vladimir Savov noted that there are positive trends in both non-life and life insurance. In his opinion, insurers have quickly managed to adapt their activities to the restrictions imposed by the pandemic. “Digitalization in insurance is something that will continue to develop in the future,” said Mr. Savov.

“The challenges posed by the pandemic to the insurance, supervisory and regulatory sectors have served as a catalyst for processes that have evolved over time but had not been considered a priority,” said the Deputy Chairperson of the Financial Supervision Commission, Head of the Insurance Supervision Department – Vladimir Savov, at the special event of the Tech21 series.

Vladimir Savov also said that in the first and most acute months of the Covid-19 pandemic, the high degree of digitalization is what is observed in the insurance sector and he believes that the process will continue and develop faster. He added that for the Financial Supervision Commission, as a regulator, the priorities that remain foremost are: to protect consumer rights as well as the financial stability of the insurance sector.

In conclusion, Mr. Savov drew attention to the risks that digitalization entails, such as cybersecurity, protection of personal data, non-disclosure of sensitive information, as well as possible digitalization of insurance supervision.

Bulgarian regulators in the field of insurance services, prominent insurers, as well as representatives of the technology sector met at the business breakfast “The Next Frontier for Insurance”, organized by Software Group – a global technology partner of financial institutions in the field of digitalization and supported by Microsoft and PwC.

Kalin Radev, Executive Director of Software Group, welcomed the guests with the words: „This event aims to connect insurance leaders from Bulgaria and the region, to be a platform for discussing challenges and successes in the field of digitalization, as well as to encourage the initiation of regulatory changes supporting innovation and cross-border cooperation.”

In his address, Vladimir Savov, Deputy Chairperson of the Financial Supervision Commission (FSC), Head of the Insurance Supervision Department, pointed out several key points for the FSC in its role as a regulator, namely:

balance between protection of service consumers and financial stability of the sector;

a balance between premiums optimally reflecting the risks they cover while keeping products accessible;

balance between financial innovation, business continuity and consumer protection.

The subsequent discussion on “Maintaining the balance of regulations and digitalization”, moderated by Kalin Radev, together with Vladimir Savov was attended by Maksim Kolev, Chairperson of the Board and Executive Director of the Guarantee Fund, and Konstantin Velev, Chairperson of the Association of Bulgarian Insurers (ABI).

Changes in the regulatory landscape of insurance in Bulgaria

“In the last 18 months, we have witnessed the efforts of the insurance sector to intensify digitalization and provide remote services in the direction of increasing online sales, claim settlement and new products. Thanks to this, the sector managed to get through the crisis. As a regulator, we monitor the protection of consumers of non-banking financial services and the financial stability of insurers, on the other hand we want to promote business and technology development, remain receptive and open to dialogue with business and technology suppliers.” – commented Mr. Savov.

Some of the forthcoming regulatory changes include the already adopted Ordinance No. 71 on the governance systems of insurers, further development of the Solvency II regime, introduction in 2023 of IFRS 17 for insurance contracts. The FSC is also working on an ordinance and methodology for determining the amount of compensation for non-pecuniary damage in connection with the compulsory motor third party liability insurance, which is extremely important. The ordinance on the bonus-malus system, which will be related to additional IT solutions, is also expected to be finalized.

Change in the needs and expectations of insurers regarding regulations

Konstantin Velev, ABI, commented that in the current situation finding this balance is not easy for insurers, as customer expectations and attitudes have changed, accelerated by the pandemic, and the market is looking for digital solutions for automation and optimization.

With regard to digitalization, regulation can be divided into two levels: on the first level are the basic rules according to which the business is done – the contract with the client and servicing the contract, on the second level are the requirements for information systems, cloud services, etc.

“The first regulation is the one where it is difficult to find the balance, because our legislation has chosen a conservative solution – the written form of insurance contract, which begins with pre-contractual communication, conclusion of the contract, payment, termination of policy, claim registration, written correspondence with the client, etc .. The regulatory framework is narrower in the new pandemic environment.” – shared Mr. Velev – “The other type of regulation is subsequent and accordingly we follow the European framework.”

Observed trends and the role of the Guarantee Fund

The Guarantee Fund always accompanies the business and the guidelines of the regulator and all the upcoming changes are with the active participation of the fund, said Maksim Kolev. European trends show that in the portfolios of Western insurance companies online sales are no more than 5%. Digitalization is also happening in other directions – robotization of the policy issuance process, automation of payment, accounting services and more.

“We need to think about digitalization beyond online sales along with optimizing processes and relationships between institutions. Then we would achieve better synergy.” – shared Mr. Kolev.

Digital identity and electronic signature – expectations and forecasts

The working options are a physical signature or a qualified electronic signature, but very few people have one. There is already case law where hybrid contracts are not considered invalid. The FSC is considering adopting changes to the regulations so that they have a legal basis.

Cloud certificates are one of the approaches, as the range of products is extremely wide, as well as the risks that are covered. There may be a differentiated approach when concluding contracts and in the processing procedures. Where the written form is excessive, its mandatory nature should be removed.

Regarding the green cards, the Guarantee Fund is a participant in the transition from green to black and white certificate, which already exists in the 27 EU countries. In non-EU countries, where digitalisation is slower, a paper certificate is valid, which is probably a compromise. The paper certificate will be valid until these countries are digitalized.

What lies ahead for insurers in digital and technological terms?

According to the insurers present, there is room for improvement in the speed of processes and data exchange, it is important to introduce electronic application and identification.

The insurance sector can learn from the banking sector, as banks were the first to go through the process of digital transformation and skilfully integrated the changing needs of consumers.

Insurance companies also report that they do not have sufficient resources for innovation, as the industry is heavily regulated and regulatory software budgets are severe.

The changes related to IFRS 17 will also require changes in the accounting systems of insurers – a serious process comparable to the introduction of the Solvency II Directive.

The digital transformation in Southeast Europe

Representatives of Microsoft and PwC discussed technological innovations in the region in the light of changes in actuarial work, the introduction of machine learning in various areas of non-life insurance, as well as the focus on the digital customer experience.

Microsoft is emphasizing the fact that more and more sensors are entering the world of insurance, and data management is becoming a challenge that world leaders like Microsoft are trying to solve.

Regarding the transformation of the existing „core“ systems of insurers, PwC commented that the new technologies create a competitive advantage as they connect existing backend systems with a modern frontend and allow for optimization of existing systems of insurers.

In conclusion, insurers are convinced that regardless of the level and pace of digitalization, the human factor remains key and the future is phigital – a mix of physical and digital space that provides the perfect customer experience.

Once more “Capital” brought together the financial technology community at the traditional FinTech Summit.

Fintech entrepreneurs and innovators, visionaries, bankers, financial experts, representatives of companies from the country and abroad, as well as the central government and regulators discussed the future of the fintech sector, and how the global economic crises caused by COVID in 2020 turned out to be a stimulus for the development of financial technology.

„Technological advances offer the insurance industry tremendous opportunities to meet growing customer needs and regulatory requirements. More and more, maintaining competitiveness will mean that insurers have to keep up with the latest developments in insurtech, so that companies can ensure that they take advantage of the best possible technological solutions,” said Vladimir Savov – Deputy Chairperson of the FSC, Head of the Insurance Supervision Department in his opening speech at the Innovation in the Insurance Sector panel. He added that he “believes that we, as an insurance regulatory and supervisory body, need to address the following challenges in the near future:

• We need to understand how innovation works and is implemented to ensure an adequate assessment of new product and business models.
• We will also need to balance the risks of innovation with the benefits for policyholders and the insurance sector as a whole, and consider how to create the right environment to foster innovation. In other words, we need to find a balance between fostering innovation and protection against the negative aspects of any potential customer and business disruptions.
• We will need to assess and, where appropriate, adjust the regulatory framework, especially on the part of market behaviour, in order to adequately deal with changing risks and business models.
• We will need to organize the appropriate capacity – technical resources, knowledge and skills – to be able to respond to and monitor FinTech solutions in the future.

In conclusion, Mr. Vladimir Savov assured the conference participants that “The Financial Supervision Commission is fully committed to its strategic goals, namely to protect consumers of financial services, maintain the stability of the non-banking financial sector and promote business development. We will strive to apply the same principles in building and maintaining an adequate understanding of financial innovation. In this way, we intend to strengthen cooperation with stakeholders, first and foremost with the insurance sector.”

“The implementation of the Solvency II Regulation is expected in the short term to result in the release of up to € 90 billion in capital / financial resources that EU insurers can use to help recover from the current global crisis.” This was said by Mr. Vladimir Savov – Deputy Chairperson of the Financial Supervision Commission, Head of the Insurance Supervision Department in a special interview for dir.bg.

Mr. Savov added that “Those up to € 90 billion would be released in the short term, provided that the full combination of EC options is implemented in their current form. With the introduction of the changes over the next few years, these funds are expected to decline, including due to changes in market conditions.“

Among the other topics that the Deputy Chairperson of the FSC commented on is the accelerated digitalization of the insurance market caused by the pandemic, and his opinion, based on the latest available data in the FSC, is that in the last year the COVID-19 related risk is relatively limited in the insurance sector. The market is in relatively good financial condition and is prepared to meet a possible next wave.

The Deputy Chairperson, Head of the Investment Supervision Department, approved an updated template of Report No. 7 Management Company – Portfolio, part of the templates of reports to the financial statements of management companies, determined by Decision No. 1522 – КИС of 08.12.2017. The current templates of reports are available on the website of the Financial Supervision Commission, section “Administrative documents”, “Forms and samples”, “Investment activity“.