Supervisory authorities should be reminding insurers that decisions about dividend distribution should be taken with the protection of their customers in mind, according to Karel Van Hulle.
The KU Leuven professor, and former head of the insurance and pensions unit at the European Commission, said supervisors should be telling insurers to "take their responsibility towards their customers and to show solidarity with their policyholders as many of them will not receive compensation for the damage resulting from the Covid-19 pandemic".
Van Hulle led the introduction of Solvency II and said the EU regime provides an ideal tool to assess whether insurers have sufficient capital: the own risk and solvency assessment (Orsa).
"The Orsa should tell the insurer whether its capital position is still in line with the expected risks, always considering the 200-year time horizon," he said.
Although the European Insurance and Occupational Pensions Authority (Eiopa) indicated in its 20 March recommendation the Covid-19 crisis constituted "a major development", it did not ask insurers to treat this as an unforeseen event requiring insurers to carry out an Orsa.
"If the Orsa shows that more capital will be needed in the next 12 months, insurers should refrain from distributing capital by way of dividend or variable remuneration, so as to be able to weather the expected storm.
"Not all insurers should therefore automatically be required to stop paying dividends. This should be looked at by each insurer individually.
"Supervisors should be careful not to intervene in the normal running of the economy: some people need the dividends to make the economy work."
Van Hulle said in addition to considerations around solvency, insurers should take into account the interests of their customers when deciding whether to distribute dividends.
Although retroactive coverage of claims not envisaged within contracts might be a bridge too far, insurers could nevertheless be more helpful towards customers, he said.
Some of the profits insurers make as a result of a reduction in claims (for instance in motor insurance) could be passed on to policyholders. Partial compensation might also be helpful, particularly to private individuals or small businesses, Van Hulle suggested.
"Using the pandemic as an excuse to leave policyholders without protection, without any sign of solidarity, is a very self-serving attitude which fails to recognise the crucial role which insurers could and should play in a crisis situation.
"Airlines make an effort to rebook the travel. Hotels may give vouchers. But travel or business interruption insurers do not do anything. They just say: you are not covered.
"This is not right. Insurers should be urged to put their customers first, to help where they can and to take their decision on whether or not to distribute dividends also with the interests of their customers in mind".
"A proactive attitude helps create a long-term business relationship and avoids that people are disappointed about the behaviour of the insurance industry and ask regulators to intervene."
Few European insurers have shown a willingness to help policyholders beyond the business-as-usual.
Last week, some insurers in Bavaria, Germany struck an agreement to compensate hotels and restaurants for business closures, after the state government intervened.
French mutual insurer Maif is returning cash to its motor policyholders because of the dramatic fall in claims.
In the US, some motor insurers are extending their coverage free-of-charge or return part of the premium to policyholders.
These are good examples that need to be followed, Van Hulle said. "It is always better to be proactive: if the insurance industry shows the lead, there is no reason for regulators to intervene, nor for the insurance industry to lobby against an attempt by regulators to do so."
People:Karel Van Hulle
