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Maksim Kolev, Chairman of the Guarantee fund, at the discussion “The Next Frontier for Insurance”: “Optimization of processes and relationships between institutions lead to a better synergy”

06 October 2021

Representatives from the Financial Supervision Commission, insurers and technology sector entities discussed the development of the insurance sector through the lens of digitalization during a business breakfast titled “The Next Frontier for Insurance”, organized by Software Group, with the support of Microsoft and PwC.

Kalin Radev, executive director of Software Group, shared that the event was aimed at encouraging open discussion on the challenges and successes in the sphere of digitalization, as well as the initiation of regulatory changes that support innovation and cross-border cooperation.

In his address, Vladimir Savov, deputy-chairman of the Financial Supervision Commission and head of its “Insurance supervision” division, pointed out several key points relating to the Commission as a regulatory body, namely:

• Balancing between customer protection and the financial stability of the sector
• Balancing between premiums that accurately reflect the risks they cover, while still making the products accessible
• Balancing between financial innovation, continuity of business processes and customer protection

In the follow-up discussion titled “Finding the balance – regulation and digitalization”, moderated by Kalin Radev, several speakers took part in addition to Vladimir Savov, namely Maksim Kolev, chairman of the board of directors and executive director of the Guarantee fund, and Konstantin Velev, chairman of the Association of Bulgarian Insurers.

Changes in the regulatory landscape of insurance in Bulgaria

“Over the last 18 months we witnessed the efforts of the insurance sector to accelerate digitalization and provide remote services in relation to growing online sales, liquidation of damages and new products. Thanks to those efforts, the sector managed to push through the crisis. As a regulatory body, on the one hand we are on the lookout for the protection of customers who use non-banking financial services and the financial stability of insurers. On the other hand, we also want to encourage the development of business and technologies, we are always open and accepting when it comes to dialog options with business entities and technology providers.”, Mr. Savov commented.

Part of the forthcoming regulatory changes include the approved Order #71 concerning the management systems used by insurers, further developing the Solvency II directive, introducing IFRS 17 for insurance contracts starting in 2023. The Financial Supervision Commission is working on a decree and a methodology for determining the amounts of compensations for material and non-material damages related to obligatory third-party liability insurance for drivers, which is of particular importance. The decree for the bonus-malus system, which will be introduced following further IT implementations, is also expected to be finalized.

Changes in the needs and expectations of insurers towards regulations

Konstantin Velev with the Association of Bulgarian Insurers commented that the pandemic not only significantly accelerated the process of digitalization in insurance but also changed the perceptions of customers. At present, it is not easy for insurers to strike a balance between regulation, digitalization and internal processes of communicating with customers.

When it comes to digitalization, regulation can be divided in two categories – one that has to do with basic, foundational rules that govern business – the insurance contract, its servicing and execution. The other category has more to do with the technical requirements towards the IT systems, information security, cloud services, etc.

“The first type of regulation is that which we sometimes struggle to find a balance between a regulatory environment and the accelerated process of digitalization. The reason for this is that our normative and regulatory system has chosen a conservative option – an insurance contract in written format. This has to do with every step of the process – preliminary communication, signing the contract, payments, cancelling a policy, registering damages, written correspondence with customers and so on. In this way, the regulatory framework becomes narrower with the new conditions, with the changing perceptions and expectations of customers, who are looking for convenient digital solutions”, Mr. Vasilev stated. “The other type of regulation mainly follows the European framework and we are doing our best to meet the requirements.”

Observed trends and the role of the Guarantee fund

The Guarantee fund always works hand in hand with the business sector and all guidelines of the regulator and all changes that are forthcoming are implemented with the active participation of the fund, Mr. Maksim Kolev stated. The European trends show that online sales represent no more than 5% of the portfolios of western insurance companies. Digitalization takes place in other directions as well – automation of the policy issuing process, automation of payments, accounting services, etc.

“We have to think about digitalization beyond the scope of online sales, together with the optimization of processes and relations between institutions. This would lead to a much better synergy.”, Mr. Kolev further stated.

Digital identity and electronic signature – expectations and prognoses

The options currently available are a physical signature or a qualified electronic signature, but very few people have the latter. There are already legal precedents where hybrid contracts are not considered void and invalid as well. The Financial Supervision Commission is considering accepting regulations that will give a legal foundation to this sort of practice.

Cloud certificates are one of the viable approaches, due to the very broad range of products on offer as well as the types of risks covered. There can also be a differentiated approach towards signing contracts and processing them. In instances where paperwork would be excessive, it would be logical to remove its obligatory statute.

What is the future of insurance when it comes to digitalization and technologies?

According to the insurers present, there is room for improvement when it comes to the efficacy of processes and data exchange. It is important to implement a digital form of applications and identification.

The insurance sector can learn a lot from the banking sector as well, because banks were the first to go through the process of digital transformation and skillfully adapted to the changing needs of customers.

Insurance companies also note that they don’t have sufficient resources for innovation, because the industry is heavily regulated and software budgets for regulation are considerable.

Changes relating to IFRS 17 will enforce further changes in the accounting systems used by insurers – a very serious process that is comparable to the implementation of Solvency II.

Digital transformation in South-Eastern Europe

Representatives of Microsoft and PwC discussed the technological innovations in the region, in light of the changes of actuary work, the introduction of machine learning in different fields of general insurance, as well as the focus on the digital customer experience.

Microsoft highlighted the fact that more and more sensors enter the world of insurance and data management is becoming a challenge that world leaders such as Microsoft are trying to tackle.

Regarding the transformation of existing core systems of insurers, PwC commented that new technologies give a competitive advantage because they link existing backend systems with a modern frontend and allow for optimization of existing systems used by insurers.

In conclusion, insurers are convinced that despite the stage and rate of digitalization, the human factor remains key and that the future is “phigital” – a mix of physical and digital space that can ensure a perfect user experience.