Stavros Konstantas: The Insurance Sector as a Pillar of Financial Stability and Economic Transformation

An article byStavros Konstantas, Director, Directorate of Occupational and Private Insurance Supervision, Bank of Greece, published in the newspaper Nextdeal (Issue 581)

Private insurance market remains at the center of significant changes, as it adapts to an increasingly dynamic financial, social, and technological environment. Rising compensation costs, the growing impact of climate change, geopolitical uncertainty, and the rapid pace of digital transformation are only some of the challenges that decisively affect the operation, resilience, and strategic planning of insurance undertakings.

Despite the diversity of these challenges, almost all converge to a common component: their economic dimension, as the role of the insurance industry in the economy is twofold.

On the one hand, insurance undertakings provide protection against a wide range of risks assumed on behalf of policyholders, thereby safeguarding economic prosperity and business continuity. By undertaking these risks, households and businesses pursue their activities with greater security, stability and confidence in the future. On the other hand, the contribution of private insurance to economic growth extends beyond risk coverage to the financial function of the insurance industry. The substantial funds accumulated through insurance premiums are channeled into the financial system and the wider economy, placing insurance undertakings among the most significant institutional investors. These two complementary functions position the Greek insurance market as a strategic driver of economic growth and financial stability.

At the institutional level, the forthcoming national transposition of the revised Solvency II Directive in 2026 is expected to have significant implications for both the insurance market and the financing of the European economy.

In particular, the revised framework reinforces the principles of proportionality, sustainability, and market stability by reducing supervisory requirements and administrative burdens for small and non-complex insurance undertakings, lowering operational cost associated with regulatory compliance while simultaneously freeing up resources that can be directed towards investment, innovation, and growth.

At the same time, the revised framework introduces incentives for the accumulation of surplus own funds, aimed at enhancing competitiveness and risk-taking capacity, while enhanced capital flexibility is also expected to increase insurers’ ability to undertake long-term investments in the real economy -including infrastructure projects, the green transition, and sustainable development initiatives- while broadening their investment opportunities and improving returns.

Furthermore, the revision of the supervisory framework enhances cooperation among supervisory authorities in relation to cross-border activities and group supervision, which is expected to strengthen market confidence, reduce systemic risks, and further reinforce the resilience of the European insurance market.

In addition, new regulatory requirements are being introduced to address emerging risks, including the preparation of liquidity and viability plans, as well as the incorporation of climate-related scenarios into the Own Risk and Solvency Assessment (ORSA). These provisions enhance the long-term resilience of the insurance sector against both financial and environmental risks.

Equally significant at the institutional level is the forthcoming transposition of the Insurance Recovery and Resolution Directive (IRRD), which further highlights the critical role of the insurance sector in supporting overall economic activity and preserving financial stability.

The contribution of private insurance to the growth of the Greek economy is also expected to be reinforced through the Savings and Investment Union (SIU), a strategic European Union initiative designed to channel private savings more effectively into productive investments, with the goal of supporting innovation as well as the green and digital transitions. In this context, insurance undertakings are expected to play an increasingly important role as key institutional investors, given that they manage substantial long-term capital and investment portfolios. In this way, acting both as investors and as providers of savings and investment products, insurers can contribute significantly to the financing of the real economy and contribute to the stability and resilience of the financial system.

Despite the geopolitical tensions of recent years and their obvious impact on price stability and economic growth, domestic credit institutions continue to demonstrate positive strong resilience and maintain positive performance. In combination with their strategic focus on revenue diversification, the accelerated digitalization of banking services, and the adoption of advanced technological tools, credit institutions are well positioned to play a pivotal role in strengthening the insurance market and addressing the low level of insurance penetration.

Strengthening cooperation between insurance undertakings and credit institutions through bancassurance models can make a substantial contribution to the expansion of the insurance market. By leveraging banks’ extensive distribution networks alongside the steadily increasing demand for integrated financial and insurance solutions, such partnerships can improve accessibility, enhance the overall customer experience, and create important synergies across the financial system.

Regarding long-term strategic partnerships between insurance undertakings and credit institutions, the restructuring and adjustments observed in recent years now appear to have been smoothly completed, with the expectation that they will unlock the potential of such collaborations while ensuring the uninterrupted operation and efficiency of the distribution networks.

At the same time, the Greek insurance market is going through a period of profound transformation, during which significant challenges coexist with substantial opportunities for renewal and stronger long-term growth. Compliance with the evolving regulatory framework, the integration of digital technologies into business operations and insurance products, the adoption of a holistic approach to risk management, the continuous upgrading of human capital and professional skills, as well as the development of synergies within the broader financial system are all key factors for enhancing the contribution of private insurance to the Greek economy.

In this context, the Bank of Greece plays a decisive institutional role in safeguarding the smooth functioning of the insurance market as an integral component of the financial system, protecting policyholders, and preserving financial stability. At the same time, it contributes to the establishment of a stable, transparent and credible supervisory framework which strengthens the development of private insurance and supports its contribution to the Greek economy.

Read the article below from the Nextdeal newspaper (Issue 581), which is also available online (click the bottom right corner to enlarge)