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.