Strength through resilience, adaptability and trust – insurance for a stronger Europe - Speech by Deputy Governor McMunn at Insurance Ireland

Introduction

Good morning and many thanks to Moyagh and the team in Insurance Ireland for the invitation to speak to you today.¹

The theme of this year’s Forum – a stronger Europe – is an important one, and is a question on the minds of policymakers, regulators and industry alike as Europe looks to meet its moment and respond to the challenging macro environment it is operating in.

Navigating the shocks and the shifts we are facing.

Adapting to structural challenge and change.

And managing the risks and seizing the opportunities from the profound technological transformation underway.

For in many ways we are living through a hinge point in history.  Where the future is decided by how we respond to today.

As I have said before, such a response must be grounded in the fundamentals of resilience, adaptability and trust.

For we gain strength through resilience, to withstand the challenges we face.

But in times of rapid change resilience is not enough – for a tree that cannot bend will break in the wind.²

And so resilience must be combined with adaptability and responsiveness to change, as well as a focus on maintaining and securing trust, which underpins the whole of our financial system and economy.

It is in this context that I want to focus my remarks today.

And in particular what responding to the changing risk environment means for the sector, for supervisors, and for regulators – as we look to deliver on our different roles to support Europe, its consumers and the wider economy.

Navigating the risk landscape

Let me begin with the risk environment in which you are operating – which is being driven by the twin dynamics of geo-economic fragmentation and rapid technological change.

Geo-political tensions, changing trading relationships and uncertainty in financial markets impact both sides of your balance sheets – the assets you invest in and the risks you underwrite. They also affect your customers, be it business or retail, and the type of risks they need to manage as well as their ability to afford the protection they need.

Technology too is fundamentally changing your business; how risks are assessed, their transmission channels, and how customers engage with insurers. This brings opportunities, that we should take; though also risks which importantly need to be managed.

And indeed these macro trends are not discrete – risks rarely are – and can interact and compound each other, most notably in terms or cyber or sabotage risks from a more contested world.

In addition to these – at times rapid – dynamics underway, the once horizon risk that is climate change is also closing in. This is already impacting the sector, and your customers, and the challenge will only grow over time.

At any time, any one of these issues would be a defining one for both Europe and the Insurance sector. Combined they represent profound structural change, which must be responded to.

Responding in the face of change

It is in this context that we set out our supervisory priorities for the year, which focused on:

1. Maintaining resilience – both financial and operational
2. Securing consumers interest – in rapidly changing world
3. Responding to technological driven transformations
4. Responding to structural transitions such as climate change.

These are interconnected, and so I want to speak about resilience and protecting consumers, in the context of technology and climate change.

Technological innovation continues to change financial services, creating efficiencies, supporting innovation and improving customer experiences.

However, increasing reliance on digital infrastructure, cloud services and third-party providers also introduces new vulnerabilities, including cyber risks, operational risks and concentration risks.

And so while financial resilience is a perennially priority, in the current environment I want to put a particular emphasis on operational and cyber resilience. For managing these in a digital world is critical to the safety and soundness of firms and your ability to serve your customers.

This means truly understanding your dependencies, where vulnerabilities lie and how you respond to disruption – all of which are increasingly fundamental to sustainably doing business in the modern financial system.

Crucially, plans are not just for the page – but need to work in practice. Which means testing recovery arrangements and ensuring they evolve alongside the threat landscape. As well as developing a culture where plans are continuously refined and not just filed away.

There is a wider point here about dependencies. An insurer may have a clear plan for its own systems yet depend on a small number of technology providers for services it cannot easily replace. It needs to know which activities are critical, who provides them and what it would do if a provider failed.

The test is whether your customers can trust that you will be there for them, delivering essential services when they need it. DORA provides an important framework for managing these risks, and I would suggest is a vital tool for navigating the technological age.

In terms of technology, the expanding use of artificial intelligence, also presents huge opportunities but of course also risks.

Opportunities in terms of its potential for empowering consumers, helping combat cyber and financial crime, optimizing the system to be more stable and efficient, and helping set firms up for success – from underwriting and risk assessment to fraud detection and claims processing, to name but a few.

But you don’t need to be a pessimist – or indeed a central banker – to see huge potential risks. From AI being inappropriately deployed, not understood, or indeed the impact of these powerful tools in the wrong hands

In terms of firms’ own use, as I said earlier this year, boards and senior management are the ones who choose to deploy AI – and so they remain responsible for how it is used, and the impacts of that use.

In this way they need to understand the decisions AI supports, the controls around those decisions and where human oversight is required.

For insurers, this has very practical implications. If technology is being used to help determine a premium or assess a claim, the firm needs to be satisfied that the result is appropriate and fair.

To do that, you need to understand the data used, and the model works; and you must monitor how a system performs and be able to challenge outcomes that do not look right.

While many of the risks associated with AI are not new and are already covered by existing regulations and standards, as you are well aware the AI Act introduces a targeted addition to the regulatory framework. This includes specific requirements for high-risk AI systems of which life/health insurance pricing and risk assessment is one.

Turning to climate change, managing escalating catastrophe losses, flood exposure, and reinsurance costs presents a different challenge, but again one with direct consequences for your resilience and for your customers.

This includes the implications for insurers of physical risks, transition risks and indeed litigation risks from climate-related disputes.

While the nature and magnitude of these exposures vary, how insurers manage changing exposures, and what happens when households or businesses struggle to obtain cover for risks such as flooding, has important impacts for the system.

On this last point our research in 2024 estimated that approximately 1 in 20 buildings have difficulty accessing flood insurance. That illustrates why the protection gap matters. ³

And why we have been supporting the Department of Finance in assessing options to address it, building on our research and engagement with the sector – and will contribute to work on this as a member of the Flood Insurance Working Group.

Flood events are just one example of how climate is already materialising. And how it is no longer something that can be put onto the horizon, but rather a material and rising risk, which is already crystalising.

Tying these together, how we respond to the digital and green transitions will likely determine the strength of Europe’s future.

To return to what I said at the outset we must do this through resilience – in terms of financial, operational and resilient governance frameworks – adaptability – proactively responding to the risks and opportunities technology and climate present – and through maintaining trust, that you are there for your consumers throughout the impacts these transitions will bring.

Regulatory response to change – regulating and supervising well

So, I have set out the context in which the insurance sector is operating in, and how you must respond.

But it is also the context in which we are delivering on our mandate and our safeguarding outcomes – and we must respond too.

We are doing this through our priorities, planning, and engagement – all of which we set out in our annual Regulatory & Supervisory Outlook report earlier this year.⁴

But in addition to this work, for the last number of years we have had the broader strategic objective of transforming how we regulate and supervise the sector – recognising that to continue to deliver on our mandate in a changing world we must change too.

Not the outcomes we are trying to achieve but how we go about achieving them.

This strategic objective includes our commitment to Regulating and Supervising well – which means robustly, effectively and efficiently.⁵

For me these words go hand in hand in terms of our response to the changing environment, as well as how we can contribute to a stronger Europe, which I will come to shortly.

But first I want to touch on our approach to supervision and our approach to simplification.

In terms of supervision, as you are all aware we are almost two years into the implementation of our new supervisory approach, which has built on the strong foundations of our long-standing risk-based and outcomes-focused approach to supervision.⁶

Our new approach does not change the safeguarding outcomes we are pursuing but rather enables us through integration and a better use of our resources, to achieve them in a more efficient, effective, adaptable and scalable ways.

The insurance sector like other sectors is supervised in an integrated, holistic way, in accordance with a multi-year supervisory strategy – with the firms with the most significant potential impact supervised at an individual level.

In this way we can be more risk based, more proportionate and more forward looking – as well as speaking to you with one voice so we are more coherent and impactful in our engagement.

This is an important point. When I talk about proportionality and being risk-based, some people think this means doing less. And in some ways it is, given risk-based supervision is about making choices, including what to risk accept.

But ultimately it is not about doing less, but about doing more with the same – with a greater focus on what matters most.

Which matters even more in the context of the increasingly complex and interconnected risk landscape which I have spoken of.

This point brings me to simplification – which as I have said before, is an agenda which I welcome.

Unnecessary complexity suits no-one – and risks distracting from the necessary complexity that must be managed in the modern financial system.

And so, regulators want requirements to be clear, reporting to have a purpose and our engagement to be proportionate to risks in the system.

In that way, simplification is an opportunity to make the framework more effective and efficient– to be more risk-based, and therefore more impactful in the outcomes we are trying to achieve.

Delivering the same outcomes in better and simpler ways is precisely what we have been working to do – through our integrated supervisory approach; through our enhancements to gatekeeping; through our ongoing work related to data and reporting; and through our work to improve our own regulatory frameworks.

There are changes already delivering in insurance and we welcome the positive feedback that we have received – as we continue to build on that progress.

The revised Solvency II framework is a good example of this and is due to apply from 30 January 2027.

It seeks to contribute to the EU’s broader objectives of supporting private investment, improving capital market integration, and strengthening Europe’s long‑term competitiveness, for the benefit of EU businesses and households.

In this way, the revised framework seeks to strike that balance between making the rules simpler and less burdensome for most firms, while also maintaining a robust supervisory framework that ensures the protection of consumer and investor interests, and the safety and soundness of firms.

To support preparations for the revised framework, we offered a voluntary pre-application process for firms seeking to avail of these proportionality measures. This helps clarify the information needed ahead of formal applications under the revised legislation. We have also published FAQs and held a number of industry events and workshops, and plan to publish guidance on formal applications in the final quarter of this year.⁷

Proportionality is particularly important here. The revised framework provides for a more tailored approach for eligible smaller and non complex insurers, while maintaining the safeguards that protect policyholders.

In addition to this work we are also simplifying domestic insurance regulation and guidance, including a compatibility review of more than 25 domestic instruments. These are being amended, consolidated or removed as necessary, in order to eliminate overlap and streamline processes.⁸

This will include the removal of the current requirement for pre-emptive recovery plans, when the Insurance Recovery & Resolution Directive is implemented in January 2027. Under the new approach recovery plan requirements will only apply to a small number of firms covering 60 per cent of the market.

These initiatives form part of our broader multi-year roadmap we published last December, covering regulation, supervision, gatekeeping and reporting. The work is about improving clarity and reducing unnecessary complexity across our framework. We will continue to keep the sector informed as it progresses.⁹

Progress for us will be judged by whether the framework remains strong and becomes easier to navigate in practice.

We also need to be clear about the trade-offs – and that one person’s unnecessary burden can be another’s important protection.

And that for us this is not about de-regulation. Our objectives have not changed – and we are not seeking to be more efficient for efficiency’s sake, but rather so we can be more effective in delivering our mandate for the people of Ireland and beyond.

Competitiveness, trust and our role

This brings me to our role in competitiveness – a key focus of policymakers for a stronger Europe.

Central Bank of Ireland’s mission is to maintain monetary and financial stability, while ensuring the financial sector is operating in the best interests of consumers and the wider economy.

A competitive economy is fully aligned with that mission. When I think of competitiveness in the financial sector, it is the public and the wider economy that I have in mind—ensuring the market serves households and businesses with financial services they can rely on, in good times and bad.

While there is a cost to regulation, I do not believe good regulation is a constraint on growth; and as I said before I firmly believe the benefits of regulation outweigh the costs.

In fact, a robust and clear regulatory framework and effective supervision helps the financial system to perform its core function in our economy – sustaining confidence and trust through the cycle.

This is why our role is best focused on ensuring the financial sector is resilient, well-run, well-functioning – so that it can take and manage risks, while working in the best interests of consumers and the wider economy.

And as I said before, a well-functioning financial sector is in all of our interests. And a stable, well-regulated environment is ultimately a competitive advantage.

This is particularly important for an international financial centre, like Ireland, and the international insurance sector is an important part of that. As you all know Ireland has the fourth-largest life and non-life insurance sector in the EU, and over 170 (re)insurance firms are authorised in Ireland, the majority of which are subsidiaries of large international groups. Ireland is also home to a growing number of Insurtech firms.

Insurers based here serve customers across Europe and beyond. The trust placed in those firms comes with responsibilities. Their boards need to understand the business they oversee and ensure they can meet their obligations to customers wherever those customers live.

Serving customers across borders makes accountability especially important. Those running an insurer must understand the risks assumed across the markets it serves, the customers affected and the arrangements for meeting claims. In addition to the objectives of the IAF, it is a practical responsibility for boards and senior management. Confidence in an Irish insurer, and in the market as a whole, depends on that responsibility being exercised consistently.

We have corresponding responsibilities as a supervisor, which we take seriously. Our cooperation with peer regulators, and our participation in the European Insurance and Occupational Pensions Authority, EIOPA, and the International Association of Insurance Supervisors, IAIS, is part of how we discharge them. Cooperation helps us understand and tackle risks across borders and supports consistent supervisory standards. That is essential in an insurance market with such a significant international dimension.

EIOPA’s recently published priorities for 2027 to 2029 provide a further example.¹⁰ They focus on the resilience of insurers and on conduct risks in business models and distribution. The focus for 2027 includes continuity and contingency planning, including digital operational resilience. Taking these shared priorities into account in our own work helps support a consistent supervisory approach across Europe.

This international cooperation is complemented by domestic cooperation. Much of our focus this year has been working with Government, Industry and other stakeholders on the Action Plan for Insurance reform. I have mentioned our work on the flood protection gap, but let me know say a quick word on our work on transparency – a key focus for ensuring our insurance sector maintains trust.

This includes the industry’s Motor Insurance Transparency Code, published in March with support from the Central Bank and the Department of Finance. And it also includes our commitment to better use the data we collect through the NCID.¹¹

In this regard, on Tuesday, alongside the annual Private Motor Insurance Report we published additional research, designed to help consumers understand the costs associated with insurance and what insurers use their premiums for.¹²

Combined, these reports will help policy makers, industry participants and consumers gain a deeper understanding of the private motor insurance sector – and are in line with our broader work supporting the Action Plan and look to continue to enhance transparency and deepen understanding of the challenges facing Ireland's insurance market.

Conclusion

Let me conclude.

By helping households and businesses manage risk, giving them the confidence to plan, invest and recover when things go wrong, insurance plays a vital role in the economy.

In a challenging and changing world, the sector has the opportunity to help strengthen Europe for the future.

Realising that opportunity requires us all to respond.

For insurers to remain resilient, adapt responsibly and maintain the trust of their customers.

For our part, to deliver effective supervision and pursue clearer regulation while maintaining the protections people and the system depend on.

In this way, we will not only navigate the challenges ahead, but build a financial system that is more resilient, more trusted, and better serves the people of Europe. Thank you.