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The European Union wants broader and deeper capital markets in order to boost growth and connect investors with companies in ways that support the green and digital transitions. companies in Europe, with about €9 trillion under management, stand alongside banks, asset managers and market infrastructure providers at the centre of the EU’s financial universe. More coordination among insurance supervisors would make it easier to tailor capital requirements within large, cross-border groups so they can invest in infrastructure and other projects more effectively, as argued by former Italian prime minister Enrico Letta in his April to EU leaders.  The industry also to finance cutting-edge technologies.

Given the success of joint bank supervision under banking union, policymakers are now debating whether to proceed with centralising . Does Europe need insurance union too? Insurance is an increasingly cross-border business, requiring more cooperation on risk management and financial stability planning to take care of policyholders and put assets to work. In 2023, these companies , stocks, corporate bonds and equities, largely in France, Luxembourg and Germany. With proper safeguards, the sector could finance a more diverse mix. 

If insurance union does go forward, would a single supervisor help? Maybe. Done correctly, beefing up the European Insurance and Occupational Pensions Authority (EIOPA) could guard against cross-border distress. But the EU should not inadvertently make it harder, not easier, to act in a crisis. While the European Systemic Risk Board (ESRB) provides a for bank supervisors and other financial authorities,  any move to create more central powers needs to revisit data sharing, lifelines and backstops. Bank regulators need to be clearly and explicitly involved.

One option could be to follow the US’s 2010 Dodd-Frank Act, which gave the Federal Reserve oversight of non-bank financial companies if the Financial Stability Oversight Council them as systemically important. No US insurance companies currently meet that bar, but from 2013 to 2018, the Fed’s aegis extended over four big firms at various points. The system was subject to legal and put in place after the worst of the US crisis, not in the midst of it. But it highlights financial interconnectedness, and the central bank’s duty as lender of last resort during extreme turmoil.

In 2008, for example, the Fed created a just for AIG because of the systemic threat it posed. The US continues to update its . In November 2023, it said explicitly that authorities should act not just in response to broad economic damage, but when “events or conditions that could substantially impair the financial system’s ability to support economic activity would constitute a threat to financial stability.”

In European terms, this would mean moves to increase EIOPA’s powers should include very specific requirements to coordinate with the European Central Bank, its Single Supervisory Mechanism, national central banks, and central bankers and supervisors in non-euro countries. EIOPA is already based in Frankfurt, home to the ECB and soon the new . In a best-case scenario, these authorities would exchange information effectively and work together if targeted assistance were needed. The goal would be not just to avoid gratuitous state aid, but also to spot sources of contagion before they flare. 

In a worst-case scenario, however, regulators might take a defensive stance to shield problems in ‘their’ industries from ‘competitor’ sectors. If the EU inadvertently created silos and competing power centres, it could jeopardise the very centralisation it was trying to achieve. In contrast, strong links between insurance regulators and bank supervisors could help maintain a level playing field between big banks with in-house insurance arms, as in France and Belgium, and those that work through partnerships and alliances, as in Germany. And it could shore up the ESRB and ensure it continues to work smoothly during crises.

National insurance regulators provide primary oversight now and would continue to be important in any updated system, which already is in line to benefit from to the Solvency II capital rules, a European Commission to reduce administrative burdens and a nearly final Insurance Resolution and Recovery Directive that standards for dealing with failing firms. Yet data sharing rules and oversight remain an open , given new requirements in proposed financial data access legislation.

EIOPA itself favours a gradual move toward central supervision (as do some ). The authority wants similar powers to national regulators, so it can step into cross-border situations if a home regulator fails to act but host countries are at risk.

EU finance is on the cusp of a big shift in how it operates across the single market and how it sets up its firms – financial and otherwise – to compete globally. Regulatory consolidation is worth considering. The trick will be to create new structures that truly streamline how authorities work together, rather than creating unintended incentives that work at cross purposes.