Global insurers face rising regulatory costs linked to structural shifts in the life sector, climate change and AI as industry supervisors intensify their response to mounting risks, according to Fitch Ratings. While climate and AI remain long-term priorities, Fitch says the near-term impact of regulatory alignment in the life sector may prove more significant, especially as it relates to the fast-evolving private credit market. Supervisors, including the International Association of Insurance Supervisors (IAIS), the National Association of Insurance Commissioners, and the Bermuda Monetary Authority, are closely tracking insurers’ rising allocations to alternative assets and the increasing use of cross-border, asset-intensive reinsurance deals. Their aim is to uncover credit and liquidity risks not fully addressed by current capital frameworks, and to spot signs of regulatory arbitrage or systemic financial threats. The IAIS adopted the Insurance Capital Standard at the end of 2024 as a global solvency benchmark for internationally active insurance groups, while also naming climate risk as a key priority. The IAIS will now focus on how insurers can bolster their own resilience and help mitigate the impacts of climate change. In Europe, the European Insurance and Occupational Pensions Authority (EIOPA) has recommended higher capital charges for natural catastrophe exposures under the Solvency II standard formula, reflecting the rising cost of extreme weather events. Several other local regulators are also sharpening their focus on climate-related risks. At the same time, regulators are stepping up scrutiny of AI use in the sector, which Fitch says could “partially offset the efficiency gains” promised by the technology. Guidance is beginning to emerge on how insurers should deploy AI responsibly, amid growing concerns about bias, data privacy and decision-making transparency. The IAIS is reviewing feedback to its draft application paper on AI supervision, designed to help regulators tackle issues around discrimination, data governance and algorithmic accountability. Meanwhile, EIOPA is holding a public consultation on AI governance and risk management in insurance.
