François Villeroy de Galhau: Insurance and pensions – institutional innovation, economic innovation, technological innovation Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the7th annual EIOPA Conference, Frankfurt am Main, 22 November 2017. * * * Ladies and Gentlemen, It is a pleasure to be in Frankfurt today for this 7th Annual EIOPA Conference and I wish to warmly thank EIOPA’s Chairman Gabriel Bernardino for his kind invitation. I must say that I feel at home, since we are not far away from the ECB building where I take part in the meetings of the Governing Council at least every two weeks. But today I will speak in my capacity as President of the French supervisory authority, the Autorité de Contrôle Prudentiel et de Résolution (ACPR), which belongs to the board of supervisors of EIOPA, and which is in charge of the supervision of both insurance companies and banks in France. This is an important responsibility as the French insurance market is the second largest in the European Union, just behind the United Kingdom, with an aggregated balance sheet of approximately EUR 2,600 bn. Given that I am speaking before the panel dedicated to innovation, I will take this opportunity to focus on three kinds of innovation, which in my view can lead us to rethink insurance and pensions: institutional innovation, economic innovation and technological innovation. 1. Institutional innovation Let me start with institutional innovation.
In particular, consumption and housing activity continue to expand at a moderate pace. Consumer spending has been supported by solid real disposable income growth, which has been underpinned, in turn, by sturdy job gains and falling energy prices. Residential investment has been slowly increasing for several years and that trend seems likely to continue in 2016. Housing starts are still well below the rate consistent with the nation’s population growth rate, and the fundamentals of housing demand remain positive. Rising employment is likely to boost the household formation rate and low mortgage interest rates should keep housing relatively affordable, despite the ongoing recovery in home prices. Last month’s passage of a fiscal 2016 budget package should also provide support to economic activity. Not only does this budget package reduce uncertainty about the budgetary outlook, but its extension of a number of tax breaks and easing of the caps on domestic and military spending means that fiscal policy in 2016 will likely turn somewhat stimulative. On the weaker side, the collapse in energy prices continues to pull down domestic investment in oil and gas drilling projects. Although this adjustment is now well-advanced, I suspect that there remains a further leg down given the sector’s diminished cash flows and the reduced access to credit. In addition, manufacturing remains very soft – hurt by the drop in energyrelated investment, an ongoing inventory adjustment and the loss of competitiveness caused by the persistent strength of the U.S. dollar.