2020 Cyprus Country Report

Insurance
Sector Profile
fintech coming into the market is diversifying
insurance covers into products, such as the employment
of telematic devices, for instance. As
demand has been rising for these and other types
of policies, the Cyprus insurance industry has
been quick to broaden the spectrum of services.
The industry is also experiencing fresh momentum
in the provision of second pillar occupational
pension schemes as a result of a change in
the law that enabled life companies to offer these
types of products and clarified that the associated
contributions are tax deductible. There has
also been a resurgence in demand for insurance
investment products. Insurance firms have been
offering pillar II occupational pension schemes,
known as Class 7 schemes, which are similar to the
traditional provident funds but with more benefits,
according to the IAC. These new schemes were introduced
in Cyprus for the first time in 2016, and
are growing to be a very promising alternative for
pension-related saving and investing. The Class 7
funds resemble classic provident funds set up by
associations of professionals, unions and companies
for their employees, but are managed by insurance
companies and are governed by the legal
framework regulating insurance companies. They
can be flexible and more cost-effective products,
suitable to all types of organisations regardless of
size and sector. The evolution of class 7 products
has brought drastic changes to Cyprus’ occupational
pensions sector and is set to make an even
bigger impact in the future, as they offer a convenient
and hassle-free way to complement future
social insurance pensions and constitute a taxadvantageous
investment vehicle at a time when
having money in the bank could prove to be costly.
Another developing segment that is currently
being refined is insurance coverage for high-rise
developments, which requires more specialisation
particularly now as Cyprus is experiencing
a construction boom of skyscrapers, new luxury
marinas, and big hotels. Insurance has an important
role in these types of complicated projects
with multiple phases and subcontractors, and
insurers need to be involved in the entire process
from start to finish to maintain the integrity of
the cover and mitigate potential risks.
ROBUST REGULATORY FRAMEWORK
Cyprus is fully aligned with EU law as well as with
legal frameworks stemming from other supranational
organisations, such as the OECD, and
offers a simple, straight-forward and transparent
framework for business. However, increased
pressure from new and complex regulation over
the last several years has been a challenge faced
by the financial services industry around the
world. The surge of regulatory changes such as
Solvency II, MiFID II, GDPR, PRIIPS Regulation
and the Insurance Distribution Directive (IDD)
meant that insurers had to use a great deal of their
resources for regulatory compliance purposes. In
addition, the immense task of the future implementation
of IFRS17 by 2023, will place serious
pressure on firms in terms of time, cost and
human resources.
The Solvency II 2020 review is on the agenda
across the EU this year, pushed forward by the
European Insurance and Occupational Pensions
Authority (EIOPA). The Solvency II Directive
is designed to face difficult situations of financial
stress, by setting minimum solvency capital
requirements and strict rules on the calculation
of technical provisions. Although the industry
in Cyprus is well equipped to appropriately
transpose and implement new regulation to stay
competitive in the EU market, the intense margin
pressures and expense of regulatory burdens
could give impetus to more consolidation in the
market through mergers, acquisitions and strategic
partnerships in the years ahead – especially
due to the high number of companies competing
in the local market.
CHALLENGES AND OPPORTUNITIES
Just like in many other economic sectors, digitalisation
is key to staying competitive in the
cut-throat insurance landscape. Traditional insurance
companies have already completed, or
are in the process of completing, their digital
transformation, as they face growing competition
from online insurance providers. Similarly to
other industries, traditional big firms are placing
strong emphasis on streamlining processes and
implementing more efficient systems.
On a macro level, Cyprus insurance experts
would like to see a more defined long-term vision
from the government on how the sector could
be developed in the future. This would help the
industry focus on building more niche segments
that could attract further business and investment
to Cyprus and facilitate sustainable development
in the future. For example, Cyprus has not made
much progress in developing reinsurance business,
perhaps most importantly because the legislative
changes to reform the market structure
and make it more competitive and appealing for
reinsurers – such as cell company formation –
have not yet taken place. Creating a reinsurance
industry in Cyprus would have multiple positive
outcomes for the economy since it would create
jobs and keep millions of euros in reinsurance
premiums in Cyprus, which are currently paid to
reinsurers abroad.
A challenge the insurance industry has faced
over the last year is the ongoing implementa-
0.7%
2019 growth in
life premiums
Cyprus offers multiple
fiscal benefits for
international business,
such as easy market
access and the
services of a vast
pool of professionals
in the insurance
and financial
services industry.
100 Country Report CYPRUS 2020