What does the National Bank of Belgium have to do with insurance?
The NBB, not your ordinary bank
The National Bank of Belgium is not your ordinary bank. Its core activities are very different from those of the commercial banks that hold our payment and savings accounts.
The NBB is in fact a central bank. Simply put, we sometimes say that a central bank is a “bank for banks”. Its customers are not individuals, and it is not engaged in any commercial activity.
More specifically, a central bank is a public or semi-public financial institution that has been authorised to issue money. It is also responsible for the implementation of monetary policy within the country (or a wider currency zone, such as the euro area).
The NBB, an institution with a wide array of tasks
Other tasks, which may or may not be related to the implementation of monetary policy, have traditionally been entrusted to central banks. These tasks may vary from one country to another.
In Belgium, the NBB has been tasked with - among other things - the supervision of the financial sector.
It therefore acts as a “supervisor”. In this capacity, it is responsible for overseeing certain companies active in the financial sector. In banking parlance, we say it is responsible for “prudential supervision”, i.e. ensuring compliance by financial companies with rules designed to ensure safety and soundness.
This is where the connection between the National Bank of Belgium and insurance comes in: the NBB is the supervisory authority for insurers (or insurance companies) established in Belgium.
Insurers, key players in the financial sector
Although they generally receive less press coverage than banks - and are traditionally less well known to the general public (no doubt in part because they are less present in our daily lives) - insurance companies are nonetheless a very important actor in the financial sector due to their role in the economy and the amounts at stake.
These companies provide a key service with respect to the distribution of risk between different economic agents. In this way, they contribute to the safety and stability of the economic environment. In addition, some insurance companies play an essential role in the formation and management of the savings (particularly long-term savings) of citizens.
In Belgium, total premiums collected by insurers (i.e. those paid by individuals and businesses for insurance products) amounted to more than €43 billion in 2022. This represents around 8% of the country’s GDP. These two figures give an idea of the importance of the insurance sector for the Belgian economy.
Financial supervision, a fundamental task
Given the key role played by insurers in the economy and the scale of the financial stakes involved, it is easy to see that it is essential to minimise the likelihood of these companies going bankrupt. It is therefore necessary to ensure maximum public confidence in their financial stability and in the soundness of their business.
That’s why insurance companies are required to comply with numerous laws and other fairly specific regulatory provisions, including so-called prudential rules. In particular, they must abide by solvency standards, the aim of which is to minimise the risk of bankruptcy. They must also put in place a rigorous and consistent system of corporate governance, designed to curtail the risk of dysfunctional management. This set of rules - determining in particular the solvency standards applicable to insurance companies in the European Union - is known as Solvency II and has been in force since 2016. It is the successor to the original regulatory framework established in the mid-1970s.
The NBB has set up a supervisory framework to ensure that the 60 or so insurance companies established in Belgium comply with these prudential rules. The sole objective of this framework is to make sure that insurance companies are able to meet at all times their commitments to policyholders or, more broadly, to the beneficiaries of insurance contracts.
The purpose of supervision is to ensure adequate protection for insurance policyholders and beneficiaries. It is obviously crucial that insurance companies be able to fulfil their obligations when, for example, a citizen or company makes a claim under an insurance policy or when a lump sum or annuity has to be paid upon the retirement or death of the insured.
Incidentally, there are also rules designed to protect consumers in their dealings with insurance companies. In Belgium, another institution, the Financial Services and Markets Authority (FSMA), is responsible for overseeing compliance with these rules.
The NBB, a knowledge-based organisation
In order to carry out its tasks properly and effectively, the NBB and its staff have built up - and continue to develop - the necessary expertise. They closely monitor and keep abreast of economic developments in the insurance sector and changes in the prudential legislation. They also work to identify and mitigate existing or emerging risks (such as cyber and climate risks).
Supervision therefore requires a wide range of skills, given the complexity and varied nature of the insurance business. At the NBB, more than 90 people work on matters relating, directly or indirectly, to insurance supervision.
Now you know why the NBB takes an interest in insurance: so it can optimally supervise insurance companies and ensure they don’t take unnecessary or reckless risks!
