The Evolution of Insurance Regulation in the EU Since 2005

Abstract

The Solvency 2 package, which went on force on January 1 st , 2016, has had strong implications on the insurance companies' market conduct, consumer relation and solvency; an ongoing process with the FSB and the IAIS due to address systemic risk is also impacting systemic insurers. These milestones of insurance regulation are aimed at solving the social cost of the failure of financial institutions, in order to prevent future crisis. The paper at hand reviews the detail of these considerable reforms and show the consistence of the whole: prevention of systemic and microeconomic risk is first seen as prevention of regulatory arbitrage with the banking sector. This thorough legal package has but a cost, not only for every firm (cost of implementation of reforms, recurring cost of compliance including direct cost of funding supervisory authorities, indirect administrative costs and cost of regulatory capital) but also for the sector as a whole. We show that most of these costs have been played down so far, since the crisis prompted the authorities to appear tough on finance and set examples. Unfortunately, costs lead to market concentration and uniformization, which have significant systemic implications. To address this issue, finance future growth, advance market integration and development, we offer some insights on simplification and focusing of insurance regulation. * 2. Market regulation Market regulation is related to business conduct, comprising both business-to-business and business-to-consumer relationships. We will review price regulation (2.1.), and explicit consumer protection (2.2.) before turning to solvency, which can be understood as a particular form of consumer protection. 2.1. Price regulations Back in the 80's or early 90's, insurance firms were in many continental European countries under close supervisory tutelage since EU Member States could introduce "laws, regulations or administrative provisions concerning, in particular, approval of general and special policy conditions, of forms (…) of premiums…" (Dir. 1988/357/EC on non-life insurance art. 18, Dir. 1990/619/EC on life insurance art. 12). The 1992 Directives terminated this "interventionist era" and abolished prior approval of prices and forms (see especially art. 39 of Dir. 1992/49/EC on non-life and art. 29 of Dir. 1992/96/EC on life insurance). By that time, 31 US States also had prior rate approval for automobile

The Effects of ERM Adoption on European Insurance Firms Performance and Risks

“…During this period several directives and regulations have been issued across European countries and have impacted risk management systems in European insurance firms. Pradier and Chneiweiss (2017) document various directives and regulations that have impacted the evolution of the insurance industry in Europe since the 1970s. More recently, the European Parliament and the Council agreed that the Solvency II Directive (including the amendments introduced by Omnibus II) should apply as of 1 January 2016.…”

The Development of European Insurance Market Infra-Structure

“…Some authors investigate influence of financial crises [7,9], political events such as Brexit [4,8], regulatory acts such as Solvency II [3,5] and entry of foreign insurance companies into national markets [2] on development of European insurance market and other markets. Another authors defined the connection between indicators of insurance market development and economic growth of European countries [1,6,10].…”

“…The structure of the financial system of the European Union including the structure of insurance market are considered in [1,2]. Different aspects of regulation of European insurance market are presented in [3][4][5]. The key indicators of European insurance market are disclosed in [6,7].…”