European Commission misses opportunity to enhance competition, consumer protection and consumer choice across the single market

Today, the European Commission presented its proposals for the Review of the prudential regulatory regime for insurers, Solvency II.

The results of an initial assessment of the proposals, which Irish Commissioner Mairead McGuinness presented, are disappointing. The European Commission follows the flawed advice which the European Insurance and Occupational Pensions Authority provided to the European Commission in December 2020.

From an Irish perspective, it is particularly regrettable that the European Commission does not show a clear vision for the further integration of the EU single market for insurers. Rather than regulatory and supervisory convergence, the European Commission is fortifying existing barriers for insurers which carry-out their business cross-border and provides for proposals marking cross-border services as particularly risky, e.g. on macroprudential supervision or the proportionate application of the regime. The proposals stand in the way of the further integration of the single market and its benefits for competition, consistent consumer protection and consumer choice.

In addition to maintaining or creating barriers, the Commission misses the opportunity to emphasise the European market perspective. For example, on the newly proposed Recovery & Resolution regime, the Commission determines “each national market” as the benchmark and does not provide for a consistent set of rules and measures for this latest addition to the Solvency II framework. The consequence will be the further fragmentation of the regulatory system and an additional increase to the regulatory burden for insurers – which we already see arising with the Ireland-specific pre-emptive recovery regime.

The European Commission announces that its proposals will relieve the EU insurance industry of 90bn Euros in capital requirements until 2032 to fund the EU’s ambitions on a Capital Markets Union as well as the sustainable and digital recovery post Covid-19. While Insurance Ireland supports the intention of the Commission to address some of the flaws of the overly conservative and prudent Solvency II Regime, i.e. the risk margin, the short-term nature of the impact of the changes is disappointing.

Solvency II is, already, the most conservative supervisory regime, globally. The Commission proposals will further increase capital requirements (over time). This increase in capital requirements is accompanied by a substantially rising compliance burden due to the newly introduced measures, e.g. on macroprudential supervision, recovery & resolution or more complex reporting. The consequence will be that the competitive disadvantage which EU insurers face due to the regulatory regime will further increase and harm the position of EU insurers compared to their competitors in the US, Asia and the post-Brexit UK.

On a positive note, Insurance Ireland appreciates that the European Commission adopted the proposal for more consistency in the proportionate application of Solvency II across the EU. Particularly for captives, the new proposals provide for substantial improvements. However, the Commission decided that insurers operating under the freedom to provide services across the EU cannot benefit from the newly established benefits for low-risk undertakings. With its decision, the European Commission proved that every sunbeam casts a shadow.

Finally, the European Commission proposal foresees the possibilities that dividends and similar payments are restricted during exceptional circumstances. The Commission seeks to empower EIOPA with the declaration of such circumstances on the basis of a predefined list of criteria. While Insurance Ireland considers that the payment of dividends and similar payments should always depend on the individual situation of the insurers, a coordinated EU-wide approach would be favoured compared to the rather chaotic and fragmented piecemeal which the EIOPA statement in April 2020 triggered.

The presentation of the proposals by the European Commission is only the starting point of the legislative procedure. The European Parliament and the Council will assess the proposals and develop their own positions before entering the triparty negotiations with the Commission.