Effi­cient regu­la­tion

A com­pe­ti­tive ins­urance mar­ket for the future

Europe is facing new challenges, including the fallout from Brexit, climate change and threats to multilateralism. That is why the benefits and costs of regulation need to be very carefully weighed against each other if Europe is to count among the most competitive regions worldwide.

To ensure this, the following aspects should be guidelines for future financial market regulation:

Proportionality and dismantling of unnecessary bureaucracy

Proportionality and reduction  of unnecessary bureaucracy

Ten years after the financial crisis, the industry faces increasing regulation. One example for this  inthe insurance sector is Solvency II. The 2020 review should evaluate whether the cost and effort required to fulfil current reporting requirements are proportionate to the risk profile of firms. Current requirements fail to take account of a company’s solvency situation and risk profile – there are hardly any relaxations or exceptions. However, the proportionality principle is indispensable to supervision, too. Moreover, new proposals need to be consistently reviewed in terms of  their necessity and suitability. The balance achieved at the time when  Solvency II was first introduced should remain intact – particularly with  regards to solvency capital requirements.

The objective is not deregulation but efficient, proportional and consistent rules with straightforward processes.

Market-driven solutions instead of rigid regulation

Market-driven solutions are often a better approach  for achieving regulatory aims than rigid mandatory rules from policymakers. Sustainable finance is a good example for this. The German insurance industry supports efforts to promote sustainability within the global economy. That calls for an approach centred on the “polluter pays principle”. Insurers are also taking more account of sustainability concepts, not least to protect their investments from events such as pending climate change, in the interest of their clients. The voluntary expansion of sustainability in the financial sector based on competitive conditions and freedom of implementation method is more efficient than compulsory legal regulation. Different approaches or a combination of approaches can make sense depending on an insurer's size and specific situation. This approach also prevents dilution of the current risk-based supervisory system and the emergence of any new disproportionate risks to financial stability.

Information that has added value for customers instead of information overload

Insurers are bound by many EU reporting requirements vis-à-vis their policyholders. The sheer volume of information means important points are lost in the detail. Current European legislation therefore (rightly) is oriented towards brief information sheets to give customers an overview. This should be maintained. However, any additional disclosure  requirements need to be critically reviewed. For example, the European legislator identified important and relevant goals in response to which it launched the Packaged Retail and Insurance-based investment Products (PRIIPS) Regulation . Although many of these goals were realised, there are indications that the detailed provisions in the delegated legal acts are actually incompatible with these goals. Improvements are therefore needed, but they must not simply be pushed through according to a trial-and-error approach. Instead, they should be introduced individually with consumer tests, impact assessments and consultations. More information is not always an improvement, especially with regards to the provision of past performance , which is misleading for consumers as it leads to procyclical investment and thus run counter to the original intention of basic information sheets.

Tailored solutions instead of a one-size-fits-all approach for different sectors of the financial industry

Regulatory solutions need to be compatible with sector-specific characteristics. Take deposit protection as an example. The rules governing deposit protection in banking cannot be applied directly in  the insurance sector, regarding the target level for example, given the significant differences in the respective business models of banks, on the one hand, and insurers, on the other hand. Sector-specific approaches to regulation are needed . For example in insurance, compensation and contract continuation should both be possible so that member states can select the right regulation on a product-by-product basis.

International solutions for international problems

A single European market needs a sensible legal operating framework that addresses cross-border issues adequately. This means member states always have to work towards a uniform modernisation of the legal framework at  the European level, in spite of their national regulatory landscape. The right of taxation or taxation policy, for example, remains a national sovereign area. At the same time, it is important to develop harmonised solutions for taxation projects of particular relevance to the single market. That is the only way to ensure sustained improvements to the tax law framework within the single market. These important projects include, for example, the Common (consolidated) Corporate Tax Base (C[C]TB). However, European and international solutions must not place a disproportionate extra burden on companies or negatively impact pension systems, particularly with regard to the current discussions on the introduction of a financial transaction or digital tax.

Efficient regulation depends on these basic principles. Once they are in place, the insurance sector will be able to perform its central economic role to its full potential, including securing private households and companies against risk, providing finance through investment and supporting economic growth and stability.

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