Solvency II: Make the rules more proportionate
With regard to Solvency II, the European Insurance and Occupational Pensions Authority (EIOPA) proposes exclusions for smaller insurers and easing the rules under certain conditions. That is a step in the right direction – but it shouldn’t stop there.
The German Insurance Association (GDV) is pushing for more proportionality as part of the Solvency II reform. „Simpler rules commensurate to risk not only save costs, they also increase supervisory efficiency and thus add security for policyholders. It is therefore in everyone's interest to establish appropriate criteria for easing the rules and apply them automatically going forward in accordance with the proportionality principle. EIOPA is not going far enough in this regard“, argues GDV Chairman of the Management Board Jörg Asmussen.
A higher threshold promotes innovation
Specifically, EIOPA advocates only making Solvency II compulsory for insurers with an annual premium income of at least EUR 10 million. Right now, it starts at EUR 5 million. EU member states are to be authorised to increase the threshold up to EUR 25 million at national level.
Higher thresholds would ease the supervisory burden for small insurers operating at a national level. The EIOPA proposals will also most likely lower barriers to market entry for start-ups, thus encouraging innovation and competition.
Proportionality is still too restrictive
The GDV supports tying easing measures to specific criteria and automatically implementing them. That brings more legal certainty and reduces the burden on both the supervisory authority and the companies. Nonetheless, the EIOPA proposals regarding the implementation of the proportionality principle don't go far enough, as the definition of a company with a low risk profile (low-risk undertakings) is far too restrictive. The supervisory authority wants the new procedure to be exclusively for insurers with premium income of up to EUR 100 million.
That would exclude smaller and medium-sized German insurers from the automatic application of the proportionality principle – even if they have excellent solvency and a low-risk business model. The criteria for the automated process must be adjusted to release the full potential of the proportionality principle.