9. The Evolution of Insurance Regulation in the EU Since 2005

The Solvency 2 package, which came into force on 1 January 2016, has had strong implications for insurance companies’ market conduct, consumer relation and solvency. An ongoing process with the Financial Stability Board and the International Association of Insurance Supervisors addressing 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. This chapter reviews the detail of these considerable reforms and shows the consistency of the whole: prevention of systemic and microeconomic risk is first seen as the prevention of regulatory arbitrage with the banking sector. This thorough legal package has 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 an example. 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 into simplification and focusing of insurance regulation.