And like most things in the EU these days, there have been delays and uncertainty, leaving the industry unsure of whether the new regulation will bring real benefits or just be a costly compliance exercise.
For the past three years the Economist Intelligence Unit, on behalf of Deloitte, has surveyed UK insurers to ascertain their readiness and preparedness for Solvency II. Solvency II is European Union regulation aimed at reducing risk and improving capital levels. This year’s study finds that confidence that the industry will meet Solvency II deadlines is waning - 37% fear that the industry will miss deadline, up from 24% in 2011.
Insurers are also more pessimistic about Solvency II delivering tangible benefits to their business. Although about half say they expect either some or significant tangible benefits from Solvency II, and an additional 20% expecting some benefits in due course, more than one-quarter (27%) are more pessimistic and say the Directive presents no tangible business benefits either now or in the future.
Pessimism may stem from the costs involved, especially those stemming from the delays in implementation. fOne-third of respondents say they are concerned about the additional cost of delays to Solvency II, while 73% say that implementation setbacks have taken a toll on their original budgets.
Most industries do not just absorb these costs – they pass them on to consumers – and it is clear from this year’s survey that insurers are considering what is necessary. An increase in repricing products is seen most significantly in non-life companies, with 36% of respondents expecting to reprice products, compared with 17% in 2011.
Beyond repricing, insurers are also looking at changing their products. Life companies are more likely to say that they plan to change their product mix, with 26% saying they will do so, compared with 8% of non-life companies (as they are not subject to the same proposed Solvency II capital charges as the guaranteed products offered by life companies).
What will this all mean for consumers? It’s too early to tell but while the focus is on banking, real changes are happening in the European insurance industry. As insurers decide how these changes will affect their products and pricing, consumers need to have a voice if they do not want to wind up completely footing the bill for Solvency II.
For the full report, Solvency II: Where are insurers heading?
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.
