The evolution of insurance regulation in the EU since 2005

The Solvency 2 package, which went on force on January 11, 2016, has had strong implications on the insurance companies' market conduct, consumer relation and solvency; an ongoing process with the FSB and the IAIS due to address 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. The paper at hand reviews the detail of these considerable reforms and show the consistence of the whole: prevention of systemic and microeconomic risk is first seen as prevention of regulatory arbitrage with the banking sector. This thorough legal package has but 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 examples. 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 on simplification and focusing of insurance regulation.