What do the government’s proposed changes to insurance sector regulation mean for you?
As the Government looks to make changes to the regulatory framework of the insurance industry, it opens up new opportunities for growth, innovation and investment.
New Government proposals aim to reduce bureaucracy and create a more dynamic insurance sector. If they are successful, the reforms will also pave the way for huge amounts of investment in the UK’s future infrastructure. The reforms should also create opportunities for innovative new businesses to enter the market.
What are the proposed changes?
The reforms come as the Government looks to deliver on the promised benefits of Brexit. Since 2016, insurers have had to comply with the EU’s Solvency II regulations. These were originally introduced across the EU in order to bring a greater degree of harmonisation across the region. Solvency II looked at the insurance sector across Europe and defined what insurers can and can’t invest in.
The UK’s proposed reforms to Solvency II will focus on four key areas:
- Slashing the risk margin, including a cut of around 60-70% for life insurers.
- More sensitive treatment of credit risk in the matching adjustment.
- A more flexible approach that allows insurers to invest in longer-term assets such as infrastructure.
- Substantial reductions in the amount of reporting and administration that insurance firms currently have to do.
What does this mean for insurers and their customers?
Essentially, these proposed reforms mean that the UK Government is now looking to diverge from the Solvency II regulations of the past.
The reforms aim to expand the scope of the kind of long-term assets that insurers can invest in. If it works, we should see an enormous amount of new money being invested in everything from building quality homes to decarbonising the economy.
In addition, insurers are also likely to have more capital available to them too. Of course, what individual insurers decide to do with that remains to be seen. Some of it could go back to shareholders. Or, they might use it to grow their businesses, helping more new customers to get the insurance solutions they need while providing extra security for their existing policyholders. Whatever route they take, the net result is likely to be a more vibrant and dynamic insurance market, which should only benefit customers.
The reforms are still at an early stage. There are plans for a general consultation in April, as well as a Prudential Regulation Authority (PRA) technical consultation later in the year. Ongoing negotiations between the EU and the UK around equivalence with the EU’s existing Solvency II rules will also have a potentially huge impact on what any new framework ultimately looks like.
Whatever happens, our expert team of consultants will be able to give you the latest insights and advice. To speak to one of our team today, call us on 01274 515 747 or email us at email@example.com