Treasury Committee launches inquiry into EU insurance regulation

The Treasury Committee has agreed the terms of reference for its inquiry into Solvency II, a harmonised European-wide insurance regulatory scheme.

Solvency II was put in place in January 2016 despite many expressing concerns about it. One such concern was the scheme’s failure to secure value for money over its implementation, according to the chairman of the committee Andrew Tyrie.

The committee has decided to undertake an inquiry into the introduction and operation of Solvency II to supplement its work on the relationships that the UK might now seek with the EU.

At the time the scheme was being negotiated, the then head of the prudential regulation at the Financial Services Authority Andrew Bailey told the Parliamentary Commission on Banking Standards that he found the history of the EU process on the directive to be “shocking” and that the implications for costs for insurers and regulators were “staggering”.

Lord Turnbull suggested in evidence to this committee that Solvency II makes it more difficult to expand into non-European markets because a European based and regulated insurance company is at a disadvantage compared to one from outside the EU such as Canada or America.

“Brexit provides an opportunity for the UK to assume greater control of insurance regulation. The Treasury Committee will now take a look at the Brexit inheritance on insurance to see what improvements can be made in the interests of the consumer,” said Tyrie.

The objectives of the inquiry are to consider the options for the UK insurance industry that are created by the decision to leave the EU, assess any impact of Solvency II on the competitiveness of the UK insurance industry, examine the impact of the directive on the role of insurance in meeting the needs of UK customers and the wider UK business economy and assess any learning for both regulators and industry from the introduction of this major piece of insurance harmonising legislation.

According to the terms of the inquiry, Solvency II will continue to have an impact on insurance companies if the UK remains in the European Economic area or if UK firms establish subsidiaries in the EU in order to passport into other EU member states. The scheme will also most probably continue to also have influence even if the UK has a looser relationship with the EU.