Will new U.K. insurance regulations limit industry competition?

UK Insurance regulations
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Insurers and consumers across the United Kingdom are wondering if new rules will spike prices.

The U.K. government and industry regulators have now begun a new move to help to make changes to the insurance regulations that are currently in place through the Solvency II regime.

The reason is that the government and insurance regulators are worried about a less competitive market.

Recently, submissions were made to the European Commission, the Bank of England, and the Treasury in order to underscore the insurance regulations they are seeking to change. Within that submission, the U.K. government also made a call for a broader and more prompt review of the rules than had been scheduled. Currently, the first review of the impact the new regulations are having on the insurance industry isn’t planned to take place until 2018. The government is hoping that this can be brought forward in order to help to reduce the potential harm a market with reduced competition could have within the country.

The belief is that the insurance regulations will be harmful to competition in the European market.

UK Insurance regulationsThat said, the U.K. Treasury also stated, within the submission, that the implementation of Solvency II could also negatively impact long-term investment. The submission said “Our experience of implementing Solvency II to date is already raising issues around the impact of the framework on long-term investment and competitiveness of the European insurance industry.”

That said, the Bank of England had a different perspective on the matter. It looked at the more technical components of the impact of Solvency II, for example, the ultimate forward rate. That refers to a type of measure that is used for the calculation of the liabilities of insurance companies over the very long term. The Bank of England also pointed to the way sovereign bonds would be treated.

According to insurance companies, they have already felt the impact of Solvency II in the way they conduct their businesses. Some of the more specific insurance regulations cause struggles that are especially challenging for life insurers, particularly in the case of those that sell annuities. The problem, according to many, is that the assessment of the annuity longevity risk is too harsh.

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