Social impact Solvency II

Insurers are actively implementing the Solvency II guidelines, managing them alongside their capital and risk management. The repercussions of decisions in this context will extend beyond the boardroom, affecting the relationships between both individual and corporate policyholders and insurers. These potential consequences have been explored and documented in a report by The Economist Intelligence Unit, involving 254 EU organisations, including insurers, financial institutions, and non-financial institutions.

While the Solvency II guidelines aim to provide better protection for policyholders, various parties are questioning who will ultimately bear the cost of the solvency regime. Simultaneously, there are concerns that insurers will be limited in their role as investors, compelled towards ‘safer’ investments and fewer non-investment loans. This could potentially lead to challenges for capital-seeking organisations, as balance sheet constraints might result in banks ceasing to make investments.

With these questions in mind, The Economist Intelligence Unit commenced its investigation into the potential impact of Solvency II on consumers, the insurance industry, and society, where insurers act as investors.

The key findings and conclusions of this research are:

  • The requirements of Solvency II are seen as excessive. Respondents believe that the balance is lost and the demands are too stringent.
  • Policyholders will ultimately bear the cost of Solvency II, as insurers will pass these costs on to them.
  • Insurers expect to take fewer risks in their investment strategies.
  • There is ambiguity among organisations about the consequences for debt issuance.
  • Legislators will need to reconsider the capital charges.
  • The unintended consequences are yet to be fully understood, causing concern among various organisations.

Although a revision of the current legislation is deemed necessary, the potential consequences and timing of Solvency II are causing apprehension. The current political and economic climate leads many to believe that insurers, policyholders, and other stakeholders will be adversely affected by Solvency II. It is expected that premiums will increase and that investments will be impacted. Whatever the exact outcomes may be, it suggests that insurers seek absolute certainty about the application of the rules and their implementation in these uncertain times.

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