McCreevy to unveil EU insurance reforms

DETAILS of the biggest shake-up for the insurance industry in the last 30 years will be outlined today by EU Internal Market Commissioner Charlie McCreevy.

The core of the proposals, known as Solvency II, introduces a new method for calculating how much money companies must set aside to cover risks and will be based more closely on those risks.

This is expected to free up huge sums of money from the industry that is worth an estimated €7 trillion in the EU.

Mr McCreevy argues this should reduce premiums for consumers.

Solvency II, which is designed to take over from a patchwork of current regulation, will also set up a new system of supervision for the industry that should facilitate the single market.

Pensions are not covered in this directive covered by the occupational pension funds directive, but this piece of legislation will be reviewed next year. The commission is expected to examine whether and how suitable solvency requirements can or should be developed for pension funds.

Analysts are saying however that the new regulations will be good for the biggest companies and for small niche players, but could squeeze out those in between.

Under the system, which the commission aims to have in place by 2012, insurers would takeaccount of all types of risk and manage them more effectively.

Whereas now they have to ensure they are taking zero risk and set aside substantial sums to cover any and all risks, the new system will be based on an economic assessment of risks and the concept of an acceptable risk level.

EU solvency requirements at present only cover insurance risks but in future companies would be required to hold capital also against market risk, such as a fall in the value of an insurer’s investments, credit risk — when debt obligations are not met and operational risk including malpractice or system failure.