Insurance is a unique financial service, without which many aspects of modern societies and economies simply could not function. And due to its special features, the insurance industry requires a tailored regulatory approach that reflects its business model.
A new publication from Insurance Europe urges policymakers to make sure the industry’s special features are taken into account when developing insurance regulation.
“Why insurance is unique — and offers unique benefits for consumers” sets out four essentials:
- The freedom to underwrite — Standardising policies or introducing compulsory schemes can have a negative effect on the cost and availability of policies. Insurers must be able to develop products that meet their customers’ expectations, fit their risk profiles and meet legal and fiscal national requirements.
- Tailored prudential regulation — The regulatory framework needs to reflect the fact that insurers usually have stable, up-front and long-term funding and low exposure to liquidity risk and market volatility.
- Regulation that reflects unique distribution and varying consumer needs — Insurance products are distributed completely differently to investment products. Regulation needs to reflect this or it could lead to fewer points of sale and less consumer choice.
- Flexibility to present products and costs in a comprehensive way — The EU’s PRIIPs Regulation that governs disclosures for insurance-based investment products fails to capture the key features of insurance products and as a result misrepresent certain information that is important to retail investors.