"Insurers may also have incentives to consolidate further, as the implementation of Solvency II could require substantial investment in data collection, IT and risk management systems and expertise. Similarly, strengthening risk management will give rise to fixed compliance costs which are likely to fall more heavily on small firms. While this effect should be smoothed by applying the roportionality principle (limited reporting requirements for small firms), the higher weight of compliance costs for small firms could be a further driver of consolidation. Moreover, the use of relatively sophisticated internal models for risk management could ensure lower regulatory capital requirements - and a consequent pricing advantage – for bigger insurers." (DG ECFIN Report - Section 3.4.1)
- You may have observed negative effects on competition in the product space as a result of Solvency 2. If so, could you share details about your observations?
- If you have not observed a negative effect on competition, do you believe that it’s just a matter of time until we do? For example, you could take the view that the reason we have not observed a negative impact is that Solvency 2 has not yet been implemented.
- You may take the view that the absence of negative effects on competition is the result of changes in the industry landscape. For example, a recent CSFI survey ‘Insurance Banana Skins 2013’ suggests that there is a significant amount of capital in the insurance industry (‘capital availability’ goes from the second highest concern in 2012 to number 16 in the 2013 survey). If so, do you believe that the increased availability of capital has muted the potential impact on competition? Are there any other relevant changes in the industry landscape that have a similar effect?
- Finally, you may take the view that we are unlikely to see a negative effect on competition. This could be because regulation’s marginal impact on existing trends is unlikely to be material.