Parliament’s Treasury Select Committee is calling on the Prudential Regulation Authority (PRA) to have a “pragmatic” discussion with insurers over amendments and increased proportionality in the implementation of Solvency II, amid the UK’s looming withdrawal from the European Union.
According to figures from Treasury Committee chair Nicky Morgan, the UK insurance industry managed investments of over £1.9trn last year, and paid nearly £12bn in taxes to the government.
He said the implementation of Solvency II in the country has come at a considerable cost.
“Industry and the PRA do not appear to be aligned on some key issues, including the impact on consumers,” he outlined. “They should agree what is best for UK industry and consumers as a matter of urgency.”
In a report published on Friday, the PRA found a “disconcerting level” of disconnect between the regulator’s views and those of the industry, which might be indicative of a breakdown in effective communication. It also identified several areas where Solvency II is believed to be inhibiting competition and/or competitiveness.
“The UK’s detailed approach to the implementation of the rules-based Solvency II Directive may have erred on the side of caution, enhancing policyholder protection at the expense of increasing the cost of capital for UK insurers,” the committee said. “In any event, the PRA should give greater consideration to how it can maximise its application of proportionality.”
Likewise, the report said Solvency II has been very costly to implement, and there are areas which are defective, “partly due to the underlying rules-based directive and partly due to a lack of proportionality in implementing it.”
The committee called on the regulator and the industry to develop a roadmap that ensures regulation without sacrificing competition and innovations.
“Such a roadmap should both inform the Brexit negotiations and reflect the opportunities afforded post Brexit to develop the international competitiveness of the UK insurance industry,” said Morgan.
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