Expanded rulebook doing more harm than good say Lux insurers

Despite the intention to protect consumers and businesses, growing regulatory requirements on insurers may be doing more harm than good by overwhelming businesses and prioritising compliance over risk management, according to members of the Luxembourg insurance sector. Regulators should focus on writing clearer, simpler rules and eliminating ineffective regulations. And instead of telling businesses how to solve problems with prescriptive regulations, regulators should define outcomes, leaving businesses to work out the details. This was the central argument on a panel discussion held at the annual conference of Luxembourg’s insurance association, the Association des compagnies d’assurances et de reassurances (ACA). According to the ACA’s legal and tax adviser Valerie Tollet, the sheer volume of regulatory requirements for ACA members is adversely impacting firms. “From ten regulations ten years ago, to 26 now applicable today, with another ten newly agreed and ready for presentation – and a lot more being reviewed or in the pipeline – is this regulatory overkill or a necessary evil?” asked Tollet. It wasn’t always this way, explained Paul Péporté, partner in the Luxembourg office of law firm Allen & Overy. “At the outset, the process was meant to be clear and flexible. This process has since been adjusted in the last 20 years and has led to inflation in the number of texts,” said Péporté. “Furthermore, on a number of occasions the key objective has not been reached, the key definitions are missing and this leads to a constant need to review the regulations. It is then seen as a trial-and-error process,” he added. His view was echoed by Michaela Koller, director general, Insurance Europe, the European federation for the insurance sector, who highlighted the “great political ambition” behind the regulations and the possibility of more complexity and unintended consequences. “The industry wants good regulation but what we have is not efficient or well organised,” she said. “It lacks impact testing and the ability to correct things that didn’t go well the first time around.” The extent of regulation and its lack of flexibility have also diminished Luxembourg’s status as role model for implementing EU directives, argued Marc Lauer, ACA president and CEO of Luxembourg insurer Foyer. “[Luxembourg] always had three things that made it attractive as a domicile: transposing international laws very quickly, no goldplating and pragmatic application,” he said “That third element is still alive.” Several current rules were highlighted by the panel as examples of regulation that is not yet meeting its intended purpose, including ESG disclosure requirements and the PRIIPs regulation, which requires insurers and investment firms to issue all potential retail customers with a key information document (KID). “The KID was supposed to help consumers make informed decisions, but it is in fact too difficult to understand, not clear enough to enable comparison and, sometimes, even misleading,” said Lauer. Lauer also took issue with the belligerence of the European Commission. “In business, we have an idea to develop a product, we launch it to clients and if then nobody is buying it, we stop it or we change the product,” said Lauer. In regulation, they don’t do that, said Lauer. Instead, there is a persistence to continue and keep the regulation, despite the fact it has led to thousands of documents that no-one is reading. Despite the criticism of specific rules, from anti-money laundering to Solvency II, Lauer said it is not any individual rule but the combination of them all that causes insurers the most problems. “Consumer protection and financial stability should be the goals, rather than picking out a small part of the big picture, developing a regulation around that process and then finding that process doesn’t fit in the big picture anymore,” he said. The debate ended with the somewhat inevitable call for a less burdensome regulatory environment. “Macro events like low interest rates and climate change are already creating major constraints on businesses,” said Péporté. “So why not have the advantage of creating a leaner regulatory environment to free up resources for insurers to cope with future restraints?”

Expanded rulebook doing more harm than good say Lux insurers

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