Over the next two years, Europe's insurance market will be transformed in significant ways thanks to the 2012 implementation of Solvency II, and a growing number of industry voices are warning the changes might not be desirable.

Peter den Dekker, president of the Federation of European Risk Management Associations, spoke to BestWeek Europe in the wake of Ferma's biannual meeting this year in Prague, Czech Republic. He pointed out that the next meeting, which will be held in Zurich in 2011, will happen on the cusp of Solvency II's implementation in the European Union.

According to den Dekker, the feedback from the 2009 meeting is still coming in, but that as far he was concerned, it had been a success. "Considering the current economic crisis, the turnout was quite good, possibly even in line with the last meeting in Geneva two years ago in terms of numbers."

The conference agenda was a full one, with a series of speakers and panels on topics that included the outlook for global business economics, identifying global risks, looking at emerging insurance markets and aspects of risk management.

Den Dekker said one topic overshadowed the rest. "Solvency II was one of the main themes of the convention," he said. "We are not alone in having concerns about some of its aspects; the Comite Europeen des Assurances [the European insurance and reinsurance federation] has also been vocal on this issue."

According to den Dekker, the goals of Solvency II are important. "It's obvious that we would like to be able to see the goals of the European Commission met -- the original goals, including policyholders protection and better security by insurance companies. That's what we all want.

"But it looks like the ongoing economic crisis could make the Solvency II proposals go over the top," he added. "We could see the opposition of policyholders and if it leads to any consolidation of small to medium insurers and then their being bought up by larger insurers, then that would mean less choice and therefore less competition."

Den Dekker stressed that if Solvency II goes through as it now stands, it could be expensive for insurance companies, and this increased level of expense could drive some players out of the market. "If that is the result of Solvency II, then I wonder if the European Union is losing sight of its original goals," he said.

Captives and Brokers

According to den Dekker, Solvency II could have another impact. In a speech at the start of the Ferma conference, he told delegates the organization is concerned that even though Solvency II acknowledges that captive insurers don't need the same level of regulation as commercial insurers, the definition of captives remains very narrow and that the Solvency II regime only applies to domiciles in the European Union.

In addition, the new regime is being followed by a number of non-European jurisdictions that are seeking to achieve equivalence by bringing in similar solvency regimes. Solvency II will cast a shadow beyond Europe.

"If Solvency II leads to captives being too expensive, then what do we do? We hope that we can convince the [European Commission] about our concerns on this, because they have to consider this," said den Dekker.

The president of Ferma also believes there is something missing from discussions on Solvency II. "The insurance brokers need to speak out more about this," he said. "In fact, we are missing a debate on the part of the insurance brokers on this topic."

Ferma is not the only group to express concerns over Solvency II. In September, a number of insurance associations, including the Association of British Insurers and Germany's insurance trade group GDV, wrote to the British and German governments expressing reservations about what they see as the narrow conservatism of the proposed solvency regime, which they say might lead to higher premium rates (BestWire, Sept. 3, 2009).

As Solvency II's implementation draws nearer, the voices of concern are growing in number.