Prudential Regulation Authority chief executive Andrew Bailey has hit out at the “staggering” costs of Solvency II and the “shocking” EU process.
In a letter to the parliamentary commission on banking standards chair Andrew Tyrie in February, Bailey wrote that the directive has become “lost in detail and vastly expensive” and will cost the industry billions of pounds to implement.
Solvency II was first designed in 2003 to introduce an EU-wide insurance regulatory regime that replaces previous EU regimes. It aims to strengthen prudential regulation of the insurance sector and ensure policyholder protection by setting out tougher requirements on capital adequacy and risk management.
Bailey estimates consumers will see price rises of 0.1 per cent, insurance firms will see ongoing costs of £200m a year, on top of £400m spent since 2008, while the regulator is set to spend between £5m and £7m a year.
Bailey called for a parliamentary inquiry into the directive to examine the huge amounts spent by firms and regulators with no certainty over new rules because of the lengthy process.
He said: “We have taken action since last summer to deal with this as best we can, and I think the outcome is sensible and pragmatic, but it does not cancel the nature and scale of the issue that the PRA inherits caused by an EU process that makes no allowance for value for money.”
Tyrie said he takes these concerns “very seriously” and pledged to examine them with the Treasury select committee in the coming months.
He says: “Bailey describes the history of the EU decision-making process on Solvency II as ‘shocking’. He is right to do so.
“For the best part of 10 years it has been mired in uncertainty, at great cost to the regulators, insurers and, ultimately, consumers. Solvency II is an object lesson in how not to make law.”