The Principle of Proportionality: Unraveling the Practical Application of Proportionality in the EU Regulations and the Solvency II Directive for Insurance Undertakings

Aaron Baldacchino, Simon Grima () and Kiran Sood ()
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Aaron Baldacchino: Department of Insurance and Risk Management, Faculty of Economics, Management and Accountancy, University of Malta, MSD 2080 Msida, Malta
Simon Grima: Department of Insurance and Risk Management, Faculty of Economics, Management and Accountancy, University of Malta, MSD 2080 Msida, Malta
Kiran Sood: Chitkara Business School, Chitkara University, Rajpura 140401, Punjab, India

JRFM, 2024, vol. 17, issue 6, 1-28

Abstract: Proportionality, pivotal to EU regulations and Solvency II, tailors rules to insurers’ size and complexity. Inconsistent application by supervisory authorities (NSAs) necessitates clarity to prevent undue costs. This study examines the issue via a review of the literature and industry discussions, emphasizing Solvency II’s introduction of proportionality and the varied interpretations it evokes. Transparent communication is crucial, and regulatory evolution must align with market dynamics, with the European Insurance and Occupational Pensions Authority (EIOPA) fostering convergence. Assessing proportionality mandates a comprehensive evaluation of an insurer’s nature, scale, and complexity. Regulatory distinctions between first-party and third-party risks could enhance market efficiency. Ultimately, a holistic, market-oriented approach is essential for proportionate regulation in the insurance sector, requiring concerted efforts to elucidate frameworks, foster transparency, and align regulatory evolution with market dynamics.

Keywords: principle of proportionality (POP); small European jurisdictions; Solvency II; national supervisory authorities (NSAs); European insurance undertakings; scale; complexity; insurance regulations (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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