Insurance regulation: More rules, but no greater impact

Insurance regulation in the german speaking region (Switzerland, Germany, Austria) has grown significantly in recent years in terms of scope, technical detail and thematic breadth. New requirements relating to solvency, governance, data protection, sustainability and digitalisation have profoundly altered the regulatory framework.

Requirements and benefits

The latest study, “Effectiveness and Efficiency of Insurance Regulation in the German-speaking Insurance Sector”, by Prof. Dr Martin Eling of the University of St.Gallen and Davide Oertle, shows that the challenges for the future lie less in the regulatory objectives than in their practical implementation. This is particularly true where formal requirements are increasing without the additional benefits being equally apparent from the companies’ perspective. 

The following findings are worth highlighting from the analysis:

• The regulatory burden is rising: The study confirms the hypothesis that the scope and complexity of regulation have continued to increase in all three countries since 2014. The burden is perceived as particularly heavy in the areas of governance, risk management, solvency and data protection.
• SMEs particularly affected: The principle of proportionality has only limited effect in practice. Smaller and medium-sized insurers in particular report above-average fixed costs relating to documentation, reporting and IT; the study refers to this as a systematic proportionality gap.
• Austria perceived as having the highest burden: In a country comparison, Austria is perceived as having the highest burden, followed by Switzerland. Germany tends to be perceived as having a lower burden, but according to the study also shows significant shortcomings in terms of transparency, consultation and feedback.
• Switzerland has the edge: Switzerland performs better in terms of regulatory design in a comparison of the DACH countries. Respondents assess the Swiss Solvency Test as principle-oriented, risk-based and conceptually sound; criticism here tends to focus on enforcement, which in some cases overshadows the principle-based approach in day-to-day practice.

Recommendations for insurance practice

The study is aimed at supervisory authorities, insurance companies and the legislature, with the aim of promoting a fact-based and constructive dialogue that makes regulation more effective and efficient. With this in mind, three recommendations are set out:

1. Strengthening the risk-based design of enforcement with a graduated level of scrutiny and evidence requirements.

2. Early and systematic involvement of market participants, as well as feedback during the consultation process.

3. Continuous monitoring of costs, processes and impacts.

“Our findings do not argue for less regulation, but for better regulation: risk-based, proportionate and less formalistic in its enforcement,” says Martin Eling, director of the Institute for Insurance at the University of St.Gallen. “Switzerland, in particular, is in a strong position here – it must now consistently demonstrate its strengths in practice.”

Study methodology

The study examines the effectiveness and efficiency of insurance regulation in Germany, Austria and Switzerland since 2014. It combines a structured assessment framework covering effectiveness, proportionality, transparency, enforcement and ex-post learning with a broad-based industry survey and a systematic cross-country comparison.