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

Author

Listed:
  • 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
    Faculty of Business, Management and Economics, University of Latvia, LV-1586 Riga, Latvia)

  • Kiran Sood

    (Chitkara Business School, Chitkara University, Rajpura 140401, Punjab, India
    Women Researchers Council (WRC), Azerbaijan State University of Economics (UNEC), Istiglaliyyat Street 6, AZ1001 Baku, Azerbaijan
    Department of Finance and Banking, Faculty of Applied Sciences, University of Uşak, Uşak 64200, Turkey)

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.

Suggested Citation

  • Aaron Baldacchino & Simon Grima & Kiran Sood, 2024. "The Principle of Proportionality: Unraveling the Practical Application of Proportionality in the EU Regulations and the Solvency II Directive for Insurance Undertakings," JRFM, MDPI, vol. 17(6), pages 1-28, June.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:6:p:233-:d:1408642
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    References listed on IDEAS

    as
    1. Acosta-Smith, Jonathan & Grill, Michael & Lang, Jan Hannes, 2024. "The leverage ratio, risk-taking and bank stability," Journal of Financial Stability, Elsevier, vol. 74(C).
    2. Marta Ostrowska, 2021. "Regulation of InsurTech: Is the Principle of Proportionality an Answer?," Risks, MDPI, vol. 9(10), pages 1-12, October.
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