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Why Solvency II?

April 07, 2012 | Comments: 0 | Views: 224

After the approval of the Omnibus Directive, the Solvency II Directive will take into effect on the first day of 2014.

But why Solvency II in the insurance market?

The aims are clear this is why Solvency II Directive will attempt to make the market better and stronger:

• The new directive will unify all the insurance companies under the EU into one strong market working into one unified goal.

• The new solvency will increase customer protection as well as easy operation of insurers.

• The new solvency will promote a single license for all EU insurers to allow them to operate in all member states of course following strict EU conditions for operation.

Solvency II Directive will not only provide uniform service of all insurance companies but also make sure that customers get the utmost pre need service everywhere they are.

Why Solvency II?

There are many benefits of adapting the new directive as opposed to the Solvency I which was enacted in 1973. Advantages of the new solvency can stretch as far as unifying EU member states and strengthening each state's economy for a better EU.

• A more elaborate but detailed risk management plan will be enforced that will protect consumers and insurer's alike.

• A defined capital based on current formulas to manage the amount of capital insurer's need to be able to operate.

• Risks are ultimately reduced with a wider and clearer scope. Defined risks decades ago may not be appropriate due to the complicated living conditions today and thus a new directive is at hand.

• Losses are greatly reduced in the part of the policy holder. Insurance companies are mandated to provide an annual report of their assessment or ORSA (Own Risk and Solvency Assessment). This report will create a transparency between plan holders or customers and insurance companies.

• There is an increased confidence of policy holders and future customers to insurance companies given the new directive's regulation of a self assessment.

• The Solvency II Directive specifically designates the qualitative and the quantitative requirement which is the amount of capital an insurer must hold; this will further improve insurance companies' capital management and provide considerable resources for their customers and plan holders.

• A new qualitative and quantitative requirement for calculating the technical provisions and the Solvency Capital Requirement. This will help determine the best estimates of an insurer's liabilities. There will be faster transfer of its obligations to a third party should any problems arise.

• The new directive includes requirements that will govern and manage insurers. Efficiently managed companies under the EU arm will provide customer's easy access to claims and various benefits of their policy.

• There is better protection in the part of the customer or the plan holder against insurer's that may fall short of their duties.

• There will be a lively and confident insurance market in the EU improving the insurance market in all EU member states. This will also contribute to each country's economy as well.

• In the future, the EU insurance market will be the model for improvement for all insurance provisions all over the world. The effect may be in a small region of the world today but will soon have a global impact that will change or amend all insurance regulations anywhere, this is why solvency ii will benefit us all.

It is a must for any insurance firm in the EU to allow their employees, investors and especially their plan holders and policy holders on how the new Solvency II Directive will impact their business or their security in the future. Each individual who is planning to shop for insurance for their personal use or for their business must actively learn the new directive and how it will affect their coverage. There are many reference materials about why Solvency II is needed available from your insurance company or you may find them online. I hope this article helps explain why solvency ii is needed.

Derrick King is an Author and writer for many websites including but reminds you that this article is not to be considered as sound financial advice it is the point of view of the author only. All major financial decision should be verified by an accredited financial advisor. Stay lucky.

Source: EzineArticles
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