Each of the top 40 insurers has spent more than €200m on compliance with new regulations

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A new report from professional services firm Deloitte has estimated that spending on compliance with new regulations has cost the European insurance industry as much as €9bn (£7.6bn) since 2010.

Its report, Rethinking the response – a strategic approach to regulatory uncertainty in European insurance, reveals that each of the top 40 insurers in Europe has spent between €214m and €217m on new regulations from 2010 to 2012, a total of up to €9bn across the industry.

Deloitte insurance partner Francesco Nagari said: “The volume of new insurance rules has increased to a level not seen in decades. Compliance has cost the European industry billions of euros and most insurers expect the bill for implementing the new regulations – which include IFRS 4, Solvency II, IFRS 9, SIFI Rules and FATCA – to continue at current levels until at least 2015.”

Strategic paralysis

In its report, Deloitte said insurers were also suffering from “strategic paralysis” as a result of the lack of certainty regarding European regulations.

Nagari said: “The challenges are not simply about headline cost. Few compliance teams have the capability to deal with the uncertainty surrounding regulations and many insurers are adopting a wait and see approach when it comes to making business decisions.

“This can result in strategic paralysis, which means insurers may delay business plans such as acquisitions or disposals because they do not know how these decisions might be affected by new regulations.”

Deloitte head of insurance research Seb Cohen said that this stagnation was damaging for business, and insurers must adapt to the changing regulatory landscape sooner rather than later.

“Senior executives say the shifting nature of regulation makes it difficult for insurers to make decisions and plan their businesses. This means the real cost is likely to be much greater than simply the initial expense of implementing the new rules,” Cohen said. “Our research indicates insurers would welcome regulators around the world working closely together to reduce duplication between each national supervisor.

“In Europe, EIOPA is examining this issue, but it is unlikely to affect rules from outside Europe. Companies, however, cannot wait for regulators to be more co-ordinated in the short term. There are tools and techniques insurers can use to help cope with these challenges and they need to create a co-ordinated firm-wide approach to regulation that does not hinder the formulation of business strategies.”