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Evaluation of Benefits and Costs of Insurance Regulation - A Conceptual Model for Solvency II

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abstract Ensuring future payments to policyholders is of essential importance in the insurance business model. In order to provide a high safety level, the insurance industry faces particularly severe regulations by state authorities via varying means. These come with substantial benefits and costs for all affected stakeholder groups. However, it is in itself not clear if the benefits outweigh the costs. In this paper, we focus on the introduction of the Solvency II framework as a new regulatory measure and adopt a policyholder’s point of view in our economic model. In the context of Solvency II, we compare the policyholder’s willingness to pay for the higher safety level (i.e., a valuation of benefits of Solvency II) with the estimated costs mentioned in the literature for the new regulatory standard. Three different models are used to assess the policyholders’ willingness to pay. These are (i) a behavioural approach, (ii) an option pricing model, as well as (iii) a utility-based model. Our analyses raise doubts about whether the estimated costs of the Solvency II framework are lower than the costs policyholders are willing to pay for an increased safety level due to Solvency II.
   
type journal paper
   
keywords Insurance Regulation · Solvency II · Behavioural Insurance · Costs and Benefits
   
language English
kind of paper journal article
date of appearance 8-10-2012
journal Journal of Insurance Regulation
publisher NAIC National Association of Insurance Commissioners (Kansas City)
ISSN 0736-248X
volume of journal 2012
number of issue 31
page(s) 125-156
review double-blind review
   
profile area SoM - Responsible Corporate Competitiveness (RoCC)
citation Lorson, J., Schmeiser, H., & Wagner, J. (2012). Evaluation of Benefits and Costs of Insurance Regulation - A Conceptual Model for Solvency II. Journal of Insurance Regulation, 2012(31), 125-156.