Regulation and efficiency in European insurance markets

With a series of directives completed in 1994 the European Commission tried to open and harmonize national European insurance markets. This has led to considerable deregulation in several countries. This paper surveys pre-199 4 regulation in Germany and the UK and the Commission's policy. It argues t hat It is unlikely that the policy will have a significant impact on direct international competition between European insurance markets, until there is standardization of insurance law. However, the tightly regulated markets will become more like the loosely regulated UK market. The paper evaluates this outcome and concludes that the European Commission's policy may there by have improved the welfare of insurance buyers in the previously highly r egulated countries such as Germany. The paper also uses efficiency-frontier estimation to compare the dispersion of firm efficiencies in the German an d British life insurance market. The results support the hypothesis that ti ghter solvency regulation allows the survival of a larger proportion of hig her-cost firms.