A Solution in Search of a Problem? 5 Reasons Europe's Massive New Insurance Law Faces Pushback

Introduction: The Paradox of Protection

Regulation is meant to be a shield, protecting consumers and financial systems from catastrophic failure. But what happens when the shield becomes so heavy, so complex, and so costly that it risks harming the very people it's meant to protect? This is the paradox at the heart of Europe's new Insurance Recovery and Resolution Directive (IRRD).

Promoted as a vital safeguard, the IRRD is designed to manage the failure of insurance companies. Yet, the industry it governs is sounding an alarm, calling for a "stop‑the‑clock" on its implementation. This is not a reflexive pushback against oversight. It's a stark warning that the directive, in its current form, is a disproportionate and ill‑conceived solution for a problem that barely exists. It is a solution in search of a problem.

Worse, it runs directly contrary to the European Commission's own stated "implementation and simplification agenda," creating a mountain of new bureaucracy instead of reducing it. This analysis explores the five most compelling reasons why this massive regulation needs a fundamental rethink before it imposes a direct hit on the wallets of European families and businesses.

1. A Heavy Hammer for a Tiny Nail: The Risk Doesn't Justify the Rules

The IRRD's entire premise is to safeguard financial stability. Yet, this mission is fundamentally undermined by a simple fact: the insurance sector poses a minimal systemic risk to the economy. The directive's burdensome framework was designed for the high‑stakes world of banking, where a single failure can trigger a domino effect. Applying this logic to insurance is like using a sledgehammer to crack a nut.

This isn't just an industry opinion; Europe's own regulatory authority, the European Insurance and Occupational Pensions Authority (EIOPA), has publicly acknowledged the sector's low‑risk profile:

"...a broad agreement that traditional insurance activities (be it in the life, non‑life and reinsurance sectors) [do not] contribute to systemic risk”

Furthermore, the robust Solvency II framework is already in place and has proven highly effective. It is calibrated to limit insurance insolvencies to a theoretical 0.5%. Crucially, an EIOPA analysis reveals that most insurance failures and near misses occurred before Solvency II was introduced, providing powerful evidence that the existing shield is already working. The IRRD, therefore, adds layers of costly complexity for a vanishingly small increase in protection.

2. Going It Alone: How the EU Is Creating a Competitive Disadvantage

While the insurance industry supports international standards, the IRRD goes "well beyond" them, placing EU‑based insurers at a significant disadvantage on the global stage. A quick comparison to other major jurisdictions reveals just how out of step‑and disproportionate‑the EU's approach is:

• A Proportionate Scope: Other nations use a scalpel; the IRRD uses an axe. Australia, Japan, and Singapore apply risk‑based assessments to identify systemically important firms. The results are telling: in Japan, no companies are currently required to hold resolution plans; in Singapore, the number is just four, and in Australia, eleven. The IRRD's arbitrary thresholds will capture a far wider and unnecessary range of firms.
• A Lighter Bureaucratic Touch: The difference in regulatory volume is staggering. Singapore's entire set of recovery and resolution requirements fits into a five‑page notice with 24 pages of guidance. By contrast, the IRRD's draft instructions for its reporting templates alone run to 43 pages.
• On‑Demand, Not Mandatory, Reporting: Unlike the IRRD's mandate for regular data reporting from all entities, none of these other jurisdictions impose such a requirement. Instead, companies provide data to supervisors only when requested.

This divergence is a direct consequence of inappropriately applying a banking framework to insurance. By forging this uniquely onerous path, the EU is not leading; it is shackling its own industry with unnecessary red tape.

3. The Unseen Price Tag: A Massive Burden for Policyholders

The IRRD is set to impose a staggering financial and administrative burden on the industry‑a burden made all the more alarming by the European Commission's failure to conduct a comprehensive cost‑benefit analysis.

Companies will be forced to develop and maintain intricate "playbooks" for resolution scenarios, backed by immense information‑gathering and reporting obligations. Beyond this steep operational overhead, the directive also allows for the creation of "Financing Arrangements" that insurers may be required to fund.

Ultimately, these enormous costs will not be absorbed by corporations. They will be passed directly to the consumer. The expenses from new operational teams, complex reporting, and funding mandates will inevitably lead to higher premiums. This is the paradox of protection in its starkest form: a regulatory shield so expensive it ends up costing the very people it was created to defend.

4. A Collision Course of Red Tape: The Perfect Storm of Bureaucracy

The directive's implementation timeline, slated for 2027/2028, is a recipe for operational chaos. It is set on a direct collision course with another massive regulatory project: the rollout of major changes from the Solvency II review.

This scheduling conflict will place an immense strain on the same limited pool of experts‑particularly risk and IT staff‑at insurance companies, supervisory bodies, and the newly formed resolution authorities. These critical teams will be stretched to the breaking point, forced to implement two resource‑draining regulatory frameworks simultaneously. To make matters worse, the IRRD implementation is poorly coordinated with the upcoming review of insurance guarantee schemes (IGS), creating a high risk of duplication, inefficiency, and yet more unnecessary costs.

5. The Original Sin: Forcing a Banker's Mindset on Insurers

Perhaps the most fundamental flaw‑the original sin of the IRRD‑is that it copies and pastes concepts directly from banking regulation onto the vastly different business model of insurance. This core error is the source of nearly every other problem in the directive.

The concept of "critical functions" is the prime example. In banking, services like payment systems are truly critical; their failure can freeze the economy in an instant. This simply is not true for insurance. Core services like reinsurance, investing, and actuarial analysis are not critical by definition because, as the industry points out, they "can easily be substituted." If one provider fails, others can and do step in to fill the void. This fundamental mismatch between banking theory and insurance reality results in ill‑fitting and impractical requirements across the board.

Conclusion: A Call for Smarter, Not Just More, Regulation

The industry's call to "stop the clock" is not an attempt to evade responsibility. It is a plea for smarter regulation‑proportionate, efficient, and truly necessary. The current directive represents the paradox of protection in action: a shield so heavy and ill‑fitting that it impedes the user more than it protects them.

Before proceeding, a proper cost‑benefit analysis is non‑negotiable, as is a commitment to a risk‑based approach that aligns with the European Commission's own simplification agenda. The goal should be to protect policyholders effectively, not to build a costly monument to a risk that barely exists.

In the quest for total financial security, how do we ensure our regulations don't become a bigger burden than the risks they aim to prevent?