Ethical Benefits and Challenges in Insurance: Framework of Introducing Pillar IV Regulation to Solvency II

Abstract

The paper delves into the concept of Pillar IV, which addresses the recovery, resolution, and orderly exit from the insurance market within the framework of Solvency II - an essential tool for insurers' supervision. While Solvency II has undoubtedly reduced the risk of insolvency for insurers, it hasn't eliminated it. Therefore, this research aims to conduct a comparative analysis of various market models and proposals from authorities to come up with the best possible solutions for recovery stages, mechanisms to be implemented in the case of economic non-viability of the insurer, and resolution mechanisms to ensure a seamless exit from insolvency. The article evaluates different resolution methods, weighing their benefits and challenges, considering the interests of consumers, and the roles of regulatory and resolution authorities. The authors suggest a set of best practices, solutions, and guidelines to implement a resolution through regulations, which can be used to establish Pillar IV and enhance the level of preparedness of insurers. The goal is to avoid the adverse systemic effects of a traditional bankruptcy, which could significantly impact consumers, the economy, and public funds. Keywords: Solvency II; Resolution; Insurance; Recovery; Bail-in