Supervisory arbitrage on the EU insurance market
Supervisory arbitrage on the EU insurance market

Summary/Abstract: Supervisory arbitrage occurs when entities search for gaps in regulations and allocate their activities in a different country due to the “less restrictive” regulations in terms of supervising their activities. On the EU insurance market there is a risk of supervisory arbitrage as the result of differences between countries, both in the methods of insurance supervision organization, the exercised supervision practices and the methods for supervisory tasks’ implementation. In consequence, supervision institutions may compete in supervisory “indulgence”, thus pushing out a “better” supervisory environment in favour of a worse one and adverse selection related to the possibility of allocating activities outside the EU, which increases the systemic risk and can disrupt the functioning of the entire internal market.

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