Capital regulation impedes entry and competition between health insurers


Stringent capital requirements and limited opportunities to meet these restrict entry and competition between health insurers. This is one of the main conclusions that the Netherlands Authority for Consumers and Markets (ACM) draws in its study into barriers to entry and expansion in the Dutch health insurance market. Henk Don, Member of the Board of ACM, comments: “On the one hand, we see that health insurers must meet stringent capital requirements. Yet, on the other hand, the opportunities for them to meet those requirements are limited because health insurers are given little latitude in deciding where to invest their profits in. Capital regulation should go hand in hand with the freedom for health insurers to decide for themselves where to invest their profits in. That would benefit competition in this market, and would thus ultimately benefit the insured and patients.”

Effect of stringent capital requirements

Health insurers must meet stringent European capital requirements (Solvency II), which are designed to protect the insured, and to safeguard the stability of the financial system. ACM has established that these requirements have negative effects on competition, and wonders whether this has been sufficiently taken into account. Further research into the strictness and proportionality of capital regulation would thus be welcome.

At the same time, the opportunities for health insurers to meet these requirements are limited. Health insurers experience pressure from the public and politicians to give profits back as much as possible by lowering premiums. Using profits to lower premiums means that these profits cannot be used to increase capital, and, as a consequence, not towards the insurers’ ability to attract more customers in the future. Health insurers are also not able to invest the returned profits in the development of better health care.

A bill proposing to prohibit, from January 1, 2018, ‘all health insurers from paying out profits under any circumstances’ will make attracting capital even harder. After all, capital providers would like to get a reasonable return on their investment. If not, they will not invest in the Dutch health insurance market.

Other major barriers to entry and expansion

ACM already concluded last year that competition between health insurers is suboptimal. One important reason for that conclusion is the existence of high barriers to entry and expansion. In addition to the stringent European capital requirements that health insurers need to meet, they also have to obtain a license from the Dutch central bank, and they need to deal with regulatory uncertainty.

Why is effective competition important?

ACM has carried out a study into barriers to entry and expansion in the Dutch health insurance market. The objective of this study was to increase the competitive opportunities of health insurers within the Dutch health care system. Competition is not a goal unto itself, but rather a means to increase the objectives of the current system: accessibility, quality, efficiency, and affordability. Effective competition between health insurers will stimulate them to buy better and less expensive health care. That will ultimately benefit the insured and patients alike.