Europe’s insurance sector was supposed to get clearer rules on what happens when an insurer runs into serious trouble. Instead, parts of the industry now warn that the new framework could create yet another competitiveness achilles heel for Europe.
At the centre of the debate is the Insurance Recovery and Resolution Directive (IRRD), formally adopted in March 2025 and due to apply from 2027. The directive empowers national authorities to intervene when an insurer is deemed “failing or likely to fail,” providing an alternative to standard insolvency proceedings.
Under the rules, insurers must draw up recovery and resolution plans and include specific clauses in certain non-EU contracts recognising that EU authorities may impose losses or temporarily suspend payments if necessary.
The aim is to prevent disorderly failures, protect policyholders and reduce the risk of taxpayer-funded bailouts.
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A banking-style framework for insurers
The IRRD borrows elements from the post-financial crisis framework developed for banks, notably the Bank Recovery and Resolution Directive (BRRD). However, insurers differ significantly from banks. They typically have longer-term liabilities and distinct risk profiles, and failures in the sector have historically been less systemic and frequent.
Recent cross-border cases have nonetheless exposed gaps in coordination. In early 2025, Luxembourg-based FWU Life Insurance, which operated widely in Italy, went bankrupt, affecting thousands of Italian customers who had taken out life insurance policies.
Such cases illustrate the political sensitivity of insurance failures across the single market — and the type of scenario the IRRD is designed to address.
Minimum common standards for insurance guarantee schemes introduced through IRRD should better protect consumers across borders.
“Stop the clock”
However, as the EU puts competitiveness and cutting red tape high on the agenda, the sector’s main Brussels-based federation, Insurance Europe, is urging policymakers to pause the directive’s rollout.
The organisation argues that the IRRD “risks imposing disproportionate and unnecessary burdens on insurers across Europe.” It warns that the rules “go well beyond international standards and introduce requirements that are significantly more complex and costly than those in other major jurisdictions.”
In its view, this “threatens to undermine the competitiveness of EU insurers and runs counter to the latest European Council conclusions which ‘urges the Commission and the co-legislators to accelerate their work, as a matter of utmost priority, on all files with a simplification or competitiveness dimension.’”
The proposed pause, Insurance Europe insists, “is a practical example of smarter, more proportionate regulation needed to strengthen the EU’s competitiveness.
Competitiveness at stake
The message is echoed across Member States. Italian insurer Unipol has argued that insurers can help drive European growth — provided the rules remain workable and do not add unnecessary complexity.
Luxembourg’s insurance association has also called for simplification, warning that excessive requirements could limit the sector’s ability to invest for the long term.
The broader position of the industry holds that Europe needs strong insurers to finance the green and digital transitions, invest in infrastructure and support long-term savings. If the rules become too detailed or too costly, they say, less capital will be available for those priorities.
A “gold standard”?
The IRRD debate comes shortly after insurers secured changes to the EU’s existing capital rules under Solvency II. The revision includes a reduction in the so-called risk margin, which is expected to free up capital across the sector once the changes take effect from 2027 onwards.
German MEP Markus Ferber, who led Parliament’s work on the file, called Solvency II the “gold standard” of insurance regulation — but also said that “its calibration was too conservative”.
More recently, French President Emmanuel Macron has argued that Europe should go further in rethinking capital rules, warning that overly strict requirements risk holding back investment and growth.
What’s next?
In principle, the IRRD is due to apply from 2027 onwards., However, important technical details are still under development, including how certain tools will work in practice and proportionality for smaller insurers.
Insurance Europe is therefore urging the European Commission to take a step back. “Taking the time now to pause and reflect would ensure a workable recovery and resolution regime that protects policyholders without creating unnecessary burden,” they argue.
