16 European Insurance Markets: Recent Trends and Future Regulatory Developments^^^ Paul Klumpes Imperial College London Paul Fenn Steven Diacon Christopher O'Brien Canan Yildirim Nottingham University Business School 16.1 INTRODUCTION The European insurance market is currently the subject of harmonization of legal, solvency and accounting rules. However, the demand for insurance is still driven by government incentives and by the extent of financial innovation and variations in consumer penetration and wealth across countries. Moreover, the capitalization and taxation incentives are still very focused on a national basis, and thus the existing regulations, industry structure, link between public and private insurance, and consumer demands for particular classes of both life and non-life insurance are idiosyncratic to each country. The evolution of risk management, consumer sophistication, and market integration with the European Union has also been accompanied by increased regulation and greater transparency and accountability. A key theme of this chapter is to explore whether trends in European markets are becoming more homogeneous ^'^ This research was funded by a KPMG-UIUC research grant under the Business Performance Measurement' Program. The authors are grateful to Rashad Abdel-Khalik for his guidance, and appreciate the research assistance provided by Tim Orton. Paul Klumpes dedicates this research in memory of Ab Flikkema. The chapter has benefited very significantly from many helpful comments provided by the editors, Bertrand Venard and David Cummins.