Split over bankruptcy plan

Commission seeks to improve protection but insurance industry sceptical about proposals.

Battle-lines are being drawn between EU policymakers and the insurance industry over plans to introduce further regulation covering the sector.

The European Commission intends to come up with a legislative proposal later this year aimed at improving protection for consumers against insurance companies that go bankrupt.

The move to create minimum standards for insurance guarantee schemes is seen by the Commission as another element in the complex process of emerging from the financial crisis.

Michel Barnier, the European commissioner for the internal market, has indicated that such schemes could safeguard against a loss of consumer confidence in the insurance industry, which might threaten market instability.

In doing this, the Commission is looking to introduce the same sort of protection as already brought into banking and other parts of the financial services industry.

Currently, about half of EU member states have their own national insurance guarantee schemes. They generally pay compensation to consumers whose insurance company cannot meet their commitments, or transfer their policies to a solvent insurer.

Where schemes do exist, they vary greatly. According to the Commission, about 62% of cross-border life-insurance agreements and 23% of cross-border non-life insurance agreements do not have any guaranteed protection at all.

Guarantee schemes

However, the insurance industry is sceptical about the plans, believing that their sector does not suffer from the same problems as banking. “We are telling policymakers that insurance guarantee schemes are not the panacea,” said William Vidonia, head of the single market and social affairs at CEA, which represents European insurers.

“Insurance guarantee schemes carry some negative side-effects, including moral hazard and cost – because ultimately the cost of setting up these schemes would have to be borne by consumers.”

The insurance industry has already had to come to terms with new regulation in the form of Solvency II, which is to become operational by 1 January 2013.

The insurance industry believes that Solvency II, as well as the new supervisory architecture in the guise of the European Insurance and Occupational Pensions Authority (EIOPA), which came into effect on 1 January, goes far enough in regulating the sector.

“We feel it would be wiser to wait for these initiatives to bed in before seeing whether additional regulation is needed, because they aim to enhance consumer protection,” said Vidonia.

However, a new European Parliament report takes the opposite view. It considers the introduction of insurance guarantee schemes as necessary to ensure the success of Solvency II.

MEPs have started to debate the report, drawn up by Peter Skinner, a British Socialist MEP, which calls on the Commission to propose a directive for minimum harmonisation of insurance guarantee schemes.

The report says that this would ensure the same level of consumer protection regardless of the location of the insurer writing the policy, whil ensuring there was no reduction in consumer protection in member states where schemes already exist. It is expected that the report, which will set down the Parliament’s view of the issue, will be put to the vote in May.

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