Select Committee on Treasury Written Evidence

Supplementary memorandum submitted by the ABI

  During the Select Committee's Hearing on Tuesday 12 October, you said that you would be interested in receiving further written submissions from the parties concerned. I hope that this letter will be useful.

  May I first of all say that I found our discussions on 12 October helpful, and I was particularly pleased that so much common ground emerged between the industry and the consumer representatives who gave evidence in the first part of the session. I have also read with interest the transcript of the subsequent debate in European Standing Committee B.

  The insurance industry continues to view very positively the prospect of an EU Single Market in financial services. We believe that it will bring benefits to companies and consumers alike—provided we get it right. I would describe our position as optimism tempered with caution, based on experience so far.

  A start has certainly been made under the Financial Services Action Plan. The wholesale market reforms should in due course have a knock-on and positive effect in the retail markets, and the Insurance Mediation Directive (IMD) may lead to some new business opportunities for intermediaries and, ultimately, insurers.

  But most FSAP measures are not targeted at the core retail markets. And those which are have tended to approach sales regulation with a blank sheet of paper, leading to overlapping and contradictory rules in some areas.

  We believe that a more rigorous approach to policy-making could help avoid such problems in future. This would include a proper understanding of the real needs of consumers in the retail markets, and a more thorough cost-benefit analysis before any new legislation is introduced. We are very pleased that this view is shared by the Government, and the FSA.

  You asked specifically for examples of loopholes in the Single Market framework. For insurance, that framework is set out in the Life and Non-Life Directives (which pre-dated the FSAP). They are based on the "home country" control principle. But there is an important exception which allows national authorities in the "host state" to impose additional regulation "for the common good".

  There is nothing wrong with this in principle: it allows many member states, including the UK, to set out consumer protection regulation which is essential if consumers are to be confident in the Single Market. Unfortunately, it also allows member states to abuse the exception with the effect of creating artificial barriers to a genuine single market. Two examples will illustrate the point: Finland prohibits foreign companies from offering statutory pension insurance; and in the Netherlands, life companies may not offer health or accident insurance. Such measures go beyond what is required for consumer protection. Their cumulative impact is to deter companies wishing to operate on a pan-European basis.

  They also form part of the more general problem which was discussed at the Hearing—uneven implementation of EU directives in different member states. Because EU directives are not self-standing instruments, each member state implements them in a different way, often depending on local pre-existing custom and practice. So the impact of a directive is felt differently by businesses in each member state. Sometimes these differences are so great as to make the playing field even less level than it was before. This is a major reason why the ABI, and its sister organisations in the other EU markets, believe the Commission needs to base its work on what should follow the FSAP on a thorough market analysis.

  I should be very happy to provide any further information on these or other topics which the Committee may require.

4 November 2004

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2004
Prepared 23 November 2004