6 Financial services |
|Commission White Paper on insurance guarantee schemes
|Basis of consideration||Minister's letter of 1 November 2010
|Previous Committee Report||HC 428-iii (2010-11), chapter 8 (13 October 2010)
|Discussion in Council||None planned
|Committee's assessment||Politically important
|Committee's decision||Not cleared; further information requested
6.1 Insurance guarantee schemes (IGSs) provide last-resort protection
to consumers when insurance undertakings are unable to fulfil
their contractual commitments, so protecting people against the
risk that claims will not be met if their insurance company becomes
insolvent. Increasing cross-border insurance activity and the
impact of the financial crisis on perceptions of the risk of cross-border
firm failures has highlighted differences in the protection afforded
to insurance policyholders across the EU and prompted calls for
a standardised EU IGS. The concept of an EU-wide IGS has been
mooted since 2000. However, Member States have been unable to
agree on the scope of such a scheme, especially since some, unlike
the UK, have no schemes at all for the insurance sector.
6.2 In this White Paper, published in July 2010, the Commission
proposes introduction, through a Directive, of an EU framework
for IGSs. The Commission's key proposals include:
- adopting a minimum harmonising Directive, with a home state
principle, that covers
both life and non-life insurance policies and natural persons
and certain legal persons (such as small and medium businesses);
- establishing a pre-funding model for domestic
insurance guarantee schemes, with a target funding level of 1.2%
of gross written premiums, to be applied over a 10-year horizon
in the event of low funds, should an insurer fail, the
pre-fund could also be supplemented by post funding arrangements;
- ensuring, at the very least, that policyholders
and beneficiaries should be compensated for losses where an insurer
The Commission says that it may, in the future, also
consider compensation limits and other reductions of benefits,
as well as setting a pre-defined time limit for compensation payments.
The Commission calls for the views of interested parties by 30
6.3 When we considered this document, in October
2010, we noted the Government's support, albeit with caveats,
for the principle of establishing an EU framework for insurance
guarantee schemes and the possibility of future legislative proposals.
We presumed the Government would be responding to the Commission's
call for comments on the White Paper and asked to see that response.
Meanwhile the document remained under scrutiny.
The Minister's letter
6.4 The Financial Secretary to the Treasury (Mr Mark
Hoban) now confirms that the Government will be responding to
the Commission, by its deadline of 30 November 2010, saying that
the Treasury, the Financial Services Authority and the Financial
Services Compensation Scheme are currently preparing this response.
The Minister tells us it will:
- follow the principles outlined
to us previously;
- seek to ensure that any EU framework does not
weaken the current UK policyholder protection afforded by the
Financial Services Compensation Scheme; and
- seek to ensure that any such framework is proportionate
to the risks within the insurance sector.
6.5 The Minister also comments that, as he said in
the European Committee debate on 21 October 2010 regarding the
draft Investor Compensation Schemes Directive, although the Government
does not share our views on the application of the principle of
subsidiarity, it is, like us, opposed to mutual borrowing provisions
for guarantee schemes.
He continues that he will ensure that any response to the White
Paper, which he will send us, highlights that the Government is
not supportive of any form of compulsory borrowing between schemes.
6.6 We are grateful to the Minister for this update.
We look forward to seeing, in due course, the response to the
White Paper. Meanwhile the document remains under scrutiny.
16 A home state principle would involve covering policies
not only issued by domestic insurers but those sold by branches
of domestic insurers established in other Member States, as in
contrast to a host country principle involving coverage of policies
issued by branches of incoming insurers. Back
See headnote. Back
(31836) 12346/10 + ADDs 1-2: see HC 428-iii (2010-11), chapter
7 (13 October 2010) and Gen Co Debs, European Committee
B, 21 October 2010, cols 3-18. Back