European supervisors divided on insurance guarantee schemes plan

The committee, which advises the EC on insurance policy such as Solvency II and the proposed IGS system, said that it wanted to stress that it encountered differing views among its national insurance supervisor members about whether the benefits of broadly defined guarantee schemes in insurance outweigh the costs.

CEIOPS pointed out that several new regulatory developments should be taken into account as the plans for a pan-European IGS framework are drawn up, in particular the recently-adopted Solvency II Framework Directive and the Green Paper on Pension Funds.

“Solvency II redefines the solvency environment of insurance companies in Europe. It will have a direct impact on their probability of default and therefore on the probability of intervention of the guarantee funds. An Insurance Guarantee Schemes Directive (IGSD) proposed by the European Commission should therefore take into account the impact on the probability of failure of individual financial institutions under the new supervisory regime,” CEIOPS said.

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CEIOPS’ said it advises the EC to focus on five key matters. These are:

The EC should consider combining different criteria (policies, eligible claimants, caps and other claim reductions) to help it determine the scope of a minimum IGS across Europe;

The EC should recognise the fundamental differences between the banking and insurance sectors in establishing an IGSD;

An IGSD should leave room for national choices, such as the size of undertakings that gain coverage from the IGS, as well as funding questions, organisational questions and scope of application for a portfolio transfer;

A step-by-step approach is recommended should criteria for funding be included;

An EU-IGSD should explicitly state how claims in motor insurance are guaranteed. Current problems in the home/host approach should, if possible, be repaired.

It is currently proposed that the schemes will cover both life and non-life business but reinsurance would not be included. The White Paper proposes the inclusion of large risks such as marine, railway, transport and aviation insurance

Consistent with its advice on the Insurance Mediation Directive, CEIOPS suggested that member states could be given the option to exclude such risks from their guarantee schemes as their inclusion “may result in the significant increase of the costs of functioning of IGS”.

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