Deep divisions halt UK push for single insurance market

Date: 25/06/1998

By Tim Jones

BRITISH government hopes of putting in place a key piece of the single insurance market jigsaw after nine years of neglect have foundered because of fundamental differences between EU member states.

At the beginning of its Union presidency in January, London made reaching a political agreement on common rules for winding up insurance companies in the Union a top priority in the financial services sector.

But a recent meeting of member state officials failed to narrow the divisions between EU governments over the proposal. Instead, they agreed to send out questionnaires to the insurance industry in Europe to gauge the differences between national winding-up rules.

"This means that the issue has now been put off into the Austrian presidency at least and probably until the German presidency in the first half of next year," said one diplomat.

This will come as a great disappointment both to the insurance industry and to Internal Market Commissioner Mario Monti who, like his predecessors, has been struggling to turn the single market in insurance into a reality.

The European insurance industry, which is worth an annual 550 billion ecu in premium payments, has long complained about how slowly a true single market is evolving in the sector.

The EU was supposed to operate a harmonised insurance market from July 1994 onwards through a single system for the authorisation and financial supervision of insurers by their host member state - the so-called 'European passport'.

When a business goes into liquidation in one country, it is often unclear to operators how its subsidiaries or firms in the same group in other states will be affected, and creditors are unsure of their rights and protection.

Although the Union has agreed in principle to a convention on collective insolvency proceedings, this does not apply to financial services.

Since banking and insurance are becoming increasingly intertwined and cross-border in nature, this is a growing problem. The recent high-profile mergers between Belgo-Dutch banking/insurance group Fortis and Belgium's Generale Bank, as well as the take-over of Royal Belge by French insurance giant AXA-UAP, are just the latest examples of this trend.

The Comité Européen des Assurances (CEA), the trade association representing insurers in 29 European countries, has made harmonising the legislative and operational framework for Europe's insurance and private pensions markets its major priority for 1998.

The CEA complains that varied consumer protection and solvency criteria, inconsistent tax and contract laws and the lack of a common approach to winding up firms are undermining the single market.

In a recent report to the Economic and Social Committee, Portuguese member Manuel Ataide Ferreira called on the Council of Ministers to get moving on the winding-up directive.

He lamented the fact that progress had been slow, "even though it is the prevailing opinion among both insurance operators and consumer organisations that a whole series of obstacles hampering completion of the single market in the this field can be traced back to the absence of Community legislation".

Member states' experts have so far been unable to agree how to approximate their regulations, whether to engage in minimum harmonisation or just mutual recognition of existing national rules, and whether to give preferential rights to certain policy-holders in the event of liquidation.

Analysts point out that most insurance companies, even if bankrupt, are bought up rather than being allowed to go into liquidation. The near-bankruptcy of French state-owned Groupe des Assurances Nationales (GAN) after it lost more than 1 billion ecu in property slumps and disaster insurance was averted first by subsidy and now by an imminent take-over either by Groupama or Swiss Life.

Meanwhile, the European Parliament's legal affairs committee will decide next week whether to pass another key insurance proposal, on the supervision of diversified insurance groups, to the institution's July plenary session for a final vote by all 626 MEPs.

A report on the proposed legislation by German Christian Democrat MEP Marlies Mosiek-Urbahn contains only two minor amendments which are intended, according to her office staff, to clarify the proposal rather than change it.