Insurance guarantee schemes should be regulated nationally – not at EU level

The question of whether insurance guarantee schemes should be regulated with a directive is once again on the table in the European Union. Insurance guarantee schemes protect customers’ receivables in the event of an insurer’s insolvency. The schemes are usually funded through insurance companies’ joint liability.

The necessity of an insurance guarantee schemes (IGS) directive has been discussed several times in the past decade, but so far the project has been rebuffed by member states. Due to the largely national nature of European insurance markets – of which different member states’ different pension insurance schemes are a good example – EU-level harmonisation has not been considered necessary. The European Commission has now asked the European Insurance and Occupational Pensions Authority EIOPA to provide technical advice on the matter.

Finland has been critical of IGS regulation

Finland shares the other member states’ critical opinion: most recently in 2015, the Finnish Parliament issued a communication stating the Government’s position that Finland should take a critical approach to EU regulation of insurance guarantee schemes. The Parliament justified it with the fact that unlike in banking, in the insurance sector the difficulties of an individual company are not likely to spread to the entire sector. National characteristics are also more prominent in insurance than in banking. Finance Finland (FFI) agrees with the Parliament.

In July 2019, EIOPA published a consultation paper on the harmonisation of national insurance guarantee schemes. EIOPA proposed that all member states’ national IGSs should meet a minimum set of harmonised features and cover both life and non-life policies. EIOPA’s model was built on the home-country principle, which means that the costs of a failing cross-border insurer would be borne by the IGS of the member state where the insurer is domiciled. After the consultation round, EIOPA has continued its work on the issue and is expected to present its proposal to the Commission in mid-2020.

Finnish IGSs cover statutory lines of insurance

The Finnish insurance guarantee schemes cover statutory lines of insurance, which include traffic, patient, accident and employee pension insurance. This means their policyholders and other beneficiaries are protected and will receive the full compensations they are entitled to also in the event of the insurance company’s bankruptcy. In voluntary non-life insurance, which is otherwise outside the scheme, consumer customers are protected with priority rules that give their receivables priority over other receivables.

Life insurance policies are not in the scope of any IGS in Finland. Their status was thoroughly assessed in the late 90s after the bankruptcies of life insurance companies Apollo and Henki-Kansa. The assessment concluded that due to the concentrated nature of the national insurance market, it would not be possible to establish an IGS for life insurance without financial contribution by the state ‒ that is to say, by taxpayers.

FFI still holds with the 2015 position of the Finnish Government and Parliament, maintaining that Finland should be opposed to the harmonisation of member states’ national legislation of insurance guarantee schemes for the following reasons:

  • The directive could force Finland to make changes to the IGSs of statutory non-life insurance policies, especially to those that cover statutory workers’ compensation insurance. The schemes currently provide a claimant with full cover also when the policy is from a foreign insurance company.
  • Funding an IGS in the concentrated Finnish life insurance market can only be possible with the help of taxpayers. The bankruptcy of a large or even medium life insurer could therefore endanger other life insurers and thus cause instability in the national market.