Lloyd’s is already subject to the UK’s IGS, the Financial Services Compensation
Scheme. It is also subject to guarantee schemes in Illinois and Kentucky, the US
states in which it is a licensed insurer. At present, most of the jurisdictions in which Lloyd’s underwriters can carry on insurance business on an authorised basis do not have such schemes. IGSs are funded by levies on authorised insurers, so the introduction of an IGS can have cost implications.
The Commission appointed the consultation firm Oxera to carry out the study in 2006. This was a response to calls that it harmonise rules on guarantee funds throughout the EU. Commissioner McCreevy decided to carry out a detailed assessment of the situation, and of the costs and benefits of introducing harmonisation.
The study identifies 13 (out of 27) Member States that operate an IGS, five of which (Latvia, Malta, Romania, Spain and the UK) have general schemes covering both life insurance and non-life insurance. It points out that the schemes differ widely in the types of business covered, the scope of protection, operating procedures and
funding arrangements. It identifies that insurance failures in the EU have been
infrequent and that the IGSs have therefore had to pay out only rarely, but
considers that, even so, some failures are likely to occur.
The study looks at whether EU policy action is required to remedy any problems
arising from the current position. The options considered are:
• Maintaining the status quo.
• Introducing an EU-wide approach, that could involve different levels of
harmonisation and structure.
• Other policy measures, such as consumer information.
It considers that setting up a single EU-wide IGS would not be feasible or politically acceptable. Addressing problems with cross-border insurance would require
national IGSs to be structured consistently on either a home or host state basis.
The study concludes:
‘The decision concerning whether to implement minimum harmonised IGS across
Member States and where to set the minimum protection standards depends on
preferences at the EU level overall and the weight of preferences between
individual countries. As such, it is a matter for policy.’
Nevertheless, from a consumer protection point of view, it is difficult to argue
against an Insurance Guarantee Scheme. As members of the European Parliament are likely to view the subject primarily from this point of view, EU legislation on
IGS is very probable.
Lloyd’s and its professional advisers in Brussels will continue to monitor this issue
and will keep the Lloyd’s market informed of developments.
