European Union Update
With European Parliamentary elections looming (in May) and a new European Commission due to be appointed afterwards, EU institutions have tried to push forward a number of legislative issues relevant to EU insurers.
The European Parliament voted to adopt the Omnibus II Directive on 11 March 2014, 18 months after Solvency II was originally due to come into force, confounding the predictions of sceptics who said that it would never happen. The Council will adopt Omnibus II in the next few weeks (a formality) and Solvency II implementation is on course for January 2016.
Attention has turned to the Delegated Acts, containing Solvency II’s detailed provisions, under consideration by an Expert Group of Member State representatives. EU insurers are still seeking improvements to the texts, whereas the Commission is determined to keep changes to a minimum. The Commission expects to submit the Delegated Acts to Parliament and Council in September for adoption. EU institutions must finalise several other instruments thereafter, so the legislative timetable remains tight.
Insurance Mediation Directive 2 (“IMD2”)
Alongside Solvency II’s radical readjustment of insurer regulation, the EU proposes to make significant changes to the regulation of insurance intermediaries. IMD2 will rewrite the Insurance Mediation Directive, strengthening EU intermediary regulation, with a particular focus on selling practices (for further details see Government Affairs webpages on lloyds.com).
On 26 February, the European Parliament approved its Economic and Monetary Affairs Committee (ECON) report on IMD2. Whilst it agreed some positive amendments, such as rejecting proposals to ban commissions for independent advice and non-advised sales, concerns for the insurance industry remain, including remuneration disclosure requirements, restrictions on tying and bundling of insurance products and sales rules for packaged retail investment products (PRIPs). Further discussion of the proposals within EU institutions is expected to begin in April, but may be delayed until after the Parliament elections.
European Insurance Contract Law
The Commission is showing interest in the idea of harmonising insurance contract law across the EU. On 27 February, the Commission’s Directorate-General for Justice published an Expert Group’s report on this subject. The Commission set up the Expert Group in January 2013, to consider whether differences in insurance contract laws between Member States constitute a barrier to the provision of cross-border insurance in the EU. The Group was made up of insurance providers, academics, representatives of consumers and business and legal professionals, and included representation from Lloyd’s Market Association and Insurance Europe.
The report concludes that, for the insurance of large risks, cross-border provision is a common occurrence and obstacles arising from contract law are rarely encountered. However, for “mass risk insurance” contract law may restrict insurers’ freedom to provide services cross-border, although the Group acknowledges that other factors also act as obstacles to cross-border insurance.
Most insurers do not welcome the prospect of a harmonised system of insurance contract law, which would increase legal uncertainty and possibly incorporate provisions adding to the costs of doing business. However, the Commission remains keen on the idea, as can be gauged from its press release. Insurance Europe’s less enthusiastic response can be read here. The Commission may take this forward later this year.
Review of the European System of Financial Supervision (“ESFS”)
Responding to the challenges of the financial crisis, the EU established a new financial supervisory framework, the ESFS, in 2010. European Supervisory Authorities (ESAs) include the European Insurance and Occupational Pensions Authority (EIOPA), with responsibilities for EU insurance regulation. The Regulations establishing the ESAs included provisions for the Commission to review their structure and performance. The Commission’s report is scheduled for April 2014 and will assess the effectiveness and efficiency of the supervisory architecture.
Parliament approved a report on the ESFS on 11 March. The report contains detailed recommendations to the Commission concerning the review, including proposals to enhance the powers of the ESAs. It remains to be seen how far the Commission agrees with Parliament.
In January 2014, the Court of Justice of the EU heard a case brought by the British Government seeking, on a range of legal grounds, annulment of powers granted to the European Securities & Markets Authority to regulate short selling. Unsurprisingly, the British Government lost on all counts, an unfortunate augury for a number of other legal challenges that it is bringing against EU provisions. The case suggests the limited extent to which the Treaties underlying the EU act to restrain the ESAs, including EIOPA, and the difficulties of legally challenging their powers.
Cyber Security Directive
In February 2013 the Commission proposed a Directive containing measures to ensure a high common level of network and information security across the EU (the Cybersecurity Directive). This Directive would impose minimum security requirements on businesses and require Member States to develop national strategies for network and information security.
Parliament adopted a legislative resolution on this proposal on 13 March. Parliament wants a focus on “critical infrastructure”, in which it includes the financial services industry, as well as energy and transport sectors. The Directive is among the priorities of the Italian Presidency of the Council of the EU, scheduled for the second half of 2014, which aims to complete trialogues by the end of the year. Insurers are interested in these developments because these measures may apply to their own operation of systems and also because cyber insurance is a growing market: premium income is expected to grow exponentially in 2014 and product development is progressing.
Data Protection Regulation
The EU also proposes comprehensive reform of its data protection rules. Its proposals are supported by Parliament, in the light of recent allegations about privacy abuse by US intelligence agencies, but are more controversial in the Council, where some Member States (including the UK) question the costs and restrictions that may be imposed on business. The Regulation includes provisions concerning profiling, data portability and a right to erasure. The Commission and Parliament hope that agreement can be reached before the end of 2014.