EIOPA publishes its technical advice on minimum common standards for insurance guarantee schemes across the EU

The European Insurance and Occupational Pensions Authority (EIOPA) has submitted its technical advice to the European Commission on minimum common standards for insurance guarantee schemes (IGS) in the European Union. The advice provides details on how to develop a targeted harmonisation of IGS. It focuses on specific policy areas requested by the European Commission in its Call for Advice and provides a balanced overview of where common standards are needed and where national flexibility should be preserved.

The current landscape of insurance guarantee schemes in the European Union is characterised by a patchwork of national schemes that vary widely in their scope, coverage and even existence. This fragmentation means that policyholders face significantly different outcomes when insurers fail, depending on where they reside or whether they purchased their insurance on a cross-border basis.

Against this backdrop and building on EIOPA's Opinion on the 2020 review of Solvency II that presented the authority's views on the need for further harmonisation, today's advice highlights the benefits of harmonising specific areas of IGS in a targeted and proportionate way, while leaving room for national specificities where needed.

Gradual approach towards common standards while leaving room for national specificities

In EIOPA's view, the advice on minimum common standards represents a balanced, proportionate and effective approach that is consistent with the broader objectives of regulatory simplification and burden reduction. Its implementation would strengthen policyholders' protection across the EU, support the Single Market and the Savings and Investment Union (SIU), and ensure operational readiness under the IRRD framework.

While insurers can operate seamlessly across borders under a single license, policyholders may not enjoy a convergent level of protection in the event of an insurance undertaking's failure considering the specific circumstances in each Member State. The lack of minimum IGS harmonization leaves consumers in situations of uncertainty, even when the policy value may be fully paid out in the end. Experience from failures shows that financial backing is necessary to ensure clarity and calm, as well as equal treatment of policyholders, in particular when other barriers for policyholders also require attention, including language barriers.

Regarding eligible insurance policies, EIOPA recommends targeted harmonisation of the scope of policies that should be covered by national IGS, focusing on those life and non-life products that could cause the greatest financial hardship for policyholders in the event of failures. The proposal also takes into account where cross-border business is more prevalent and where harmonisation could support the functioning of the Single Market.

On operational aspects, EIOPA advises harmonising trigger moments for the activation of an IGS in order to simplify frameworks, improve predictability and support the equal treatment of policyholders across Member States. There are also strong reasons to introduce a common timeframe for submitting claims and a maximum time limit for payouts to policyholders so that beneficiaries can receive compensation in a predictable manner, while leaving Member States the option of setting shorter payout periods. It is also advised that IGS receive the same preferential ranking in insolvency proceedings as insurance claims in the respective country.

On funding arrangements, EIOPA proposes minimum requirements for the establishment of adequate liquidity safeguards for IGS, while leaving Member States sufficient flexibility to choose the most suitable form and scale of funding based on national specificities.

Regarding the interaction between IGS and the Insurance Recovery and Resolution Directive (IRRD) - and given the ongoing transposition and implementation of the latter on national level - the advice outlines only general principles in this area and cannot provide a preferred option. Most importantly, it recommends, as a minimum, clear requirements for formal cooperation between national resolution authorities (NRAs) and IGS.

Go to the Advice

Background

This Advice is a preliminary step before the legislative proposal, the development of which is in the mandate of the European Commission. The current Advice primarily focuses on the technical aspects of the call for advice, providing a preferred option where needed or, where not possible, providing an overview of the different alternatives. Further work will be required to develop and refine the final legislative proposal.

Article 98 of the IRRD requires the European Commission, after having consulted EIOPA, to submit a report to the European Parliament and the Council on the suitability of establishing minimum common standards for IGS within the Union. The Commission requested EIOPA's technical advice for the preparation of this report.

The technical advice supplements and builds on EIOPA's Opinion on the 2020 review of Solvency II, which argued that every Member State should have a national IGS in place that should meet a minimum set of harmonised features and be adequately funded.