On 30 July, EIOPA opened for comments its Discussion Paper on ‘Resolution Funding And National Insurance Guarantee Schemes’ until 26 October 2018. The aim of this Discussion Paper is to gather feedback from stakeholders on the analysis presented, which will be then used to further develop its stance on resolution funding and national insurance guarantee schemes (IGSs), the paper does not constitute a formal proposal. The paper is a follow-up to EIOPA’s Opinion on the “Harmonisation of Recovery and Resolution Frameworks for (Re)Insurers Across the Member States”, published in 2017.
The paper includes the following elements:
-
- Resolution funding. there are three sources for funding resolution, ie the assets and liabilities of the failing insurer, national resolution funds and national IGS or policyholder protection schemes (PPS). Currently, only two Member States (RO and NL) have/will soon have a resolution fund for insurers, IGS being the preferred option in 20 Member States. EIOPA reaffirms its support for the harmonisation of supervisory powers to restructure, limit or write down liabilities of insurers in resolution (subject to safeguards) and advises Member States to ensure that they have in place adequate and sufficient funding arrangements.
-
- National IGS. The main function of the existing national IGS is to compensate policyholders for their losses in the event of an insurer’s insolvency, but many schemes have additional functions, eg transfer of insurance policies to third parties, bridge institution, funding resolution actions. There is no harmonised approach to guarantee schemes in insurance, which according to EIOPA, has led to a situation where policyholders across or even within the same Member States are not protected to the same extent in liquidation, eg IGS following the home- versus the host-country principle.
- Options considered by EIOPA. EIOPA assesses at some length the potential pros and cons of:
- Maintaining the status quo: while EIOPA acknowledges that, given that there are already sufficient policyholder protection mechanisms in place in Solvency II, it could be argued that the current situation should be maintained, thereby avoiding substantial costs to the industry and potential moral hazard effects; But EIOPA doesn’t favour this option.
- Establishing a European network of national IGS (minimum harmonisation): This is EIOPA’s preferred option, as minimum harmonisation would lead to more equal and effective policyholder protection and ensure that the costs of insurance resolution are distributed to the industry thereby minimising reliance on taxpayer money. It would also avoid distortions of the level playing field in Europe due to the differences in national IGSs, contribute to cross-border insurance activities and increase consumer confidence.
- Establishing a single EU-wide IGS (maximum harmonisation): EIOPA discards this option, as it would require a higher degree of supervisory convergence, which is deemed unfeasible at this stage.
- EIOPA provisionally concludes that the structure and design features of IGSs are crucial in order to fully understand the benefits and costs of IGS protection. The way IGSs are designed (e.g. their scope, funding and coverage) will determine the actual protection provided to policyholders and the costs of the IGSs. EIOPA is therefore specifically seeking feedback on its assessment and the design features of IGSs. Following the consultation, the work will be continued by EIOPA.
Insurance Europe response to EIOPA consultation on IGS