Insurance Guarantee Schemes Directive

In July 2010, the European Commission published a white paper on insurance guarantee schemes. These schemes are designed to take responsibility for the onward transfer of policies, and the payment of any appropriate compensation, in the event on an insurer’s insolvency.

Unlike the more established Deposit Guarantee Scheme Directive (DGSD) for banking, and Investor Compensation Scheme Directive (ICSD) for asset management, there is currently no mandatory requirement for an Insurance Guarantee Scheme. Consequently, there is currently uneven protection – and in some cases no protection – for policyholders across Member States. The Commission is therefore proposing that a new Directive introduces this requirement, but on the basis of minimum harmonisation. By contrast, the DGSD and ICSD are being revised on the basis of maximum harmonisation.

The Commission is currently advocating:

The establishment of an Insurance Guaranteee Scheme Directive as a last-resort mechanism in each Member State.
The harmonisation of the geographical scope of Schemes on the basis of the ‘home country’ principle. This would ensure better protection for policyholders in a cross-border scenario.
That both life and non-life insurance policies are covered in the scope of the guarantee schemes.
That ‘natural persons’ are covered, and only some selected legal persons (in order to balance cost-effectiveness with comprehensiveness of scope).
That contributions are pre-funded or ex-ante in nature, possibly complemented by additional ex-post funding, where required.
The introduction of a target level for funding (potentially 1.2% of gross written premiums after a 10-year period) with an appropriate transition period.
That in the event of being unable to arrange the onward transfer of a policy following an insurer failing, the Scheme will compensate policyholders within a pre-defined time period.

The legislative proposal is expected to appear in 2011. For a copy of the European Commission’s white paper, please see:

Revision to the Insurance Guarantee Scheme Directive (July 2010) (PDF) (opens in new browser window)

Insurance Guarantee Schemes Directive

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