Will There be a Single European Community Insurance Market after 1992?
Will The re be a Single European Community Insurance Market aft er 1992?
William E. Pool 0
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Will There be a Single European
Community Insurance Market
There is a great deal of talk nowadays within each of the twelve
Member States of the European Community, and outside too, about
1992. People are saying: "We must be ready for 1992, when the barriers
will fall, and the Community's single Internal Market will come about."
It all makes splendid headlines for the press, and it has caught the
public's imagination. Nothing is new, of course, about the idea of creating a
single Common Market among the Member States. Doing so is a
fundamental objective of the Treaty of Rome of 1958,1 which founded the
European Economic Community ("EC" or "Community"). Indeed, much
has already been done to bring about a single Common Market. As part
of this continuing project, the Community, consisting of twelve sovereign
Member States with widely different traditions of insurance practice and
regulation, intends to create a single insurance market-something the
United States has never achieved-by the end of 1992. Can it be done?
And what will the consequences be, not only for Europe but also for the
rest of the world? This Article provides some of the answers. Before
examining recent developments, we will first focus on the objectives of
the Community and then briefly glance at the more distant past.
The aim is to create a common market with the following
character* Mr. Pool is a private consultant on European Community insurance questions and a former
member of the Directorate-General for Financial Institutions and Company Law for the
Commission of the European Communities.
I Treaty Establishing the European Economic Community, March 25, 1957, 298 U.N.T.S. 3,
11, art. 2 (enteredinto force Jan. 1, 1958).
Northwestern Journal of
International Law & Business
istics. First, insurance companies situated in any one Member State must
be completely free to set up branches in any other Member State.
Second, insurance undertakings (Le., all authorized insurers whatever their
legal form) should be able to market the full range of their insurance
products throughout the Community, without having to use branches.
Issuers would compete on price, the nature of the product, and the
service offered in fair and equal conditions. All would be subject to
essentially the same key supervisory rules, although separate national
authorities would continue to apply these regulations; the main purpose
of these rules would be to ensure that the insurance undertakings were
always able to meet their financial commitments.
Sufficient control over sales methods and the nature of the products
would protect the general public but not stifle innovation. Innovation
will probably flourish in this competitive atmosphere. Also, uniform
contract law, or more precisely, rules on the choice of law, would both
protect the public and eliminate choice of law as an element of
Premium taxation, if any, and other aspects of taxation bearing
upon the attractiveness of insurance, would ideally be uniform
throughout the market. At the very least, certain arrangements would prevent
differences in taxation from disturbing competition. The purchaser of
insurance, large or small, would have access to a very wide range of
products. The market would be transparent enough for him to make
intelligent choices. Brokers and other intermediaries would not only
have freedom to operate on equal terms throughout the market but also a
positive incentive to seek out the most suitable insurance, wherever it
might be in the Community. Sufficient and comparable financial
information about all the insurers in the market would aid these brokers in
their choices. Finally, of course, no restrictions would hamper the
currency movements of any of the parties involved in the transactions.
These are ambitious goals. It was clear from the beginning that a
large number of measures, not all in the field of insurance, would be
necessary to achieve them.
HISTORY AND MECHANISMS OF IMPLEMENTATION
Regarding regulatory provisions, the way forward was through the
rights of establishment and of freedom to provide services (Treaty of
Rome, Chapters 2 and 3), with which most of the measures we shall
examine are directly or indirectly connected. Indeed, in 1961, the
Council of the European Communities ("Council") adopted an ambitious
program 2 envisioning the realization of successive rapid stages: both
freedoms would first be achieved in the field of reinsurance, followed
successively by freedom of establishment in direct non-life insurance,
freedom of establishment in direct life insurance, freedom of services for
direct non-life insurance and, finally, freedom of services for direct life
insurance. Although certain events have overtaken this program, it is
still valuable as a framework to understand what has actually happened.
In accordance with the program, the first concrete endeavors
occurred in reinsurance and retrocession. Directive 64/225/EEC of
February 25, 19641 removed barriers to establishment and provision of services
in this field. Since few such barriers existed, and these activities, unlike
direct insurance, were subject to little control in the original Six, this
removal did little more than confirm an existing position. It may be
noted that specialist reinsurers and primarily direct insurance
underwriters participate in reinsurance. The specialist reinsurers have not so far
been the subject of any subsequent insurance Directives.
Two Significant Council Directives and Their Effects
After this, little happened for a long time. Indeed, it is notorious
that little attention was paid to services in general, and insurance in
particular, in the earlier years of the Community's existence. However,
when a move came, it was, as foreseen, concerned with the right of
establishment in non-life insurance.
The Council adopted two Directives July 2
. Directive 73/
240/EEC4 sought to abolish the formal restrictions on freedom of
establishment and contained little that was not shown by the Reyners'
judgment to be superfluous. On the other hand, Directive 73/239/EEC,6 (the
First Council Directive on the coordination of laws, regulations and
administrative provisions relating to the taking up and pursuit of the
business of direct insurance other than life insurance), represents the
foundation upon which most subsequent work has been constructed. Its
main provisions cover the following:
- the legal form of insurance undertakings;
- the restriction of their activities to insurance and operations directly
arising therefrom (the same undertakings could not, for example, carry on
both insurance and banking);
- the requirement that all classes of insurance must be subject to State
supervision (not previously the case elsewhere);
- the assignment of responsibility for supervision of technical reserves and
of assets representing them to the State where each establishment (head
office, branch or agency) of the undertaking is situated (the reserves
consisting mainly of unexpired premiums and provisions for claims; the State has
to ensure that they are "sufficient");
- the attribution to the State where the head office is situated of sole
responsibility for ensuring that the prescribed solvency margin (over and
above the technical reserves) and guaranty fund are maintained (their level
being fixed in accordance with precise rules laid down in the Directive);
- procedures for creating new undertakings and for setting up branches in
other Member States. If the issuer complies with the conditions,
authorization cannot be refused. In particular, economic need is not a relevant
criterion; an undertaking seeking to set up a branch must produce a certificate
of solvency issued by the head office State, which the other State must
- various measures, culminating in withdrawal of authorization, to be
taken if things go wrong;
- close cooperation between national supervisory authorities.
In considering the effects of this Directive, we must first recognize
that its primary objective of improving access to the separate national
markets has been fully achieved. Exercising the right of establishment
works smoothly in almost all cases. Collaboration between the
supervisory authorities, practiced both at a routine level and through a
permanent conference, which holds repeated meetings and sets up subgroups
where necessary, ensures that such frictions that do occasionally arise are
almost invariably overcome.
On the other hand, strengthening control within the national
markets--one of the aims of the Directive-probably increased their
separation from each other. Furthermore, this Directive contains some
apparent inconsistencies which have led to controversy about what the
starting point was when we came to try to create conditions for the easy
exercise of the freedom to provide services. Moreover, although the
Directive provides a great deal of coordination as to the nature of insurance
issuers and their satisfactory running, especially concerning the
maintenance of their financial security, it does not bring any harmonization of
"material control" (policy conditions, premium rates, wording of forms,
Three later measures tie up certain loose ends left by the First
NonLife Directive of 1973. These concern respectively: 1) assistance
activities (especially tourist assistance);7 2) credit and suretyship insurance;'
and 3) legal expenses insurance. 9 Although important within their
specialist fields, these Directives do not change the broad picture.
The First Council Directive: Background and Effects
Once the Council adopted the First Non-Life Coordination
Directive, work turned upon its counterpart in the field of life assurance, 10
which the Council adopted on March 5, 1979 and was to enter into force
on September 15, 1981. However, not all Member States were prompt in
completing the often very complicated process of amending their
legislation to implement it.
Although this Directive follows the same plan as its predecessor and
repeats many of its provisions word for word, certain differences make it
a longer and more complicated text. These result in part from the nature
of life insurance itself. Whereas non-life insurance is very much similar
in all States (policies essentially provide protection against risk-and
many do not give rise to claims), life insurance is much less clear-cut; its
content and boundaries vary from one State to another. In most of its
forms, it is only to a limited extent concerned with risk; claims arise on
most policies, and they have characteristics that make them akin to
The Directive recognizes these features by defining as life insurance
virtually any activity that any Member State in fact regards as such or
that is in practice carried on by life insurance companies. The varied
nature of these activities has to be matched by varying solvency margin
requirements which consider the investment risk and assume a rather
Another factor adding to the length of the First Life Coordination
Northwestern Journal of
International Law & Business
Directive is that it finally addresses the question of the separation of life
and non-life insurance, which the First Non-Life Coordination Directive
left open. Most Member States already established that the same
underwriter could not carry on both non-life and life insurance, because of the
danger that life insurance funds, representing perhaps the savings of the
man in the street, might be used to support the risks of general insurance
operations. In Belgium, Luxembourg and the United Kingdom,
however, composite companies carrying on both types of business flourished
with the blessing of the authorities.11 In the end, the following
compromise was reached: no new composite companies could be formed
anywhere in the Community, nor might any new composite branches be
established. However, existing issuers could maintain their composites,
so long as they observed strict rules that separate management functions
and establish separate solvency margins for the two classes. A composite
issuer could set up a new branch or agency in another Member State only
for its non-life business; for the conduct of life insurance, it would need
to create a separate subsidiary company.
Thus, the First Directives (Non-Life and Life, respectively) made it
easier for an insurer having its head office in one Member State to open a
branch in another Member State, but the branch would have to behave as
part of the national, and separately regulated, market in which it was
established. The right of establishment gives access to twelve national
markets but does not weld them into one.
C. Freedom of Services: A Crucial Policy?
To proceed beyond this point, we must make use of the right of
freedom of services. With freedom of services, an insurance undertaking
in one Member State can cover the risks of any policyholders in another
Member State without making use of an establishment in that second
State. Whether it merely gives access to separate national markets, as
does the right of establishment, or is instrumental in creating a single
Community-wide Internal Market, depends on how the insurer is
regulated. In other words, is the insurance issuer providing services subject
in the destination State (State where the risk is situated) to supervisory
and other controls similar to those which would be imposed upon a
branch located there, or is it free to operate under the control of its home
State, this being recognized by the destination State as replacing its own
controls ("home country control with mutual recognition").
In 1974, the European Court of Justice declared in the Van
Bin11 Greece and Spain, which joined the Community later, also have composite companies.
sbergen judgment12 that the right to freedom of services was directly
applicable as from the end of the transitional period laid down in the
Treaty. This transitional period ended on December 31, 1969, but most
Member States continued to insist that only insurance issuers that were
both established and authorized in their territory could cover risks
situated in that same territory. Their reasoning boiled down to this: while
the Member States attached importance to the right of freedom of
services, they valued the duty of protecting their policyholders more-and
they felt that they could fulfill this obligation sufficiently only if
insurance issuers were physically present in the insureds' territory. Of course,
less respectable protectionist reasons may have been in play as well. For
this reason, a comprehensive proposal of the Commission, intended to
provide the regulatory framework for the exercise of freedom of services
in non-life insurance on the basis of home-country control, remained
blocked for many years in the Council, despite innumerable meetings
which at least attested to the importance which the Member States
attached to it.
The Commission could not accept this situation, and this long
period of conflict culminated in the delivery by the European Court of
Justice of some important judgments on December 4, 1986.13 Three of the
judgments, in cases brought against France, Denmark and Ireland,
concerned only coinsurance, but the judgment in the German case, 205/84,
pertained to virtually all of non-life and life insurance and is, therefore, of
fundamental significance. Indeed, it still determines much of our work.
D. Implications of 1992 for Financial Services: The White Paper and
the Single European Act
Before we examine this judgment we must turn our attention to
other wider developments. In March, 1985, the Council of Ministers
asked the Commission to draw up a program to achieve a unified
Internal Market by the end of 1992. The Commission responded by
producing by June of the same year a detailed and comprehensive White
Paper, 14 setting out not only what had to be done but how and when it
might be achieved. Indeed, the timetable for bringing into effect the
numerous individual measures necessary to achieve the total result was
certainly one of the most important features of the program. Measures
concerning financial services in general, and insurance in particular, had
a prominent place in this timetable.
After remarking that the liberalization of financial services, linked
to that of capital movements, would represent a major step towards
Community financial integration and the widening of the Internal
Market, the White Paper declared that the integration could be achieved
using a minimal coordination of rules (especially on such matters as
authorization, financial supervision and reorganization, and winding up)
as the basis for mutual recognition by Member States of what each does
to safeguard the interests of the public. Such harmonization, it said,
particularly regarding the supervision of ongoing activities, should be guided
by the principle of "home country control." This means that authorities
in the financial institution's Member State of origin supervise the entity's
activities. In addition, some uniformity between Member States would
be present in surveillance standards, though-as the White Paper
saidthe need to reach agreement on this must not be allowed further to delay
the necessary and overdue decisions.
The governments of the Member States responded to the White
Paper not only with enthusiastic words but also with political action. They
agreed upon the text of the Single European Act,15 which both amends
and adds to the Treaty of Rome. The Member States ratified the Single
European Act, and it entered into force on July 1, 1987. It is already
producing effects in insurance.
The Single European Act officially enshrines the commitment of the
Community to achieve the single Internal Market by the end of 1992
(note, by the way, that it is by the end of 1992 - perhaps we should
really be talking about "completing the Internal Market by 1993"). It
does not, however, provide that anything shall happen automatically by
that date. On the contrary, it accepts that a large number of individual
measures, each with its own date of application, have to be taken to reach
Nevertheless, the Act improves the decision-making process. For
most of the measures required to bring about the Internal Market,
unanimous agreement of all the Member States is no longer necessary.
In14 Completing the InternalMarket: White Paperfrom the Commission to the European Council,
COM(85)310 final (June 14, 1985).
15 Single EuropeanAct, 30 O.J. EUR. COMM. (No. L 169) 1 (1987).
stead, there is a system of qualified majority voting. Member States have
votes related to their size: for example, the Federal Republic of Germany
has ten votes, and Luxembourg has two. Where qualified majority voting
applies, a measure must have roughly three-quarters of the available
votes. In the past, proposals concerning insurance regulation required
the unanimous support of all the Member States. One single State could
block forever a proposal that all the others wanted. This power no
longer exists, and its elimination has already made an enormous
One other feature of the Single European Act deserves mention.
The Act recognizes that not all the Member States start from the same
level of economic development, and that some may need more time than
others to reach the goals that are set for all. The acceptance by all that
special temporary arrangements may be necessary for some does much to
E. The Court of Justice's Ruling on Insurance
It is against this background that we can appreciate the Court's
decision on December 4, 1986, in case 205/84. Briefly, the Court held that
a requirement of establishment, in the context of the free cross-frontier
provision of services, is the very negation of this Treaty-given freedom
and is therefore contrary to Community law. However, insurance is
generally a sensitive area; the need to protect the policyholder or insured
person is such that, in the present state of Community Law, the State in
which insurance services are being provided (that is, where the risk to be
covered is situated) may impose on the insurer an authorization
requirement. This authorization may include a promise to respect a large part
of that State's supervisory rules, including the following: 1) the
constitution of technical reserves; 2) the representation of those reserves by
appropriate assets; 3) the localization of those assets; and 4) the general and
special policy conditions (and hence the nature and extent of the cover
and the types of contract which may be sold). However, again, this need
for protection is not the same in every case, and in some cases, it may not
be needed at all. Where this is so, there is no need for the authorization
requirement and all that goes with it.
Admittedly, this judgment represented something of a setback, if
not to the concepts of the White Paper program, at least to the schedule
annexed to it. Clearly, much more harmonization of insurance
supervisory law than originally envisioned would now be necessary for the
Member States to achieve an Internal Market based on home country
control with mutual recognition of the States' consumer protection
However, the Court handed down this judgment when the new
spirit which was shortly to find expression in the Single European Act
was making itself felt everywhere. The representatives of the Member
States and the Commission were determined to hammer out a directive
on cross-frontier services that would respect the Court's reasoning and
would work in practice. The result is the Second Non-Life Insurance
Coordination Directive, adopted on June 22, 1988, which will come into
force in July 1990.16 This Directive was adopted by qualified majority
The directive provides two separate regimes. For "large risks," the
State in which the insurer is established ("home country control")
regulates. For "mass risks" (the smaller policyholders), the State in which
the risk is situated may, subject to certain conditions, apply the
authorization requirement and associated controls which the Court had
From January 1, 1993, onwards, "large risks" will be the following:
1) transport risks (without thresholds);
2) credit and suretyship risks (without thresholds, but subject to the
policyholder's carrying on a commercial activity);
3) fire and general property damage, general civil liability and pecuniary
loss, to the extent that the policyholder or the group of companies of which
the policyholder is a member fulfills two out of three following conditions:
a) 250 employees,
b) turnover of 12.8 million ECU (European Currency Unit),
c) balance sheet total of 6.2 million ECU.
During a transitional period running from the summer of 1990 to
December 31, 1992, these thresholds will be roughly doubled.
Furthermore, a much more extended transition, with various progressive stages
is provided for Spain, Portugal, Greece and Ireland. For the last three
countries, indeed, it is only on January 1, 1999, that application of the
thresholds applied by the other States since January 1, 1993, is reached.
Two other features of the Second Non-Life Directive merit
attention. The first is the provision for the choice of contract law. Ten years
16 Second Council Directive on the Coordinationof Laws, Regulations and Administrative
Provisions Relating to DirectInsuranceotherthan Life Assurance andLayingDown Provisionsto Facilitate
the Effective Exercise of Freedom to ProvideServices and Amending Directive 73/239/EEC,31 O.J.
EUR. COMM. (No. L 172) 1 (1988).
ago, the prevailing wisdom was that freedom of services could not work
unless the insurer was able to insist that the contract law of his own
home State should apply. Nowadays, nobody maintains that view.
Article 7 of the Directive contains a graduated system for granting the
amount of choice that the policyholder's circumstances require. The aim
is that a policyholder should never find himself in a situation where a
contract law with which he has no connection is applied. The
policyholder's circumstances count, and never those of the insurer. In other
words, the insurer's country of establishment is never regarded as a
criterion for deciding what law shall be applied. The choice, if any, is always
made by reference to the policyholder's residence or the location of the
risks he is insuring.
The second feature addresses the issue of premium taxes. After
enormous argument, it was agreed that each Member State where a risk
is situated shall have the right to charge its own premium taxes on the
insurance contract and use its own means to collect the tax, regardless of
whether the insurer covering the risk is situated in the same State or
another one. Thus no harmonization exists, but there is equality of
treatment within each Member State between "services" and "establishment"
This Second Non-Life Directive is a major breakthrough, because it
establishes the Community-wide Internal Market in non-life insurance
for which we have long been striving. Admittedly, it only does so for the
so-called large risks, but these are precisely those cases in which
crossfrontier freedom of services would, for purely commercial reasons, have
supposedly the greatest scope. One important consequence is that
industrial and commercial concerns having risks scattered throughout the
Community will now be able to insure them under a single contract, if
they wish, without having to resort to complicated and expensive
The Directive provides a fine example of home country control with
mutual recognition of standards, as envisioned in the White Paper, but
only for large risks. Destination State control continues to apply to mass
risks, with the consequence that nobody expects more than a minute
quantity of cross-frontier services business in mass risks to be carried out.
Commission Commitment to Freedom of
Services and Harmonization
It must be stressed, however, that the Commission remains fully
committed to securing full freedom of services, based on home country
control, for mass risks as well. The Commission intends, as soon as
sible, to bring forward proposals for the necessary measures to secure the
harmonization which will allow home country control to be applied to
these risks. This harmonization would be required in two main areas.
The first is that of technical reserves, including not only the question of
the nature and valuation of the reserves (where the most difficult point is
undoubtedly equalization reserves, since there is agreement neither on
when they are needed nor on how they should be calculated), but also on
the nature, spread and valuation for supervisory purposes of the assets
representing those reserves. Here, the admissibility of claims against
reinsurers is perhaps the single most difficult point. The other area in
which the Court held that destination State control was permissible
pending further harmonization is that of controls on general and special
policy conditions. Progress here will be difficult because of the widely
It is difficult to determine how long this further harmonization for
mass risks will take. Considerable consultation will be necessary before
the Commission can make a proposal. The aim is to have measures
adopted before 1992, but the date of application might be sometime later,
and transitional periods may run well beyond that date for certain
One measure of further harmonization, originally seen as a
necessary adjunct to the main Second Non-Life Insurance Directive, should be
reexamined in light of the latest developments. This is a proposal for a
Directive on insurance contracts. It was conceived against the
background that full freedom of services would be possible only if complete
freedom of choice of contract law existed. Most people have abandoned
this view. The text of the Second Directive now contains detailed choice
of law provisions which greatly reduce the possibility of a policyholder
finding himself engaged in a contract subject to a law with which he is
unfamiliar and on which he cannot readily get advice. In the light of
this, the Commission will have to decide whether to maintain the
proposal in its present form, to modify it or even to withdraw it.
Compulsory motor insurance is excluded from the provisions of the
Second Non-Life Directive which deal specifically with freedom of
services, because this field contains special problems. A separate proposal to
remedy this omission has been put forward recently.
Several developments have taken place in the area of life insurance.
The most important of the Court judgments of December 4, 1986 (205/
84) applies also to life business. As already mentioned, the Court held
that, where protecting the policyholder or insured person is in the public
interest, the State where the risk is situated-in life insurance, the State
where the policyholder or insured person is resident-may impose an
authorization requirement on an insurer wishing to engage in
cross-frontier business. Obviously, a great deal of life insurance falls in the area
where such protection is indeed justified.
It follows that, to create a common market in life insurance, the
Commission must consider two types of action. One can be engaged
quite quickly, while the other will take more time.
First, we must try to identify cases where the protection of the State
of residence is not justified. An example might be the policyholder who,
on his own initiative, seeks life insurance outside his own country.
Another recent Community measure is relevant to this scenario. In June
1988, the Council of Ministers adopted a Directive to free all capital
movements within the Community by July 1, 1990.17 This liberalization
will give the residents of all Member States the freedom to open bank
accounts anywhere throughout the Community (Spain, Portugal, Greece
and Ireland benefit from a transitional regime lasting up to the end of
1992, and possible for a further three years in the case of Portugal and
Greece if judged necessary at the time). In these circumstances, it is
doubtful that Member States presently preventing their residents from
taking out life insurance in other States will any longer have effective
administrative means to do so. Thus, one remedy is to recognize and
regularize this situation. Such a change would at least be a beginning to
creating a common market in life insurance, because most people who
wanted to would be able to buy whatever products were available
throughout the Community. A proposal for a Directive on these lines
was made in December 1988. Another possibility is group or collective
insurance. It may be possible to identify cases here where either the need
for protection is not great, because the policyholder can be presumed to
know what he is doing, or whatever controls may still be felt necessary
can be of a flexible nature.
These are some of the actions that may be taken in the short term.
However, at the second stage, to achieve a genuinely competitive market
for mass risks in the life sector, engaging in detailed harmonization of the
technical base on which life insurance is transacted may be necessary.
Such an operation is likely to be long and complex.
The following two measures are not restricted to particular classes
but have to do with insurance as a whole. The first is a proposal for a
Directive on the Annual Accounts and Consolidated Accounts of
Insurance Undertakings. It is a lengthy, technical text which seeks to adapt to
17 CouncilDirectivefor the Implementation ofArticle 67of the Treaty, 31 O.J. EUR. COMM. (NO.
L 178) 5 (1988).
the needs of the insurance industry the provisions of the already-adopted
Fourth Directive on Company Accounts and Seventh Directive on
Consolidated Accounts. The proposal considers the different needs of
nonlife insurance, life insurance and reinsurance-activities which specialist
undertakings may carry out, or in which a single enterprise may
simultaneously engage. Despite its technical difficulty, the Council is expected
to work hard at this proposal and to try to adopt it in a short period,
perhaps two years from the first discussions to the last. It is therefore all
the more disappointing that the European Parliament has only recently
delivered its Opinion, which must be done before the Council can reach
The Accounts Directive is important not just in plugging the one
remaining gap in the general scheme of applying the Fourth and Seventh
Company Law Directives to all kinds of undertakings. It will also play a
particular role in achieving a common market in insurance. It will
enable information on the financial situation of insurance undertakings
established in any part of the Community to be available in a standard
comprehensive form to prospective buyers of insurance and, above all,
their professional advisers, wherever in the Community they may be
situated. Without this level of financial information, we cannot expect the
Internal Market in insurance, depending as it does so much on financial
confidence, to develop its full potential.
Another proposal on which the Opinion of the European Parliament
is still awaited concerns the compulsory winding-up of insurance
undertakings. The purpose of the proposal is to establish the rules which will
apply when the withdrawal of authorization, as a result of administrative
irregularities or because of the insolvency of the undertaking, leads to a
compulsory closing down. By giving all insurance creditors the right to
equal treatment in such circumstances, the directive eliminates one of the
fears which a resident of one Member State might have when concluding
a contract with an undertaking with its head office in another Member
State. The Directive thereby facilitates the operation of direct insurance
in the great Internal Market.
The Directive rests on the twofold principle of the unity of the
procedure and the universality of its effects. In the case of insolvency, the
protection of direct insurance policyholders and of other insurance
issuers, which have reinsured risks with the undertaking closing shop, is
guaranteed insofar as is possible by the creation of separate asset funds
corresponding to the technical reserves.
It is apparent that a Community-wide Internal Market in insurance
will not be achieved by a single dramatic leap in 1992. Rather, it will
happen gradually. The target of 1992 has mobilized political will and
has helped in obtaining the practical means by which the necessary
measures can be adopted. It has aroused public expectations, and both
politicians and civil servants know they will be called to account if those
expectations are not met. The climate of debate has changed, and things
once thought virtually impossible are now discussed as short-term
objectives. But we still have to move by separate steps. Even if some parts of
the program suffer delay, we believe we can achieve the essentials by
1992. Certainly the Commission's aim is to ensure that all the essential
legislation has been tabled in good time to be adopted by then.
All the foregoing has related to insurance undertakings which,
whatever their legal form, are considered under the EC Treaty to have
the rights of nationals of a Member State. Let us now look at those
provisions that apply to insurance undertakings with head offices outside the
Community which wish to set up branches or agencies in Member States.
The First Non-Life Insurance Coordination Directive of 1973 and the
First Life Insurance Coordination Directive of 1979 both contain
sections devoted to this subject. Briefly, Member States may (not must)
admit the establishment of such branches; they must apply an authorization
procedure that, in general terms, is as strict or stricter than that applied
to undertakings based in the Member States.
Since the Community cannot exercise any control over the solvency
margin maintained at the head office of such companies with respect to
the totality of their operations, a solvency margin must be maintained
with respect to each of the branches within the Community. Similarly, a
guarantee fund must be maintained in each Member State concerned and
be represented in part by assets deposited as a security. There is,
however, a possibility of combining the solvency margins and guarantee
funds required by two or more Member States and making only one State
responsible for their supervision.
Article 29 of the First Non-Life Directive opens the door to a quite
different possibility. It states that, "The Community may, by means of
agreements concluded pursuant to the Treaty with one or more third
countries, agree to the application of provisions different to those
provided for in this Title for the purpose of ensuring, under conditions of
reciprocity, adequate protection for insured persons in the Member
States." Switzerland had expressed an interest in entering into such an
agreement, and the Commission was therefore authorized to negotiate a
text with the authorities of that country. This procedure was completed,
Northwestern Journal of
International Law & Business
and proposals 18 were presented to the Council which would give effect to
the proposed agreement in all Member States, provided of course that
Switzerland ratifies it. The effect would be that the insurance
undertakings of the Member States could avail themselves within Switzerland of
possibilities of establishment similar to those that they enjoy within the
Community, while Swiss insurers would have similar rights in each of the
Member States. The main advantage for Swiss insurers, which are
already well represented in most Member States, would be that they would
no longer need to maintain a separate solvency margin within the
Community; a single solvency margin relating to the whole activities of the
insurer and supervised by the Swiss authorities would suffice.
The Agreement with Switzerland has still not been adopted, for
reasons which have to do mainly with the recent rapid developments in the
Community. Since the Agreement would in effect incorporate many of
the essential features of the First Non-Life Insurance Coordination
Directive in an international treaty, amending the First Directive with
respect to those features without Switzerland's consent would be
impossible, unless the rather drastic steps were taken of denouncing the
Agreement itself. Worse, although qualified majority voting could
amend the Directive itself, a single Member State could still block
effective change, because denunciation of the Agreement would call for
Ways are being sought to remedy these difficulties, and it is now
possible to feel optimistic about ultimate success. However, if the
Agreement is ultimately adopted in 1989, it will have been no less than fifteen
years after negotiations began. Not surprisingly, there is a general
reluctance to contemplate further arrangements of this or similar nature, at
least until things have settled down on the Community side after the
present period of rapid change.
The branches or agencies within a given Member State may only
cover risks in other Member States if those States unilaterally so agree.
No automatic right exists under Community Law. Article 59, second
paragraph, of the EC Treaty provides that the Council may confer such a
right, acting on a proposal from the Commission; however, in the
negotiations leading to the adoption of the Second Non-Life Insurance
Coordination Directive, it was apparent that a period of consolidation within
the Community will be necessary before such a proposal will have a
chance of success.
18 Proposalfor a CouncilDecision on the Conclusion of the Agreement Between the Swiss
Confederation and the EEC on DirectInsuranceOther than Life Assurance; Proposalfor a CouncilDirective
on the Implementation of the Agreement, 26 O.J. EUR. COMM. (No. C 154) 33 (1983).
The possibility for insurers established in countries outside the
Community to cover risks situated in a Member State by direct provision of
services from their home base depends upon the decision of that State
alone, and not upon Community law.
2 Programme G~ n~ral pour la suppression des restrictions fi la libert6 d~tablissement. 5 J.O. COMM. EUR . 36 ( 1962 ).
3 Council Directive ofApril 25 , 1964 on the Abolition of Restrictionson Freedom of Establishment and Freedom to Provide Services in Respect of Reinsurance and Retrocession. 7 0.3 . EUR. COMM . 878 ( 1964 ).
4 CouncilDirectiveAbolishingRestrictionsonFreedom ofEstablishmentin the BusinessofDirect InsuranceOther than Life Insurance 16 O.J. EUR. COMM. (No. L 228) 20 ( 1973 ).
5 Jean Reyners v. Belgian State , 1974 E. Comm . Ct . 3. Rep . -, [1974 Transfer Binder] Common Mkt. Rep. (CCH) 1 8256 ( 1974 ).
6 FirstCouncilDirectiveof24 July 1973 on the Coordinationof Laws Regulations,andAdministrative Provisions Relating to the Taking-up and Pursuit of the Business of Direct InsuranceOther than Life Insurance, 16 0.1 . EUR. COMM. (No. L 228) 3 ( 1973 ).
7 Council Directive amending, Particularlyas Regards TouristAssistance, the FirstDirective on the Coordination ofLaws, Regulations and AdministrativeProvisions Relating to the Taking-up and Pursuitof the Business ofDirectInsuranceOther than Life Insurance ,27 O.J. EUR. COMM. (No. L 339) 21 ( 1984 ).
8 Council Directive Amending, as Regards CreditInsuranceand Suretyship Insurance,the First Directive on the Coordination of Laws, Regulations and Administrative Provisions Relating to the Taking-up and Pursuitof the Business of DirectInsuranceOther than Life Insurance ,30 O.L EUR. COMM. (No. L 183) 72 ( 1987 ).
9 CouncilDirectiveon the CoordinationofLaws , Regulations,and Administrative ProvisionsRelating to Legal Expenses Insurance, 30 O.J. EUR. COMM. (No. L 185) 77 ( 1987 ).
10 CouncilDirective on the CoordinationofLaws, Regulations andAdministrative ProvisionsRelating to the Taking-up and Pursuitof the Business of DirectLife Assurance , 22 O.L EUR. COMM. (No. L 63) 1 ( 1979 ).