A Europe-wide Insurance Guarantee Scheme (IGS) is a long way off

A unified insurance compensation scheme across Europe is logical idea, but one which is probably a long way off. There is so much detail that needs to be thrashed out, including which body will supervise the scheme, how will it be paid for and a timeline. An insurance guarantee scheme (IGS) would firstly, have to ensure all nations have a domestic compensation scheme and then secondly, ensure there is a set up for foreign policyholders.

Currently, the UK has a domestic compensation scheme in the form of the Financial Services Compensation Scheme (FSCS). Other countries in Europe do not have such a body.

Getting IGS schemes implemented across Europe would take a huge amount of time and effort, hence the European Commission is only ‘considering’ the proposals. But the EC has already spent two years – it has commissioned two reports on the topic since 2007 – mulling over whether to take action. Like much regulation involving Europe, it moves at snail’s pace.

A compensation scheme for foreign policyholders is, to some extent, already in place in the UK. When Indpendent Insurance went bust in 2001, Spanish brokers and the local policyholders were left out of pocket to the tune of a couple of million. It was only after a lengthly European legal battle, that they finally won compensation from the FSCS. The EC is likely to tighten that up if it pushes on with an IGS.

So the inevitable question has to be asked, could it cost more for UK and European insurers?

Certainly, European conglomerates would have to set aside more money to deal with any incoming home compensation scheme that is being set up. In the UK, they already contribute to the FSCS but would probably need to set aside a little bit more money for the tighter rules for compensating policyholders involved in situations such as Independent.

However, any such scheme is a long way off, and has not even been put out for consultation. And with pressing matters such as Solvency 2 on the horizon, there are surely more pressing matters to deal with.

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