Supplementary memorandum submitted by
During the Select Committee's Hearing on Tuesday
12 October, you said that you would be interested in receiving
further written submissions from the parties concerned. I hope
that this letter will be useful.
May I first of all say that I found our discussions
on 12 October helpful, and I was particularly pleased that so
much common ground emerged between the industry and the consumer
representatives who gave evidence in the first part of the session.
I have also read with interest the transcript of the subsequent
debate in European Standing Committee B.
The insurance industry continues to view very
positively the prospect of an EU Single Market in financial services.
We believe that it will bring benefits to companies and consumers
alikeprovided we get it right. I would describe our position
as optimism tempered with caution, based on experience so far.
A start has certainly been made under the Financial
Services Action Plan. The wholesale market reforms should in due
course have a knock-on and positive effect in the retail markets,
and the Insurance Mediation Directive (IMD) may lead to some new
business opportunities for intermediaries and, ultimately, insurers.
But most FSAP measures are not targeted at the
core retail markets. And those which are have tended to approach
sales regulation with a blank sheet of paper, leading to overlapping
and contradictory rules in some areas.
We believe that a more rigorous approach to
policy-making could help avoid such problems in future. This would
include a proper understanding of the real needs of consumers
in the retail markets, and a more thorough cost-benefit analysis
before any new legislation is introduced. We are very pleased
that this view is shared by the Government, and the FSA.
You asked specifically for examples of loopholes
in the Single Market framework. For insurance, that framework
is set out in the Life and Non-Life Directives (which pre-dated
the FSAP). They are based on the "home country" control
principle. But there is an important exception which allows national
authorities in the "host state" to impose additional
regulation "for the common good".
There is nothing wrong with this in principle:
it allows many member states, including the UK, to set out consumer
protection regulation which is essential if consumers are to be
confident in the Single Market. Unfortunately, it also allows
member states to abuse the exception with the effect of creating
artificial barriers to a genuine single market. Two examples will
illustrate the point: Finland prohibits foreign companies from
offering statutory pension insurance; and in the Netherlands,
life companies may not offer health or accident insurance. Such
measures go beyond what is required for consumer protection. Their
cumulative impact is to deter companies wishing to operate on
a pan-European basis.
They also form part of the more general problem
which was discussed at the Hearinguneven implementation
of EU directives in different member states. Because EU directives
are not self-standing instruments, each member state implements
them in a different way, often depending on local pre-existing
custom and practice. So the impact of a directive is felt differently
by businesses in each member state. Sometimes these differences
are so great as to make the playing field even less level than
it was before. This is a major reason why the ABI, and its sister
organisations in the other EU markets, believe the Commission
needs to base its work on what should follow the FSAP on a thorough
I should be very happy to provide any further
information on these or other topics which the Committee may require.
4 November 2004