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Insurance

Insurance regulation

The EU is working to facilitate the activities of insurance companies across its member states, ensuring their resilience during difficult times and protecting policyholders. Insurance policies are crucial for European citizens, offering protection against potential risks and serving as savings products that contribute to long-term welfare and the real economy.

Key Objectives:

1. Harmonized Rules: Establishing uniform regulations for the operation of insurance businesses to create an effective Single Market for insurance, allowing policyholders to benefit from streamlined services across the EU.
2. Policyholder Protection: Ensuring that the legal framework prioritizes the protection of policyholders and beneficiaries. This includes harmonizing capital requirements to provide a consistent level of security for all policyholders.
3. Preventing Disorderly Failures: Addressing the significant impact that the failure of an insurer can have on policyholders, beneficiaries, and businesses. This is critical when substitute insurance services are not readily available at reasonable costs.
4. Resolution as a Last Resort: Implementing resolution measures only when necessary, i.e., when a failing insurer cannot undergo normal insolvency proceedings without causing harm to consumers, businesses, or financial stability.

Policy Making Timeline:

• What the EU is doing and why: Continuous efforts to harmonize insurance regulations and protect policyholders.
• Relevant Legislation: Ongoing updates to ensure the robustness of the legal framework governing insurance activities.
• Related Links: Additional resources and information are available for further details on EU insurance policies.

​The EU's commitment to creating a unified and resilient insurance market aims to enhance the stability and reliability of insurance services, ultimately benefiting all European citizens. ​Banking and International Relations

• Solvency II ​
• Insurance recovery & resolution
• Insurance guarantee schemes
• Reorganisation and winding-up

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Solvency II Framework for Insurance Firms

Solvency II is a harmonised prudential framework for insurance firms, applicable since 2016. It replaces a patchwork of rules in the areas of life insurance, non-life insurance, and reinsurance.
Solvency II introduces prudential requirements tailored to the specific risks each insurer bears, promoting transparency, comparability, and competitiveness in the insurance sector.

Framework Components:

• Directive
• Delegated Acts
• Technical Standards​

Solvency II Directive
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The Solvency II Directive became fully applicable to European insurers and reinsurers on 1 January 2016. It covers three main areas related to capital requirements, risk management, and supervisory rules:

1. Pillar 1: Risk-based Capital Requirements
   • Insurers must hold capital in relation to their risk profiles to ensure sufficient financial resources to withstand difficulties.
2. Pillar 2: Governance and Risk Management Requirements
   • Insurers must have an adequate and transparent governance system and conduct regular risk and solvency assessments.
3. Pillar 3: Supervisory Reporting and Public Disclosure
   • Insurers must report to supervisory authorities and publicly disclose information, enabling supervisors to evaluate compliance with the rules.

On 22 September 2021, the Commission adopted proposals for amendments to the Solvency II Directive.
On 13 December 2023, the European Parliament and the Council reached a political agreement on this proposal..

Solvency II Delegated Regulations

Lastly on 14 March 2024, it was published a Commission Delegated Decision on the renewal of the determination that the solvency regime in force in the United States applicable to undertaking with their head office in that third country is provisionally equivalent to that laid down in Title I, Chapter VI of Directive 2009/138/EC.

Consult the previous Commission Delegated Regulation here

Equivalence Decisions

​Equivalence decisions recognize that the supervisory regime for insurers in certain non-EU countries is equivalent to the Solvency II regime. EU insurers can use local rules for reporting operations in these countries, and third-country insurers can operate in the EU without fully complying with EU rules.

For more information on the international activities of the Commission in the area of insurance, see Banking and International Relations.

Methodology for Risk-Free Interest Rate Term Structure

​Article 77e of the Solvency II Directive requires EIOPA to lay down information relating to the relevant risk-free interest rate term structure to calculate the best estimate. Learn more here.

The EU provides a framework for authorities to manage insurance failures effectively.

Insurance policies play an important role in the lives of the majority of European citizens. For many of the things people do every day, holding an insurance policy is essential to protect against potential risks. An insurance policy can also be a savings product, which will allow policyholders to provide for their long-term welfare while insurers are able to channel these savings via financial markets into the real economy.

The disorderly failure of an insurer can therefore have a significant impact on policyholders, beneficiaries, injured parties or affected businesses. This is especially the case where a substitute for vital insurance services cannot be found in a reasonable amount of time and at a reasonable cost.

Resolution should  occur when national authorities determine that by resolving a failing (re)insurer they can better achieve resolution objectives, such as protecting policy holders and preserving financial stability, than if the (re)insurer entered normal insolvency proceedings.
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On 22 September 2021 the Commission adopted a proposal for an Insurance Recovery and Resolution Directive (IRRD). On 14 December 2023 the European Parliament and the Council reached a political agreement on this proposal.

Insurance guarantee schemes (IGSs) use contributions raised by the insurance industry to provide last-resort protection for policyholders, beneficiaries and injured parties when their insurers cannot meet their contractual commitments in case of failure. While, creating consistent last-resort safety nets could promote trust in the single market for insurance, introducing a minimum common framework for these schemes in Europe might also entail implementation costs. However, as such action would constitute a major improvement in protection for policyholders across the EU, the Commission is committed to reassess the appropriateness and timing of alignment in the future.

The rules on reorganising and winding up insurance companies are set out in title IV of the Solvency II Directive.
If an insurance company becomes insolvent, the decision to reorganise or wind up the company is made by the relevant authorities in the EU country where the insurance company is registered. Winding-up proceedings apply to all EU branches of the insurance company.
The supervisory authorities must tell their counterparts in all other EU countries about the decision, including any practical implications. Creditors must all be informed and treated in the same way, regardless of the EU country they are based in.
Reorganisation measures and winding-up decisions can be published in the Official Journal of the European Union by filling out and submitting one of the forms below. You can find here the published reorganisation measures and winding-up decisions per year.
The forms can be downloaded and completed in any official language of the EU.

EC asks to return the completed forms to [email protected].

• Form to be filled in to publish reorganisation measures in the Official Journal
• Form to be filled in to publish winding-up decisions in the Official Journal

Insurance distribution

Insurance distribution refers to the process of selling, advising on, or facilitating the conclusion of insurance contracts, including online sales and through comparison websites. In the European Union, this process is regulated by the Insurance Distribution Directive (IDD), adopted in 2016, which applies to all entities involved in selling insurance products. This includes insurance intermediaries (such as agents and brokers), insurance companies, and ancillary insurance intermediaries, like travel agencies or airlines that offer insurance as an add-on to their primary services.

The IDD aims to enhance consumer protection by ensuring greater transparency in pricing and costs, providing standardized information through the Insurance Product Information Document (IPID), and allowing consumers the option to purchase products or services without bundled insurance. Additionally, the directive enforces rules on transparency and business conduct to prevent consumers from buying unsuitable insurance products.

Motor insurance

The EU's motor insurance directive helps residents involved in road accidents in other EU countries by ensuring consistent insurance coverage and quick compensation.

Motor Insurance Directive

​The 2009 motor insurance directive ensures that anyone holding compulsory motor insurance in an EU country is covered to drive throughout the EU. The directive:

• Requires all motor vehicles in the EU to have compulsory third-party insurance.
• Abolishes border checks on insurance, enabling vehicles to move freely between EU countries.
• Specifies minimum third-party liability insurance cover.
• Introduces a compensation mechanism for local victims of accidents caused by vehicles from other EU countries.
• Ensures quick settlement of claims for accidents occurring in an EU country other than the victim's residence.
• Allows policyholders to request a statement of claims over the last five years.

The directive does not regulate civil liability issues, the calculation of compensation, or optional comprehensive cover.

Review of the Motor Insurance Directive

​In 2021, the Directive (EU) 2021/2118 modified the 2009 Directive: and include:d

• Ensuring full compensation for victims, even if the insurer is insolvent.
• Equal treatment for drivers with previous claims history from another EU country.
• Easing the process for authorities to combat uninsured driving.
• Aligning minimum insurance cover levels across the EU.
• Incorporating EU Court of Justice case law on the directive’s scope.

Key Documents
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1. Communication on Minimum Amounts of Cover: Adjusts minimum cover amounts to account for inflation.
2. Retail Insurance Market Study: Analyzes third-party liability and comprehensive motor insurance.
3. Report on Compensation of Cross-Border Victims in the EU: Discusses compensation for victims of cross-border road traffic accidents.

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Insurance of climate-related disasters

Climate change could aggravate the climate protection gap, i.e. the losses from climate disasters that are not insured or covered by other means of financial compensation. The Commission is therefore examining how to address the climate protection gap.

​Climate Resilience Dialogue

In autumn 2022, the Commission launched the Climate Resilience Dialogue. The intention to set up the Dialogue was announced in the Strategy for Financing the Transition to a Sustainable Economy as well as in the new EU Strategy on Adaptation to Climate Change.

The Dialogue will discuss how insurance and other risk mitigation actions can contribute to climate resilience, from increasing climate risk insurance penetration, to incentives and investment in good adaptation solutions. The Dialogue will work from 2023 through mid-2024 to identify good practices and deliver voluntary commitments. The Dialogue is expected to have up to four plenary meetings with all participants and meet more frequently in thematic sub-groups.

The Commission published a discussion paper accompanying the Commission's communication on an EU strategy on adaptation to climate change.