The European Single Insurance Market:
Overview and impact of the liberalization
and deregulation processes
Maciej Sterzynski, LL.M.1
Abstract. Liberalization has progressed significantly within the
European financial market in the past 10 years. The
implementation of the Third Generation of Insurance Directives
has enabled all European Union-based insurers to establish own
representatives throughout the Single Insurance Market [SIM] and
to offer their services in cross-border trade under the freedom of
services.
The aim of this study is to point out the efforts made by the
European Community to create the SIM. The paper gives an
overview of impacts of the liberalization and deregulation
processes within the SIM and provides some reflections concerning
the efficiency of the introduced (legal) solutions.
More specifically, this paper will examine the meaning and goals
of liberalization and deregulation in the insurance sector. It
identifies the new legal structure of the SIM. Furthermore, the
paper investigates the obstacles encountered by the European
insurers and shows the barriers on the path to a fully integrated
insurance market. These limitations threaten the ambitious project
of the European Commission to establish the most competitive
market in the world by the year 2010.
Keywords: European Insurance Law, Financial Institutions and
Services, Insurance, Insurance Companies, subsidiaries.1
I
The path to the Single Insurance Market (by
liberalization of capital flows)
The establishment of the SIM as we know it nowadays took almost
30 years. This ultimate goal resulted from different legal, economic
and political actions. Local markets were particularly strictly
regulated and “hermetically closed” to foreign companies. The
major dissimilarities between national (legal) systems resulted
mainly from a structure of the financial services defined in
different juridical ways. The intensity of the consumer’s protection
varied from country to country. Furthermore, according to Article
51 of the Treaty of Rome2, the creation of the SIM had to
parallel the liberalization of the capital flow which is central to
the running of the European integrated financial services market
consisting of insurances, banks and securities trading.3
1
Chair of Insurance, The Poznan University of Economics, 10 Al.
Niepodleglosci, 60-967, Poznan, Poland, sterzynski@novci1.ae.poznan.pl
2
Article 51 of the Treaty of Rome states: "The liberalization of banking and
insurance services connected with movements of capital shall be effected in
step with the liberalization of movement of capital." This made it
impossible to create a single financial services market comprised of
banking, insurances and stock exchange sectors without mobilizing capital
throughout Europe.
3
It should increase the profitability of investments and allow particular
regions to become more attractive. Therefore, the freedom of movement of
capital is not only an indispensable factor for establishing the single
© BELGIAN ACTUARIAL BULLETIN, Vol. 3, No. 1, 2003
Until 1990, some poorly developed countries were in opposition to
the full mobility of capital, believing it might threaten the stability
of their financial systems by creating uncontrolled capital outflow.
Others like Germany and UK decided on their own to liberalize
capital markets, encouraging investors to locate assets in those
countries. The uncompromised position of less developed countries
against the liberalization within the European financial services
market seriously delayed the entire process of the creation of the
SIM.
Because of these factors, especially the strong legal diversification,
a harmonization of local regulations seemed rather impossible.
This procedure had to be replaced by an approximation of the
member’s systems in the way of mutual recognition of existing
differences. Hence, the integration effects in the European
insurance sector could be achieved only through liberalization and
the deregulation within the member’s markets (e.g., Skipper, 2000
or Sterzynski, 2003).
The new structure of the European insurance market, however,
required a uniform legal framework, at least at the basic level. It
allows all insurers coming from different member states to
establish and provide services freely throughout the European
Community without needing any additional authorization by any
host country authority. This means the same rules should apply to
all market participants about establishing and providing
insurance business.
The legal framework for the SIM is established on the basis of
three major principles arising from the founding Treaties, namely:
the freedom of movement of capital, the freedom of
establishment and the freedom of movement of services4 which
were gradually realized by the three Generations of Insurance
Directives5 (e.g., Gieger, 1997).
The first initiatives towards the integration of the European
insurance market were made at the beginning of the 1970’s and
completed in July 1994 by the implementation of the Third
Generation of Insurance Directives, see Figure 1.
financial market, it also plays an important role with regard to the global
position of the European economy.
4
The freedom of capital movement is based on the principle that the capital
flows within the European Community without any obstacles. Regarding
the Single Insurance Market the freedom of establishment means that all
insurance companies based in the European Community countries have the
right to establish subsidiaries, branch offices or agencies in every member
state using the same rights and being subjected to the same duties as “local”
companies. The freedom of services let the insurers to provide their
business throughout the European Community with or without own
representations in the member states in terms of the cross-border
transactions.
5
Note that, directives are binding proposed by the European Commission
and issued by the EU Council of Ministers. They oblige all member states
to realize their binding goals regardless of the way of this realization.
Figure 1: The three Generations of Insurance Directives
First Generation of Insurance Directives: the freedom of establishment limited by the Host Country Control
o
Non-life directive (1973)
o
Life directive (1979)
Second generation of Insurance Directives: the freedom of movement of services limited by directive’s diversifications
o
Non-life directive (1988)
o
Life directive (1990)
Third Generations of Insurance Directives: the Single European License and the Home Country Control
o
Non-life directive (1992)
o
Life directive (1992)
•
1
The First Generation of Insurance Directives: a
first step in the liberalization process
•
According to the First Generation of Insurance Directives issued
in the 1970’s, European insurance companies were allowed to
establish their own branches, offices or agencies within the
Community on the basis of the Host Country Control principle.6
This meant that European-based firms had the option to launch
their own representation in every member country, but only with
the permission of the local authority. Foreign companies were
subjected to more restrictive conditions. Therefore the Host
Country Control principle did not really enhance the process of
creating an integrated European market and the deregulation and
liberalization processes were not significantly advanced. Crossborder financial activity was more the exception than the rule.
For example, as late as 1988, cross-border life insurance in Europe7
was less than 1% of total life insurance business.
2
Between “company business” and “private business” - in the
first case the home country authority supervised the insurer
while in the second case the insurer was subjected to the
Host Country Control.
Between “large risks” and “small risks” - here a distinction
between supervision competencies was made according to
the type of covered risks.
These diversifications followed from the idea that a private
consumer still requires special (more) protection. Many European
governments (excl. UK and the Netherlands) believed that this
special protection might be achieved only at the local level where
the insurance is sold. As a result it remained hard for foreign
companies to perform cross-border transactions regarding
individual policies.
Until 1992, the liberalization and deregulation process took place
only in these sectors of the insurance market where the need to
protect customers was insignificant. National supervisors kept their
right to control foreign companies trying to provide business in the
way of free movement of services. Therefore the integration effects
of the Second Generation of Insurance Directives seemed to be
unsatisfactory towards establishing free movement of services
(e.g., Skipper, 2000 or Sterzynski, 2003).
The Second Generation of Insurance
Directives: a limited freedom of movement of
services
The main goal of the Second Generation of Insurance Directives
was to realize freedom of services and to enable European
companies to operate abroad without having to establish a
branch/agency in a particular member state.8 The Second
Generation of directives came into force in 1988 and 1990,
allowing insurers to provide their business in terms of freedom of
services. Nevertheless, many restrictions still remained. The
directives introduced two kinds of separations:
3
The Third Generation of Insurance Directives:
the establishment of the SIM
The breakthrough in the process of liberalization and deregulation
was achieved by the Third Generation of Insurance Directives.9
The new law came into force on July 1, 1994 and established the
SIM for the European insurance industry.10 The philosophy of
9
Third Council Directive 92/49/EEC of 18 June 1992 on the coordination
of laws, regulations and administrative provisions relating to direct
insurance other than life assurance and amending Directives 73/239/EEC
and 88/357/EEC. Third Council Directive 92/96/EEC of 10 November
1992 on the coordination of laws, regulations and administrative provisions
relating to direct life assurance and amending Directives 79/267/EEC and
90/619/EEC.
10
Note that, the legal framework of the SIM concerns the insurance
industry and not subsidiaries, which still have to apply for a license issued
by the host country authorities to provide their business in other member’s
states. So far, the legal framework for the European intermediaries bases on
the Directive 77/92/EEC on the activities of insurance agents and brokers
issued in 1977. The new approval on the Directive 2002/92/EC on
insurance mediation has been made by the EU Council of Ministers in
September 2002. The Directive requires that all intermediaries be registered
in their home Member State. To obtain that registration, they will need to
meet strict requirements protecting the consumers. Once they have done so,
they will be free to sell their services anywhere in the EU. This legal
construction is based on the European License by the insurance industry.
6
First Council Directive 73/239/EEC of July 24, 1973 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.
First Council Directive 79/267/EEC of March 5, 1979 on the coordination
of laws, regulations and administrative provisions relating to the taking up
and pursuit of the business of direct life insurance.
7
Note, that EUROPE is meant in this paper as the collection of member
states belonging to the European Union.
8
Second Council Directive 88/357/EEC of 22 June 1988 on the
coordination of laws, regulations and administrative provisions relating to
direct insurance other than life insurance and laying down provisions to
facilitate the effective exercise of freedom to provide services and
amending Directive 73/239/EEC. Second Council Directive 90/619/EEC of
8 November 1990 on the coordination of laws, regulations and
administrative provisions relating to direct life assurance, laying down
provisions to facilitate the effective exercise of freedom to provide.
43
these directives was to eliminate state intervention on the
insurance market as much as possible by introducing the
following three essential principles (e.g., Frutos, 1994):
•
•
•
withdrawal of the authority. Therefore it is necessary to establish a
legal structure where state interventionism coexists with a free
development on the market (e.g., Webb, 2000).
Deregulation and liberalization remain in a strict relation with
decisions taken by the government and parliament. In the European
Union [EU] such undertakings will be realized by the European
Commission and the Parliament in coordination with the European
Council. According to Article 2 of The Treaty on the European
Union and the Treaty establishing the European Community the
Communities take aim at creation of the internal market which is
based upon a prototype of the liberal market.11 This process
follows the approximation principle described in the section above.
The Single European License – which allows all Europeanbased insurers registered in their homelands to operate
within the European Community. It comprises both the
establishment of branches and cross-border transactions in
terms of freedom of movement of services. Once a company
is issued the license, no additional permission of the host
country authority is required.
The Home Country Control - the insurers are only subjected
to the supervision of their home authorities whenever they
provide operations within the European Union.
The solvency supervision - the prior control of insurance
premium and policy conditions for all insurance risks and all
policyholders has been abolished. The previous substantive
supervision has been replaced by the solvency supervision
only. It means that any insurance company based in the
European Union is subjected to the financial control
including e.g. the level of the technical provisions and the
strategy of the assets location among others, (e.g., Skipper,
2000 or Webb, 2000).
III Establishing the Single Insurance Market by
deregulation and liberalization
This chapter gives an overview of the impact of liberalization and
deregulation (on the companies) on the Single Insurance Market.
The section focuses on the Single Market Effects arising from the
easier market entry and the Deregulation Effects resulting from
changes within the insurance supervision. These modifications
caused important alterations on the market and created the present
structure of the SIM. The chapter points out an increase of
competition as main and direct effect of liberalization and
deregulation. Furthermore, it approaches the restructuring on the
SIM with emphasis on the concentration tendency and changes of
the volume of premiums in the time period 1995 to 2000.
II Regulation versus deregulation
Discussion on deregulation and liberalization cannot be continued
without explanation of the notion of regulation. In fact it is the
reason of the existing of the previous two ones. Regulation means
infringement of free competition on the market (ideal competitive
market). It occurs through legal limitations on the competition or
by agreements among market’s participants (e.g., Farny, 1987 or
Mogowitz, 1958). State’s restrictions comprise among the others:
the access to the market and an easy exit, price regulations,
conditions of contracts (e.g. insurance contract), quality of offered
services, supervision etc.
Then deregulation is an occurrence opposite to regulation. It
means a reduction of existing limits or import of regulating
assumptions of the state on a lower level (e.g., Farny, 1987).
Hence, deregulation efforts lead to reduce the above-explained
interference of the state on the market.
Liberalization results from the deregulation process. That means
directions of liberalization are determined by actions of
deregulation character. The more profound deregulation on the
market the wider spread might be liberalization within certain
economic sectors. From definitions above one deduces that
liberalization is a process that leads to establish the liberal
market, on which interventionism of the state is limited to the
indispensable minimum (e.g. consumer protection rules).
The entire withdrawal of the state from the market would be
possible only if a market was perfectly competitive. It would mean
that:
•
•
•
1
Single Market Effects and Deregulation Effects
According to Skipper/Star/Robinson (2000) a perfectly deregulated
and liberalized insurance market means that regulations are limited
to the indispensable minimum and concerns the questions such as:
•
•
•
Who is authorized to operate an insurance business?
What products might be considered as insurance products?
What are distributions channels?
Although the Single Insurance Market differs from the abovementioned model, its structure has been created exactly through
partial liberalization and deregulation of the local markets. Both
processes have not been finished yet. Furthermore, the SIM is
based upon integration of local insurance markets of Member
States requiring characteristic (additional) elements i.e. the Home
Country Control principle and the Single European License. These
conditions have been met already by implementation of the Third
Generation of Insurance Directives (e.g., Sterzynski, 2003).
The deregulation of the insurance supervision and the liberalization
of the market access are central for running of the Single Insurance
Market. Figure 2 presents certain important effects of liberalization
and deregulation both for the companies and for consumers. They
have been categorized as the Single Market Effects and the
Deregulation Effects.
Liberalization made an easier market entry for foreign companies
possible which in turn influences a dynamic growth in
competitiveness. Today one can observe certain consequences on
the SIM resulting from this phenomenon. They concern the
growing presence of foreign companies, the alteration in a legal
form of functioning (acting) on the market, the larger spectrum of
products and the reduction of business costs:
Sellers and buyers are ideally informed that exactly the same
products are offered at the same price,
Rules of access to the market and rules of withdrawal from
market are easy (e.g., Skipper/Starr/Robinson, 2000),
No mutual agreements among market participants.
However, it is an ideal construction, not possible to be workable in
practice. To achieve such a model of the market is not even a
purpose of liberalization. Liberalization means removal of barriers
limiting the free competitiveness and does not mean a complete
11
44
OJ 2002/C 325/01
Figure 2: The Single Market Effects and the Deregulation Effects
Impacts of liberalization
Growing presence of foreign companies
Wider spectrum of new or innovated products
Fuller meeting client’s needs
Higher quality of services
Know-how transfer by foreign insurance enterprises
Investments transfer
Restructuring on the European insurance market
Easier market access
Increase of competition
•
•
•
•
•
•
•
Impacts of deregulation
•
•
•
•
2
insurance industry means the value of gross premiums
accumulated by the European insurers.
The figures and remarks in this section concern the period from
1995 to 2000. Restricting to this time period enables to evaluate
tendencies without the disturbing effects of changes due to
problems in financial markets after 2000 and consequences of
terrorist attacks on September 11, 2001 in the USA.
Stronger penetration of local markets by foreign firms This means that, e.g. German insurers are more present in
Portugal than they were 15 years ago. The most often used
activity forms are foundation of branches/agencies/
representatives of insurers or taking over the shares of
existing local companies.
Demutualization of previous legal form - Increase of
competition forces the mutual insurers to use
demutualization procedures to change the legal form in
which they act. The trend towards demutualization is
significant in the recent years. Increasing competition makes
the main principles of mutual insurers, i.e. non-profit
principle and collective ownership of funds difficult.
Insurers acting as a mutual look for a form more suitable to
the varying market conditions, e.g. a join stock company.
Larger spectrum of products - Local and foreign insurers
introduce new services or innovate already existing products
to improve own market position and gain more customers.
On the other hand clients have better choice of services
which were not accessible before 1994. It is the case within
the life insurance sector as well. There are no more
administrative borders (theoretically) between the national
insurance markets what makes the products available to all
EU consumers.
Reduction of the costs - Growing competition works upon
reduction of the business (administrative) cost. This new
trend is strong throughout the European insurers and
becomes an indispensable element of their strategy.
2.1
Concentration on the market
In 2000, the 3.217 insurance companies active in the EU consisted
of 1.812 non-life insurers, 805 life insurers, 418 specialist reinsures
and 182 composite insurance firms. The composite insurers are
allowed only in 9 Member States and they have right to offer both
life and non-life products.
Since 1995 to 2000 the general reduction of companies on a level
6,4% was stated. It concerned the non-life and life sectors by 11%
and 6% respectively. In turn composite insurers increased by 8,3%
and reinsures by 13,3% by the same time. Both the decline of the
life and non-life companies and the increase within the reinsures
and composite firms has been illustrated in Figure 3.
In the analyzed period 70% of all non-life insurers within the SIM
had their seats in only 5 Member States such as: Germany (17,4%),
France (16,7%), the Netherlands (14,7%), Spain (10,7%) and UK
(10,5%). Moreover, one can observe a similar tendency among the
life insurers. Up to 67,8% of all life insurers were concentrated in
UK (17,6%), Germany (15,3%), the Netherlands (12,5%),
Denmark (11,3%) and France (11,1%).
Restructuring within the SIM
Establishment of the SIM originated many structural changes on
the market. First they concern rising concentration of companies
both in the non-life and life sector. Second, one can observe
intensive alterations of the turnover. According to the definition
used in the Protocol 22 of the EEA Agreement12, the turnover for
within the undertaking's ordinary scope of activities after deduction of sales
rebates and of value-added tax and other taxes directly related to turnover.
According to the article 3 of the Protocol 22 to the EEA Agreement in
place of turnover, the following shall be used for insurers undertaking: the
value of gross premiums received from residents in the territory covered by
the Agreement, which shall comprise all amounts received and receivable
in respect of insurance contracts issued by or on behalf of the insurance
undertakings, including also outgoing reinsurance premiums, and after
deduction of taxes and parafiscal contributions or levies charged by
reference to the amounts of individual premiums or the total value of
premiums [OJ L 377 , 31.12.94 P. 0028].
12
According to the Article 2 of the protocol 22 of the EEA Agreement
“turnover” shall comprise the amounts derived by the undertaking
concerned, in the territory covered by this Agreement, in the preceding
financial year from the sale of products and the provision of services falling
45
Figure 3: Evolution of total EU-15 insurance enterprises by
types of enterprises, 1995-2000
(e xluding Be lgiu m, Gree ce and Irel an d)
2200
2063
2041
2000
1800
1990
1945
1905
845
844
1812
1600
1400
1200
1000
800
858
870
369
168
374
393
398
404
418
174
183
194
182
182
862
805
600
400
200
0
1995
1996
1997
Non-life insurance
2.2
1998
Life insurance
Specialist reinsurance
Changes of the volume of the gross premiums
2.3
From 1995 until 2000 a serious increase of the gross premium is
observed. It is due to significant progress both in the life insurance
sector and in the composite insurance where the increase of the
gross premium reached the level of 93% and 144% respectively
during 5 analyzed years. The average premium written by all types
of insurers increased by 260 million EUR. This amount
corresponds to a growth of 81% during 5 at the same time.
The main reason for changes in the structure of the turnover is the
concentration of enterprises in the same time. Furthermore, these
modifications are due to slow increase in the prices of insurances
because of the rising competition. Moreover, the slow increase in
the prices has been caused by the natural catastrophes as the effects
of the winter storm Lotar and Martin in 1999 and 2000 (e.g.,
Eurostat, 2002).
1999
2000
Composite insurance
Dominance of life insurance
The life insurance sector has taken a lead over the non-life
enterprises. For the first time in 1996 the life premiums overtook
non-life operations. This tendency was confirmed one year later
when life sector accomplished 55,2% of the total market share in
direct insurances. The sharp growth of life insurance reached
16,8% in 2000, while at the same time non-life volume achieved
the growth of 3,7%. Life insurance registered the highest level of
gross premium written at 399.4 billion EUR. In contrast to non-life
enterprises which reached 217.9 billion EUR, composite insurers
achieved a threshold of 160,2 billion EUR and specialist reinsurers
accumulated 59.8 billion EUR. These changes are shown below in
Figure 4.
F ig ure 4 : E v o lutio n o f to ta l E U -1 5 g ro ss pre m ium w ritte n
by type s o f e nte rprise , 1 9 9 5 -2 0 0 0 in M io E uro
(e x l u di n g B e l g i u m , G re e c e a n d Ir e l a n d )
400000
399382
350000
321347
300000
270545
250000
200000
249490
219866
207028
195772
179110
217922
189356
190746
203802
160187
150000
142152
124197
109090
100000
90455
65579
50000
44141
43466
44541
44737
50832
59816
0
19 9 5
19 9 6
L ife in sura n c e
19 9 7
19 98
N o n - lif e in suran ce
46
C o m p o sit e in sura n c e
19 99
Sp ecialist r ein sur an ce
20 00
There are several reasons that explain the rapid growth within the
life insurances sector, such as:
•
•
•
do not respond, however, to the growing market’s needs. The
differences in the insurance contract laws are evident among those
with Anglo-Saxon and Roman legal tradition (e.g. between UK and
Germany or Austria).
Believe in growth of stocks markets – until 2000 one can
observe an increase in the sales of unit-linked insurance
products. The European clients expected growing profits due
to positive stock market results during the analyzed time
period.
Easier market access for foreign companies - liberalization
of national markets by the implementation of the Third
Generation of Insurance Directives enabled to reach the
products which have not been accessible before 1994. The
number of cross-border transaction among the SIM was
constantly rising until 2001 (e.g., Eurostat, 2002).
Complementary role of life insurances – the lead position
of life insurances resulted from expectations that these
services play an important role as a substitute to the troubled
public pension system.
2
The synchronization of tax rules within the European Union has
not been fully established yet. Different regulations are still in
force. This means that e.g. a German insurer with a seat in
Germany providing its business within the SIM is subjected to pay
taxes according the German tax law. In turn, an insurer based in
Luxemburg selling the same products also within the SIM pays
taxes in Luxemburg, where tax tariffs are evidently lower. Thus,
different national tax thresholds and dissimilarities within direct
and indirect taxation still have discrimination effects on those
based in some European countries. Such a situation infringes in a
visible way a basic rule of free competitiveness (e.g., Skipper,
2002).
The life insurance boom stopped in 2001. The growth slowed down
as a result of generally bad conditions in the world capital market.
This coincided with September 11th and the ensuing slowdown in
the world economy. This situation hit most of the European life
insurers causing their premiums to seriously decline. The negative
trend in European capital market led to the breakdown in the sales
of unit-linked insurances as well. The bad situation also caused
problems for insurers because of their significant stock holdings.
After 2001 the positive tendency on the life insurance market
reversed. The non-life insurers registered small growth of 6,0%,
while the life sector suffered a 7,0% decline at the same time.
A comprehensive study of the life insurance market after 2001
would require a separated analysis. Although this topic is not an
object of this paper, it is an interesting issue worth for subsequent
exploration.
3
The “public interest” clause
Every member state is allowed to refuse market access of new local
or foreign insurers or to refuse the distribution of a new insurance
product if they might, in their opinion, infringe the “public
interest”. The main problem focuses on the interpretation of the
term - “public interest” which has not been done clearly in an
official way yet. This creates a lot of free interpretation space for
each Member States. The clause might be easily misused and hence
could lead to disturbance of the free competitiveness.
4
Marketing and economic barriers
Besides legal obstacles, there are problems of (psychological)
marketing and economic nature, such as:
IV Limitations
of
the
liberalization
and
deregulation on the Single Insurance Market
•
•
•
Although the three Generations of Insurance Directives built a new
framework for European insurers, the market is not free from some
dangerous shortcomings. The Directives did not establish an ideal
insurance market where customers would be able to freely choose
the best products and where insurers would not have any obstacles
regarding the distribution of their own goods. The main barriers to
meeting the thoroughly integrated SIM consist of legal obstacles,
consumer’s habits and economic dissimilarities. In generally, they
concern the free market access and further realization of insurance
activity (e.g., Skipper, 2000).
1
Tax discrimination
Dissimilarity of distribution channels,
Dissimilarity of the level of the insurance premium,
Dissimilarity regarding the statistics of damages, death rate
or interest rate.
These facts make the creation of standards for distribution channels
and standards for general settlement of insurance products
throughout the European Community difficult. There are countryto-country different consumer’s habits and particular local
circumstances, i.e. the level of mortality or the frequentness of car
accidents. Comparing with legal problems removal of these
limitations on the path to thoroughly integrated European insurance
market seams rather impossible in the short time period.
The European insurance contract law
4.1
Standards concerning the contract law of insurance operations
within the European Union have not been worked out yet. There
are still 15 different contractual rules inside the European Union
which makes procedures of cross-border transactions expensive
and legally complicated. The Directive’s structures in this respect
are of a very general nature related either to the law of risk
location or to the law of the domicile which apply to the non-life
contract and to the life contract respectively.13 These “solutions”
Distribution channels
The way to purchase insurance depends vastly on the client’s
preference itself. However, it might be (theoretically) influenced
and transformed by a multiple long-term marketing strategy.
Insurances products might be sold in different ways. The most
applied methods are selling via an intermediary or representative.
Distribution of insurance services is also possible via
Portugal by a German insurance company the law of risk location applies to
the contract. Regarding life insurance policies, the law of the domicile of
the insured person is relevant. Such a construction seems to be only a
temporary solution, especially regarding next year EU enlargement.
13
This means that if a British citizen buys a non-life insurance policy (e.g.
covering risks arising from natural catastrophes) to protect his home in
47
bancassurance which means that a bank sales insurance products
parallel to its regular activity. Finally, insurances might be sold
using the e-commerce distribution channel or by telephone sale.
From country to country insurers use different distribution
channels according to the local consumer habits. They follow
client’s needs (expectations) trying to achieve higher or maintain
current sale’s level. In Figure 5, the example of bancassurance
shows how widespread and dissimilar are market’s behavior
throughout different Member States (e.g., SwissRe, 2001).
While bancassurance is becoming very popular in for selling life
insurance in certain European countries, in others the percentage of
sold insurance services (via bankassurance) does not reach a level
of 20%. This means that a Portuguese life insurance company will
mainly offer his products in Portugal via the bancassurance system.
However, in order to penetrate or survive on the German or the
British market, the same company is forced to choose another
distribution channel. To work out a new strategy for each local
market is an expensive undertaking. This may make a Portuguese
insurer reluctant to enter new market.
4.2
Conclusions and final remarks
The financial services market plays a main role within the
European economy. Liberalization and deregulation of this market
are important processes in view of the goal to make this market the
most competitive in the world, but also because of next year’s EU
enlargement. In this paper, we focused on the processes of
liberalization and deregulation of the insurance market.
The insurance industry plays a main role within the European
financial services market. In the year 2000 total investments of the
non-life, life and composite firms reached 4.213 billion EUR.
Comparing with 1995 the participation of the insurance sector on
the European financial market has been doubled (e.g., Eurostat,
2002).
Without liberalization and deregulation there is no chance to
achieve the really integrated insurance structure. The Third
Generation of Insurance Directives removed by deregulation
certain restrictions on the market and introduced concepts as the
solvency supervision and the system of Home Country Control. In
turn liberalization facilitated an easier entry and exit from the
market.
We have show, that the SIM is still not free from limitations. The
barriers are widespread. They occur mostly as legal shortcomings
especially on the level of the national insurance contract law,
country-to-country different tax regulations and the “public
interest” clause. These obstructions hamper the integration process.
Furthermore, the described problems cause an unequal
development of the EU regions by favoring those where investment
conditions are definitely easier. Such a diversification infringes
basic rule of free competitiveness.
Statistical and economical limitations
There appears the question about the level of the insurance
premiums too. They are adjusted to the local economic conditions.
Therefore, the premiums vary due to the member’s statistics of
damages or death rate. So, to work out one standard, valid within
the SIM will often be impossible from a pure statistical point of
view.
Moreover, the foreign companies interested to extend their activity
towards new markets are confronted with high entering costs. They
have to agree with expensive complex legal assistance. It concerns
an examination of suitable legal forms e.g. according to particular
rules of the local company law and usually intricate tax regulations.
Additionally the entering cost will be increased by cultural and
language differences.
Figure 5: Bancassurance in the Member States, 2000
Other distribution channel
Life insurance in %
Bancassurance
Non-life insurance in %
17,5
26,9
36,6
40,0
81,0
91,9
93,0
95,7
99,2
8,1
7,0
4,3
0,8
92,0
94,6
8,0
5,4
89,0
82,5
73,1
63,4
60,0
19,0
Portugal
Spain
Italy
France
Germany
UK
Portugal
48
Spain
Italy
France
Germany
11,0
UK
Besides problems resulting from pure economic obstacles, there are
also shortcomings due to particular consumers habits. They make
that companies are unable to create a standard program both for the
offered products and for the distribution channels all across
Europe. Therefore, firms are limited in taking advantage of
economies of scales. Also entering costs often remain very high.
Fortunately, the SIM is changing over time, thanks to the efforts of
both the European Commission and the European Parliament
meant to reduce existing problems and obstacles.
ACKNOWLEDGEMENTS
The author would like to thank Jan Dhaene of K.U. Leuven for
helpful comments and discussion.
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