EC Green Paper on Retail Financial Services

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					                                                                                  Position Paper

CEA position on the Green Paper on Retail Financial Services

 CEA reference:            MU 7136 (07/07)                          Date:       16 July 2007

                           Green Paper on Retail Financial
 Referring to:                                                                  COM(2007) 226 final
                           Services in the Single Market
 Related            CEA
                           Annex 1 to MU 7134 (07/07)                           2 May 2007

 Contact person:           William Vidonja, Head of Single Market   E-mail:

 Pages:                    13


                                 Question No 1 of the Green paper                                       3

                   Question No 2 of the Green paper                                                     5

                                             Question No 3 of the Green paper                           5

                                        Question No 4 of the Green paper                                6

                                                  Question No 5 of the Green paper                      7

                            Question No 7 of the Green paper                                            7

                                                     Question No 8 of the Green paper                   8

                       Question No 10 of the Green paper                                                9

                                Question No 11 of the Green paper                                       10

                                                    Question No 13 of the Green paper                   11

                          Question No 14 of the Green paper                                             12

                                                                               Position Paper

CEA, the European insurance and reinsurance federation, welcomes the European Commission's Green
Paper on Retail Financial Services, published on 2 May 2007.
The insurance industry believes that the time is right for a public consultation regarding future EU policy in
this field. Much work has already been done on building the Internal Market for financial services, which
has made it easier for businesses to operate on a cross-border basis. However, for the completion of a true
Single Market in financial services there also needs to be a focus on retail aspects.

CEA is therefore happy to contribute to the European Commission‟s initiative to foster the integration of
the retail financial services market in order to deliver tangible benefits to consumers. In particular, we are
looking forward to cooperating with the Commission on the reviews of the Insurance Mediation Directive
(IMD), the Directive on Distance Marketing of Financial Services (DMD) and the „general good‟ rules. In our
response below, we are also submitting to the Commission a series of proposals which would help to ensure
that European citizens benefit further. We would be willing to assist the Commission in the following areas:

     Select and monitor the insurance markets‟ integration indicators (item 2).

     Identify gold-plating and inconsistencies, and quantify the resulting additional costs (item 2).

     Renew the insurance Block Exemption Regulation (BER) beyond 2010 (items 2 and 12).

     Consider the extension of the BER to claims settlement agreements (item 2).

     Press the Member States to remove the requirement for a fiscal representative for cross- border
     business (item 3).

     Maintain the diversity of insurance distribution channels (item 5).

     Promote the advantages of alternative dispute resolution – ADR (item 6).

     Provide EU citizens with information on their future retirement income to help them to adapt their
     financial strategies accordingly (item 8).

     Encourage Member States to introduce EET systems for pensions (item 8).

     Promote best practices in order to improve consumers‟ financial literacy (items 8 and 9).

     List and evaluate the information requirements in insurance and rationalise the hotchpotch of pre-
     contractual information (item 10).

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(1) Do you agree with the objectives and priorities set out in this paper?
CEA supports the Commission‟s objectives of ensuring that European consumers benefit concretely in their
everyday lives from an integrated European insurance market. In this respect, CEA would like to share with
the Commission the insurance industry‟s experience in this field.

2.1 Retail insurance to remain local in the foreseeable future?

Experience to date shows that consumers prefer to buy their insurance predominantly locally, and most
insurers are required to offer policies in markets where they fully understand the risks:
     The majority of Europeans rely on local providers and distribution networks with which they are
     familiar to meet their retail insurance needs. The need for “after-sales services” (repairers,
     experts…) requiring proximity between the consumer and the insurer in addition to language barriers
     may explain this preference.

     Insurers feel that it is currently easier to offer products across Europe if they have a permanent
     branch or subsidiary. Expert knowledge of risk exposure is necessary in order to design adequate
     insurance products (smoking habits, driver habits, climate, etc. – many factors vary from one country
     to another, with an impact on health, motor or household insurance products). The diversity of
     national regulations (e.g. taxation, liability or social security legislation and legal systems concerning
     natural catastrophes) also hinders the development of cross-border business in the insurance sector.

For the abovementioned reasons, for retail insurance products, insurers make more use of Freedom of
Establishment (FOE) than of Freedom of Services (FOS) and, as outlined in CEA‟s 2004 Report on “The
European Retail Insurance Markets”, retail insurance is likely to remain local in the foreseeable future.

Nevertheless we expect a gradual increase in cross-border business in the future, driven by a rise of
consumer confidence and the development of new technologies, thus allowing both citizens and insurers to
take more advantage of the opportunities offered by the Internal Market. We believe that this process
should be market-driven, as although regulatory obstacles can be removed (see item 1.3), the intrinsic
factors – such as the language and cultural barriers – that keep the markets largely local are difficult to
address through legislation.

2.2 Need for further indicators of integration
The fact that cross-border transactions rarely exceed a few percentage points of annual premium income
does not mean that the Single Market for insurance has not progressed over the last years. The present slow
development of cross-border business via FOS does not constitute the only or most relevant measurement
of market integration.

In this respect, CEA would wish to support the Commission in identifying, selecting and monitoring the
relevant indicators of insurance market integration, including local presence, mergers and acquisitions –
cross-border consolidation within the insurance activity and cross-sector consolidation with other financial
services sectors – investments, product development and origination, and risk management. The adoption
in early 2007 of the Directive on prudential assessment of acquisitions and increases in holdings in the
financial sector, which CEA supported, will allow a clear, transparent and legally certain framework for the
prudential assessment of mergers and acquisitions, thus facilitating financial services markets‟ integration
and setting the foundations for an enhanced Internal Market for financial services.

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    2.3 Elimination of remaining obstacles to the functioning of the insurance Single Market
    It would be worthwhile to analyse and eliminate the remaining barriers which hinder operators from
    benefiting from all the business opportunities currently offered by the Internal Market and from responding
    to the real needs of European citizens. In line with the Commission‟s Better Regulation approach, such an
    exercise should include consultation of market participants and rigorous cost-benefit analysis. In this

          We welcome the forthcoming work of the Commission together with CEIOPS on the Member States‟
          „general good‟ rules, consisting of listing the existing rules and requirements – the considerable
          variety of which in terms of quantity, form and substance make any comparison difficult today – so as
          to allow the identification and elimination of duplicated and excessive requirements which impose
          unnecessary regulatory burdens and costs.

          Barriers to opportunities for business may derive from improper transposition and gold-plating by
          Member States. Therefore we recommend that the Commission examines the transposition of financial
          services Directives into national law, for instance by listing the provisions added to the provisions of
          the Directives at the time of their transposition and by quantifying the related additional costs. The
          existing inconsistencies resulting from inconsistent transposition by Member States (for example, the
          IMD), from the varying use of options by Member States (IORP) and from incoherencies and overlaps
          between European regulations (IMD, DMD and e-commerce Directive) form obstacles to the
          achievement of a true Single Market for financial services. These inconsistencies should be listed and
          analysed. Together with Member States and interested parties, the Commission should reflect on
          effective ways to tackle them.
          We urge the Commission to avoid unintentionally promoting insurance market fragmentation and to
          avoid threatening the tangible benefits that existing legislation has brought to European citizens.

          In its recent interim report on business insurance1, the Commission called into question the insurance
          Block Exemption Regulation n°358/2003 (BER). As demonstrated in the CEA response to this interim
          report, the BER has proven useful for the promotion of consumers' interests and beneficial to
          competition. It led to the opening up of markets to new and foreign insurers as well as to small and
          medium-sized insurance undertakings, thus facilitating cross-border competition and enhancing the
          variety of products to the advantage of the consumer. For example, the claims cost rates drawn up by
          the German Insurance Association2 put foreign companies in a position to enter the German market
          and raise their market shares in motor insurance without having to take over a German company.
          If the BER were not to be renewed beyond its 2010 validity deadline, the legal certainty guaranteed
          by the BER would no longer exist, and insurers would then be discouraged from engaging in horizontal
          cooperation. Insurers and consumers would consequently be deprived of the abovementioned
          benefits. A decrease of cooperation would, for instance, lead to a reduction of the financial
          capacities and knowledge of the risks, which would result in an increase of the insurance costs to
          cover certain categories of risks - or even the withdrawal of the insurance covers, both being to the
          detriment of the insureds. The only way to remedy such a situation would be the adoption of new
          laws at national level, a solution which would again reinforce the markets‟ fragmentation and run
          contrary to an EU Single Market. Therefore we advise the Commission to secure the legal validity of
          the scope and conditions of the forms of cooperation currently covered by the BER, by renewing it
          beyond 2010.

    Interim report of January 2007 on the Inquiry into the European business insurance sector pursuant to Article 17 of
    Regulation 1/2003.
    GDV – Gesamtverband der Deutschen Versicherungswirtschaft; see

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          We invite the Commission to consider the expansion of the BER to claims settlement agreements.
          Such agreements allow for a significant reduction of settlement periods, more rapid compensation,
          more efficiency and greater fairness, particularly with regard to claims following road traffic
          accidents, all being to the benefit of consumers. However, to date, the Commission has not included
          claims settlement agreements in the BER as allowed by Article 1 (1) d) of Council Regulation No
          1534/91 of 31 May 1991. As a consequence, the legal validity of claims settlement agreements is
          managed by the various national competition authorities. Because the latter do not apply antitrust
          rules uniformly, this has resulted in uncertainty as to the legal validity of some forms of cooperation
          between insurers and with third parties (repair shops, experts, car rentals etc.). These agreements
          are valid and in force in certain countries, while in others they have been ruled to be in violation of
          antitrust law. The Commission has previously indicated that it was lacking sufficient experience to
          make use of its power of inclusion. We therefore suggest that the Commission examines the current
          situation so that claims settlement agreements can be included in the BER.

    (2) Are there issues that are not covered in this Green Paper, which are important for the integration of
    retail financial markets and to which the Commission's attention should be drawn? For example, are
    consumers in their everyday life confronted with requirements or limitations from either financial services
    providers or other stakeholders (employers, social security, administrations, businesses, etc.) which
    restrict their ability to use cross border financial services (such as an obligation to have a bank account or
    insurance policy in one specific country, etc.).

    We would like to highlight the burden placed on insurers and intermediaries by Member States‟ premium
    tax regimes mentioned in footnote 29 on page 6 of the Green Paper. For cross-border insurance, often the
    costs of setting up the fiscal representative to submit a return and pay the tax, can be greater than the
    premium itself and can deter an insurer from writing risks within the territory. We urge the Commission to
    press those Member States that insist on fiscal representatives for cross- border business to remove this
    requirement as adequate safeguards are available under the Mutual Assistance Directive3.

    (3) The Commission has undertaken several initiatives to improve consultation with consumers and to
    secure their input into its policy making. Should further steps be taken and, if so, what steps?
    Consumer input to consultation exercises is necessary so as to avoid any imbalance between the rights and
    obligations of suppliers and consumers. This is of particular importance in the context of consultation
    related to consumer issues, although, of course, the interests of both sides should always be fairly taken
    into consideration and any over-regulation or overburdening of one side should be avoided.
    From the very beginning, CEA supported the European Commission‟s commitment toward Better Regulation
    and its recent initiatives aimed at improving consultation with consumers, most of them being based on the
    White Paper on the Financial Services Policy 2005-2010: the FIN-USE, the FIN-NET, the new Commission‟s
    periodic newsletter emphasising the consumer aspects of its ongoing work, the recently established

    Council Directive 2004/56/EC of 21 April 2004 amending Directive 77/799/EEC concerning mutual assistance by the
    competent authorities of the Member States in the field of direct taxation, certain excise duties and taxation of
    insurance premiums.

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    permanent Financial Services Consumer Group (FSCG) 4 and the Commission‟s efforts in ensuring an
    appropriate representation of users in all advisory groups and hearings.

    This series of initiatives promotes the development of financial services expertise among EU and Member
    States consumer organisations, and ensures in practice that consumer interests are properly taken into
    account in financial services initiatives. Moreover, all Commissions‟ proposals for regulatory initiatives are
    now preceded or accompanied by public consultations opened to all interested parties, sometimes with on-
    line questionnaires which allow individual consumers to easily provide their direct input, and public
    hearings in which the Commission ensures that consumers‟ interests are well represented.

    We believe that all these sincere efforts of the Commission have permitted a balanced approach to be
    achieved between the interests of the industry and those of the consumers.

    However, when relevant, for instance when it comes to consumers‟ expectations and understanding as to
    information requirements, the Commission may consider the use of consumer testing as a further step.

    (4) Is consumer choice unnecessarily limited by restrictions on the providers and channels through which
    they access retail financial services? What are, in your experience, these restrictions?

    CEA believes that the wide variety of insurance distribution channels – brokers, tied and multiple agents,
    insurers‟ employees, banks, post offices, internet, telesales, etc. – enhances competition and is in the
    interests of customers, insurance undertakings and the economy. Any regulation which is likely to restrain
    the distribution channels‟ diversity may restrict consumers‟ access to specific products, services and know-
    how of a given channel.

    It is therefore important that the existence of those diverse channels is not called into question at national
    or European level. In this context, we would like to draw the attention of the Commission to the two
    following initiatives:

          At European level: the Commission‟s Directorate-General „Social Affairs & Employment‟ suggested in
          its Green Paper „Modernising Labour law to meet the challenges of the 21 st century‟5 the creation of a
          „floor of rights‟ for all workers regardless of the form of their work contract. We believe that such an
          initiative would threaten the diversity of working contracts in some Member States, including the
          insurance sector. Insurance distribution networks are structured differently throughout Member States
          and use employed staff and self-employed insurance intermediaries, small brokers and large broker
          societies. In Germany, for instance, there are at present just over 400,000 independent insurance
          intermediaries who, with a view to better earning opportunities, prefer signing a contract with a
          company or a group of companies (so-called „tied agents‟). The creation of a „floor of rights‟ would
          result in additional social contributions which would undermine the competitiveness of self-employed
          intermediaries. Insurers would consequently favour other distribution channels, reducing then de
          facto the existing distribution channels‟ variety to the disadvantage of consumers who would be
          deprived of the specific services of the self-employed.

          At national level: successive Italian laws 6 recently prohibited insurance undertakings and their agents
          from concluding exclusive dealing agreements in motor third party liability and then in all other non-

    Sub-group of already existing European Consumer Consultative Group (ECCG).
    Green Paper of 22 November 2006 on „Modernising Labour law to meet the challenges of the 21st century‟, COM(2006)
    708 final.
    Law 248/1006 ratifying Decree Law 223 of 4 July 2006 and Law 40/2007 ratifying Decree Law 7/2007.

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           life insurance classes, despite the express recognition of the model of tied insurance agent by
           Community law7. As underlined by the Italian Association of Insurers 8 in its memoranda to the
           European Commission against these measures, this prohibition may damage consumers. Indeed the
           prevalence of one distribution system over the others reflects the composition of demand, which in
           turn depends on consumers‟ preferences. As a consequence, the suppression by law of one
           distribution channel is likely to reduce consumers‟ welfare.

     (5) Despite efforts, in particular the creation of FIN-NET, the handling of cross-border consumer
     complaints in the field of financial services still remains problematic. The Commission would welcome
     input as to the ways to improve the current situation. For example, should Member States be obliged to
     ensure that alternative dispute resolution (ADR) schemes are in place? Should providers be obliged to
     adhere to an ADR scheme? Should they be contractually obliged to offer ADR mechanisms to their clients?

     With EEJ-Net9 and FIN-Net, the Commission has already created efficient mechanisms which take into
     account the proper functioning of existing national ADRs. However since legal proceedings may prove to be
     costly and time-consuming, CEA is in favour of more intensive promotion of the advantages of ADR. In order
     to maintain a high level of consumer confidence in financial services, we would also support the
     establishment of a community framework in this area providing that it remains voluntary and flexible 10 and
     especially that it:

           Clearly distinguishes between the different alternative methods of dispute resolution (mediation,
           arbitration, reconciliation).

           Avoids establishing too rigid and precise procedures which might be hard to adapt to the particular
           features of each sector of the economy.
     Legal expenses insurance should be perceived as a vector facilitating the implementation of ADR, including
     its effects through development and/or the use of mediation on a voluntary basis.

     (7) With view to the launch of its study on credit intermediaries, later this year, the Commission would
     like to know whether stakeholders believe the current legislative framework to be sufficient and if
     consumers face any particular problems in dealing with credit intermediaries, particularly on a cross-
     border basis.
     CEA draws the Commission‟s attention to the fact that credit intermediaries have to be differentiated from
     insurance intermediaries, the activities of whom are regulated at European level by the Insurance
     Mediation Directive 2002/92/EC (IMD). Under the paragraph (41) of its Green Paper, the Commission refers
     to the fact that it has asked CEIOPS to look into the way the IMD has been implemented. We are pleased to

     see Article 2§7 of Directive 2002/92/EC of 9 December 2002 on insurance mediation: "tied insurance intermediary"
     means any person who carries on the activity of insurance mediation for and on behalf of one or more insurance
     undertakings (...).
     ANIA – Associazione Nazionale fra le Imprese Assicuratrici; see
     European Extra Judicial Network.
     See the CEA position on the Commission‟s Green Paper on ADR, COM(2002) 196 final.

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note that CEIOPS‟ report on the IMD transposition published on 19 March 2007 concludes that “the IMD‟s
goal of achieving a high level consumer protection has been achieved in all Member States”.

We would, however, be happy to contribute to the forthcoming discussions on a possible revision of the IMD
in 2008/2009.

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     (8) The Commission believes that it has an important role to play in developing a competitive, open and
     effective market for long-term savings, retirement and pension schemes that meet consumers' needs. Do
     stakeholders agree and how could the Commission contribute? Could an optional legal EU-wide regime
     ("28th regime") for savings and/or 3rd pillar pension products be envisaged?
     CEA welcomes the Commission‟s aim of deepening the Single Market for pension, long-term savings and
     retirement products. It is clear that due to demographic changes state-organised 1st pillar pay-as-you-go
     pensions will not provide adequate old age income.
     It is European life insurers that contribute to balancing the decreasing “replacement rates” by offering
     products that enable individuals to provide long-term financial security for themselves and their
     dependents. Such products include various forms of insurance (life insurance, health insurance, accident
     insurance, insurance against loss of income etc.) based on life-long benefits or coverage of other biometric
     risks, capital guarantees, investment-linked insurance products or retirement annuities. The regulatory
     environment for such insurance products and their penetration rate are closely related to the
     corresponding shape and size of 1st pillar systems which are currently predominant in most of EU Member
     States. In order to further develop the Single Market for pensions:

           CEA considers that financial education and awareness-raising of consumers, i.e. also to learn how to
           anticipate and handle risks, are essential preconditions for deepening the European markets for
           retirement provision. We therefore welcome the Commission‟s initiative to intensify the exchange of
           best practices and to support network-building in this field11.

           It is also our view that EU citizens should receive information setting out how much retirement
           income they are likely to receive. This would help them appreciate how much additional private
           provision they should make to achieve their expected standard of living in retirement, and decide how
           to adjust their relative levels of consumption and financial strategies accordingly.

           CEA supports the Commission when it encourages Member States to introduce EET systems for
           pensions12. Such an overall arrangement would substantially contribute to reducing double taxation.
           Member States with an EET tax regime for pensions have experienced increased levels of pension
           penetration in the economy.

           We have welcomed the decision of the European Court of Justice in the case Commission v.
           Denmark13 where the most important tax discrimination of non-domestic pension funds was
           eliminated. CEA moreover looks forward to the EU-wide outcome of an infringement action lodged by
           the Commission in Commission v. Belgium 14 with the aim of overriding the tax discrimination against
           out-bound transfers of capital or surrender values. CEA encourages the Commission to accelerate and
           give effect to such infringement procedures in support of competitive, open and effective markets.
     CEA notes the increasing interest in an optional EU wide legal regime such as the “28 th regime,” and other
     projects such as for instance the “Restatement of European Insurance Contract Law,” as being an
     alternative to harmonisation of legislation. CEA supports initiatives intended to promote the interests of
     consumers and would encourage the Commission‟s action where this is merited. It is our view that the
     concept of an optional legal regime requires, as a first step, authoritative clarification as to the meaning of

     See also the CEA response to question No 10 (item 9).
     Communication from the Commission on „The Elimination of Tax Obstacles to the Cross-border Provision of Occupational
     Pensions‟, COM(2001) 214 final.
     Case C-150/04, Commission v. Denmark [2007] ECR I-0000.
     Case C-522/04, Commission v. Belgium [2007] ECR I-0000.

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     the concept. Only then can the work be taken further. There are numerous factors which need to be
     explained, such as definition; its objectives, i.e. what it is intended to achieve and how, what consumer
     needs the concept is intended to meet; the scope of application; its interaction with the EU acquis and
     national legislative frameworks, including particular rules on tax, consumer protection, data protection;
     the views of national regulators; and the roles of national supervisory authorities. CEA and its national
     Member Associations are supportive of innovations and would be very pleased to participate in this work.
     CEA notes that in some quarters there is a debate about the appropriate extent of EU-level regulation for
     unit-linked life insurance products. In this regard, CEA takes the opportunity to express its view that there
     should be a level playing field between equivalent products. This cannot be, nevertheless, arbitrarily
     identified with regard to a single element of the value chain. The Commission correctly noted in its White
     Paper on Investment Funds15 that attempts to apply equal treatment to unit-linked life insurance products
     and UCITS falls into the trap of “comparing apples and pears” as they are indeed different products. CEA
     agrees with this sentiment: in contrast to unit-linked life insurance products UCITS funds do not contain any
     coverage of biometric risks. Furthermore, a unit-linked life insurance product is a contract between a
     policyholder and an insurance company, while a UCITS investor is the beneficial owner of an interest in a
     fund. This in conjunction with other critical differences stemming from existing product-specific regulation
     at the level of disclosure, distribution and supervision (solvency requirements included), winding-up and
     tax treatment should be assessed as a whole. Therefore, equality can only be determined after the
     examination of all elements. Only equal products should be equally regulated.

     (10) The Commission believes that more could be done to improve consumers' financial literacy and
     capability. Possible measures include developing guidelines or promoting best practices. The Commission
     would welcome input on how this policy should be further developed at the European level.

     Attendance at the Conference “Increasing Financial Capability” organised by the Commission on 28 March
     2007 and the high quality of the presentations and discussions have demonstrated the interest of the
     public, including the financial business community, in the issue and highlighted the impressive diversity and
     number of ongoing initiatives aimed at increasing financial awareness over the EU.

     In its report „Financial Awareness Initiatives Promoted by the European Insurance Industry‟, CEA shows how
     the European insurance industry actively promotes financial literacy via a range of excellent initiatives
     throughout Europe. This publication which is available on the CEA website highlights examples of initiatives
     being driven by CEA Members, i.e. National Insurance Associations. As such, CEA contributes directly to the
     promotion of best practices amongst CEA Members and other actors involved in the insurance field. Of
     course, this publication does not provide an exhaustive list of insurance industry programmes or activities
     in this field; however we intend to update it on a regular basis.
     We also encourage the Commission in its current work of gathering information about the existing financial
     literacy schemes in the EU. CEA and its Members are ready to help in this exercise. As a next step, the
     Commission should engage in promoting and spreading across the EU the best practices identified in this
     context16. However, it should be stressed that the effectiveness of initiatives aimed at improving
     consumers' financial literacy and capability strongly depends on the stability over time of the regulatory
     framework for financial services. Changes in laws and requirements are source of confusion for consumers
     and act as a brake upon their motivation to understand financial services.

      White Paper on Enhancing the Single Market Framework for Investment Funds, COM (2006) 686 final, p.5.
     See also the CEA response to question No 8 (item 8).

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     (11) Do you think that, as they stand, the provisions on consumer information contained in financial
     services directives are adequate and consistent with one another? Were it not the case, how could the
     Commission ensure that information requirements are set at the right level, ensuring proper information
     but without creating any overload? Do you think that informing consumers is sufficient or that advice
     should also be provided? If yes, should that be compulsory or on request?

     10.1    Need for consistent consumer information

     The requirements related to pre-contractual and contractual information imposed on operators in the
     insurance market with a view to protecting consumers, widely lack homogeneity (see annex 2 to the CEA
     Note of 8 March 2005 on the Common Frame of Reference – CFR).

     Insurance companies and intermediaries have difficulties in determining precisely what information they
     need to disclose. On the other hand, policyholders, buried under a pile of facts and figures, do not have the
     means at their disposal to make an appropriate assessment of the products on offer and to make their
     choice in full knowledge of the relevant facts.

     CEA believes that the provision of high-quality rather than – in terms of quantity – excessive consumer
     information is fundamental to enable markets to function, and is the basic principle of consumer
     protection. However, the information requirements imposed on insurers by different EU legal acts do not
     fulfil this condition, so that ultimately this may create difficulties both for the consumer and the supplier:
     the consumer will be swamped with unnecessary information, so that he will be unable to understand what
     is essential for him. And it may be difficult for the supplier to judge in individual cases, especially in cross-
     border situations, what information should be made available.

     Therefore we encourage the Commission to launch an evaluation of existing information requirements in
     the insurance field. In this context, we welcome both the workshop in November 2007 and the cross-sector
     study to follow in 2008 on the appropriateness and consistency of information requirements in financial
     services. CEA has the necessary experience to help in identifying the overlapping and over-burdensome
     provisions in the insurance field and is willing to contribute to those two exercises, regarding which we
     have the following observations:

            These exercises should be transparent and involve interested parties. Stakeholders, including
            insurers, should be allowed to provide their practical experience and input on the occasion of the
            workshop, preparatory work, i.e. the report to be produced in advance by researchers, and of the

            The link of these initiatives with the work done in the context of the Common Frame of Reference
            (CFR) and its network (CFR-Net) – especially the CFR-Net workshops on insurance contract law and on
            pre-contractual information – and the consumer acquis review must be clarified.
            The scope of the analysis should not be limited to financial services provisions stricto sensu but also
            include non-financial services regulations that apply to financial services.
     These exercises should be aimed at increasing the consistency and effectiveness of disclosure requirements
     and ensuring legal security both for suppliers and clients, for instance via the drawing-up of a catalogue of
     information requirements.

     As already indicated in the CEA Policy Report of 2004 on „Prospects For Simplifying European Insurance
     Legislation‟17, CEA would support the simplification of insurance contract law via the rationalisation of the

     See pp.18 and 19, also annex, page 1 of the Report.

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hotchpotch of pre-contractual information due to the policyholder, by replacing dissimilar terminology in
the directives by common terminology (including, in particular, the concept of consumer).

10.2   Consumer advice
In order to help consumers to take decisions, we consider that they should be provided with appropriate
advice alongside adequate information. The scope of such advice should be specified by the consumer him-
or herself, keeping in mind that, at the end of the day, the final decision belongs only to the consumer.
Detailed legal provisions and obligations to provide advice would take away the consumer‟s right to form an
independent opinion since certain consumers would reject advice if it is weighed down with an excess of

(13) Fragmentation of retail insurance markets, for example in the field of motor insurance, does not
allow consumers to reap full benefits of EU integration in this area. Do you think that more should be
done at EU level to address this fragmentation?

11.1   Integration of motor insurance markets
Motor insurance is above all a service of proximity offered to customers. As explained in our response to
question No 1 (item 2), the reason for this lies also in customers‟ preference to do business with an
intermediary or an insurance undertaking located in their neighbourhood and in their own language.

The notion of „fragmentation‟ is misleading when applied to motor insurance since, in any EU Member
State, a consumer is able to buy an insurance cover from various foreign insurers based in this Member
State. Foreign companies compete directly with domestic companies in all EU markets, which means that
the insurance market is open and highly competitive. A consumer can take out a motor insurance policy
from a foreign insurer. The vehicle needs to be insured in the Member State in which it is registered. Any
motor insurer licensed in one of the EEA markets to write motor insurance has the option to offer products
to foreign customers under freedom of services if it wishes to do so and provided it: a) notifies its
supervisory authority of its intention to undertake cross-border insurance business; b) fulfils the conditions
regarding membership of the local green card bureau, appointment of a claims representative in the host
country, and contribution to road accident guarantee funds; c) meets the requirements set out in the host
country‟s national legislation. Because of the latter, it may well be that in case of a move to another
country the motor insurance policy cannot be transferred. However, the policyholder‟s home country motor
insurance cover remains valid during temporary stays of the vehicle in another EEA country. In case of an
accident abroad, so as to facilitate the claim settlement, the victim is allowed to get in touch directly with
the claims representative in his country of residence designated by the insurer of the responsible party.
Again the low number of cross-border transactions is not an appropriate measurement of the degree of
competition nor of the level of integration. However, we believe that the volume of cross-border business
will gradually increase over the next few years, as customers and operators become more familiar with the
opportunities provided by the Internal Market. This will be a market-driven process in which EU legislation
will have little effect.

CEA is however ready to provide the Commission with its expertise in order to identify ways to make the
European citizens benefit more concretely from EU integration in the area of motor insurance.

11.2   About variation in prices for motor policies

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     Amongst the indicators showing that retail financial services integration has not yet reached its potential,
     the Commission highlighted the wide variations in price 18 and announced a study on price variations in key
     retail financial services in 2008. The scope of this study may include motor and home insurance about
     which the Commission admitted that “comparisons of the base price of an insurance product are more
     difficult as coverage and local risk conditions vary widely”.
     In this context, we would like to recall that insurers, like many other businesses, have been granted the
     freedom to set premiums. Besides the fact that each insurer has different costs and returns, several factors
     explain price differences in motor insurance from one country to another. Some are related to basic facts
     that influence the level of risk and compensation or market issues, some to legal requirements and some to
     the level of taxation. Basic facts vary substantially from one country to another:

           Traffic conditions and road safety determine risk exposure: traffic density, driver habits, police
           controls, road and vehicle condition, are all part of country-specific factors.
           Compensation varies as a result of different costs: regarding material damage, prices for replacement
           parts, new cars and wages can vary widely; regarding injuries, medical treatment and the level of
           compensation for loss of revenue and pain and suffering lead to substantial differences, reflected in
           insurance premiums; in addition, the level of the interest rate applied to time lapsed since the
           accident has a multiplying effect on the compensation itself.

            The differing levels of uninsured driving or fraud.

     Furthermore, the content of motor third party liability insurance policy is defined by the legislation of the
     country of registration of the vehicle. There are important differences, for example, in the minimum
     amount of coverage and in general liability rules (particularly regarding protection of pedestrians or
     cyclists). Market issues also play a role: economies of scale can be achieved in the larger countries; in some
     countries, most motorists take out only third party liability insurance, while in others it is usual to take out
     comprehensive insurance. This would lead to differences in the degree of risk-sharing, which is reflected in
     pricing. Finally, the basis and level of motor insurance tax and other para-fiscal contributions are not
     coordinated in the EU and vary widely across Europe. They are calculated according to the rules of the
     country of registration of the vehicle, and have to be collected by the insurer on behalf of the fiscal

     All of these aspects explain why insurers operating in a given country have to adapt their pricing to local
     conditions. This also applies to international groups who offer products in several EU Member States.

     (14) Customer mobility and competition are closely associated. The Commission would welcome input as to
     how customer mobility could be enhanced. In particular, in the field of bank accounts, and as a follow-up
     to the Expert Group's work, would stakeholders see merits in, for example, having EU wide account
     switching arrangements? Will SEPA have an impact on customer mobility?
     CEA backs the Commission‟s willingness to bring the full benefits of the Single Market to European citizens
     in their everyday lives, for instance by enhancing customer mobility where needed. In this respect, the
     Commission‟s interim report into the European business insurance sector shows that the level of customer
     mobility in insurance is already satisfactory. Nevertheless, as underlined in question No 1 (item 2), all the
     efforts to ensure that consumers benefit concretely from the insurance market integration would be

     See p.5 of the Green paper.

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    undermined if the existing insurance BER was not renewed beyond its 2010 validity deadline. The BER
    clearly helps to make the Internal Market works better for financial services users by promoting their
    interests, assisting in reducing costs and also by facilitating their mobility:
          The use of standard policy conditions helps to create transparency of the market by developing the
          comparability of insurance products to customers‟ benefit.
          The security devices exemption permits CEA to deliver specifications which help customers to choose
          the best security equipment available in terms of loss prevention. CEA specifications represent one
          way to make it easier to change insurance undertakings: when different insurance companies use the
          same specifications, it is easier for the customer to change insurer within one Member State and also
          cross-border when the same security device requirements are also used in the new insurance
          company. It also allows customers to avoid additional costs in meeting a new set of standards.

About CEA

CEA is the European insurance and reinsurance federation. Through its 33 member bodies comprising of national insurance
associations, CEA represents all types of insurance and reinsurance undertakings, be they pan-European companies,
monoliners, mutuals or SMEs. CEA represents undertakings which account for approximately 94% of total European premium
income. Insurance makes a major contribution to Europe‟s economic growth and development. European insurers generate
premium income of €978bn, employ over one million people and invest more than €6,300bn in the economy.