EU faces more Setanta Insurance-type failures, warns MEP

More powers needed to supervise companies offering cross-border insurance

Fine Gael MEP Brian Hayes: insurers’ host countries need strengthened role to be able to address solvency problems. Photograph: Alan Betson

Fine Gael MEP Brian Hayes: insurers’ host countries need strengthened role to be able to address solvency problems. Photograph: Alan Betson


The European Union’s “flawed” insurance supervisory regime will lead to more Setanta Insurance-type failures unless the European Insurance and Occupational Pensions Authority (EIOPA) secures powers to intervene when it spots risks in firms doing business across borders, according to Fine Gael MEP Brian Hayes.

Malta-based Setanta, which wrote business in Ireland only, collapsed in 2014, leaving a bill of €90 million of outstanding claims. Uncertainty over who would carry the tab was resolved only in May when the Supreme Court rejected a lower court’s ruling last year that the Motor Insurers’ Bureau of Ireland carry the cost. The Supreme Court ruled that the State’s Insurance Compensation Fund pick up the bill, capped at 65 per cent of the outstanding claims.

While euro zone countries moved to place the European Central Bank in charge since late 2014 of regulation and supervision of the currency region’s banks, in light of the financial crisis that left taxpayers on the hook for tens of billions of euro of lenders’ losses, there is no such regime for the insurance industry.

Three regulators

“When a company offers insurance on a cross-border basis, like Setanta did, there are three regulators involved in supervision: the home regulator, the host country regulator and EIOPA. Yet the division of supervisory tasks is flawed and gives too much control to the home-country regulator,” said Mr Hayes.

“We need a strengthened role for EIOPA to be able to intervene when they detect risks in insurance companies that offer cross-border business. There needs to be a strengthened role for the host country to be able to address solvency problems to protect customers.”

EIOPA chairman Gabriel Bernardino said in a letter to Mr Hayes, dated July 26th, that Setanta’s 2014 failure “highlighted shortcomings in the supervisory framework, which until then mainly focused on EIOPA’s co-ordinating role in cross-border business coming from groups and supervised via the college of supervisors”.

Protocol for collaboration

Since then, EIOPA has started its own assessments of national authorities and, earlier this year, improved a protocol for collaboration among supervisors across the EU. This requires regulators to ask insurers seeking approval to declare if they had any informal or formal contact with another regulator for authorisation that had been rejected or withdrawn. It also allows national supervisory to work together on specific insurers engaged in cross-border activities.

New insurance rules that came into effect in January 2016, known as Solvency II, have led to a “harmonised supervisory framework across the union”, Mr Bernardino said.

EIOPA called early last month to be given the authority to act more intrusively when it detected signals of risks of cross-border failures. Still, the paper does not go so far as to seek to harmonise insurance guarantee schemes or funding of the cost of winding up ailing insurers.