EUROPEAN COMMISSION Brussels, 24.5.2018 SWD(2018) 247 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2009/103/EC of the European Parliament and the Council of 16 September 2009 relating to insurance against civil liability in respect of the use of motor vehicles, and the enforcement of the obligation to insure against such liability {COM(2018) 336 final}

{SEC(2018) 248 final}

{SWD(2018) 248 final}



Table of Contents INTRODUCTION: POLITICAL AND LEGAL CONTEXT PROBLEM DEFINITION WHY SHOULD THE EU ACT? Legal Basis Subsidiarity: Necessity of EU Action Subsidiarity: Added value of EU Action Consistency of the objectives with other EU policies Consistency of the objectives with fundamental rights WHAT ARE THE POLICY OPTIONS AND THEIR IMPACTS AND HOW DO THEY COMPARE? What is the baseline scenario? Policy options addressing insolvency of the insurer Policy options to ensure that minimum amounts of cover are equal across the EU Policy options addressing uninsured driving Policy options addressing the acceptance of claims history PREFERRED OPTION Overall impact of the preferred option Macro-economic impacts

Small and medium-sized enterprises REFIT (simplification and improved efficiency) EU budget Social impacts Impact on third countries Environmental impacts HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? Annex 1: Procedural Steps concerning the process to prepare the impact assessment report and the related initiative Annex 2: Stakeholder Consultation Synopsis Report Annex 3: Who is affected and why? Annex 4: Market data description AND ANALYTIC MODELS used to prepare this impact assessment. Annex 5: Glossary of terms and abbreviations. Annex 6: Voluntary Industry code of conduct for claims history statements Annex 7: Evaluation report Annex 8: (Confidential*): Financial volume of insolvency cases falling under the subject matter regulated by the 1995 Agreement Annex 9: (Confidential*) Uninsured driving in the EU Annex 10: Insolvency: voluntary agreements between Member States Annex 11: Scope of the Motor Insurance Directive: Lack of uniform application of the material and territorial scope of the Motor insurance Directive across the EU Annex 12: Detailed description of Key Performance Indicators





INTRODUCTION: POLITICAL AND LEGAL CONTEXT The first EU Directive on motor insurance was adopted in 1972, with the dual objectives of protecting victims of motor vehicle accidents, (with or without a cross-border element), and facilitating the free movement of motor vehicles between Member States. The foundations of EU motor insurance legislation lie in the International Green Card System (see Box 1), but the EU legislation goes further. Since 1972, several amendments have progressively strengthened the Directive and enhanced its provisions. Five motor insurance Directives were consolidated into Directive 2009/103/EC (hereafter the Directive or MID). Key elements of the Directive include: ·An obligation on motor vehicles to have a motor third party liability (MTPL) insurance policy, valid for all parts of the EU on the basis of a single premium. ·Obligatory minimum amounts of cover which such insurance policies must provide (Member States may require higher cover at national level). ·A prohibition on Member States from carrying out systematic checks of insurance of vehicles. ·An obligation on Member States to create guarantee funds for compensation of victims of accidents caused by uninsured or untraceable vehicles. ·Protection for victims of motor vehicle accidents in a Member State other than their Member State of residence ("visiting victims"). ·A right for policyholders to obtain a statement of their claims history for the past five years from their insurer. Box 1: International Green Card system and EU Motor Insurance Legislation The Green Card is an international certificate of third party liability insurance that makes it possible for travellers to drive cross-border without having to buy supplementary insurance. The system is run by a Council of Bureaux and was set up in 1949 under the auspices of the United Nations Economic Commission for Europe (UNECE). There are three categories of Green Card Members: EEA Member States, Members under Section III of the Internal Regulations (Andorra, Croatia, Serbia and Switzerland) and standard Green Card Members. Vehicles from EEA Member States and Section III States can travel freely between the relevant territories even without the Green Card as the number plates of vehicles from such Member States are presumed to be the proof of insurance. The evolution of EU motor insurance legislation involved the adoption of five successive Directives, continuously improving the legal framework and strengthening the protection of victims of traffic accidents. The first Directive of 1972 set out the obligation for all vehicles to be covered by a MTPL insurance policy and mandated the abolition of border checks on motor insurance; it also made it possible for Member States to derogate some natural or legal persons' vehicles or certain types of vehicles. The second Directive of 1983 imposed for the first time the minimum amounts of cover, obliged Member States to set up compensation bodies for uninsured or untraced drivers (also known as national guarantee funds) and prohibited certain exclusion clauses in insurance contracts. The Third Directive of 1990 established the principle that the insurance cover should include the whole territory of the EEC on the basis of a single premium and stipulated that in the cases of disputes on which an insurer or body should pay the compensation, the victim must be compensated without delay irrespective of the dispute. The Fourth Directive of 2000 introduced facilities for the protection of 'visiting victims"; to that end it required Member States to set up information centres and compensation bodies, and imposed an obligation for insurers to have claims representatives in other Member States. The Fifth Directive of 2005 banned systematic border checks on insurance, required cover for damage both to property and personal injuries, established guarantees for compensation for victims of accidents involving vehicles that are exempt at Member State level, codified case law on exclusion clauses, provided for specific cover for exported vehicles, prohibited "excess" or "co-pay" against victims and also required insurers to provide five years of claims history statements for policyholders. All these Directives were consolidated into Directive 2009/103/EC. All references in this text are made in relation to this Directive. To assess the effectiveness, efficiency and coherence of the motor insurance legislation, the Commission Work Programme 2016 announced an evaluation of the Directive . A public consultation was held between July and October 2017, and the evaluation report is annexed to this Impact Assessment (see Annex 7). The evaluation looked into all elements of the Directive, including for example terminology and definitions, insurance checks, visiting victims and autonomous vehicles. The evaluation identified a number of issues which are further assessed in this impact assessment: the protection of victims of accidents in cases of insolvency of an insurer, minimum amounts of cover, portability of claims history statements (which are used to calculate no-claims discounts), and checks on insurance of vehicles. Furthermore, in the Consumer Financial Services Action Plan of March 2017 , the Commission announced that, following an evaluation, it would decide promptly on possible amendments to the Directive to enhance the protection of traffic accident victims and to improve the cross-border portability of claims history statements .

There have also been in recent years a number of ECJ judgments clarifying the scope of the Directive. Against a background of linguistic differences in different language versions of the Directive, the CJEU has interpreted the scope in a number of preliminary rulings. Particularly noteworthy judgements of the CJEU have been those in the so-called "Vnuk", "Andrade" and "Torreiro" cases . The Vnuk judgement of September 2014 in particular clarified the scope of application of the Directive (the types and uses of motor vehicles for which an MTPL insurance policy is obligatory) in a manner different to that in which it was hitherto implemented in certain Member States, leading to requests from certain Member States and stakeholders in the public consultation to re-examine the appropriate scope of the Directive. Since it is proposed to codify the ECJ rulings in the MID, and not change the scope of the Directive as interpreted by the Court, the proposed legislative change is not subject to detailed impact assessment but explained and analysed in section 2.3 and Annex 11. Following the evaluation and against the background of applicable frameworks (international Green Card System, EU and national rules, applicable law and multilateral agreements), it was concluded that overall the provisions of the Directive function well. At the same time, the evaluation showed that a number of specific elements of the Directive merited targeted amendments, including those aspects highlighted in the Consumer Financial Services Action Plan. These are discussed in the present impact assessment. PROBLEM DEFINITION The main problems identified in this impact assessment (see problem tree) concern the following issues: 1) Insufficient/unequal protection of injured parties in certain circumstances (insolvency of insurers, inconsistend minimum amounts of cover), and 2) Differential treatment and freeriding behaviour negatively affecting policyholders (differentiation between claims history statements by insurers in cross-border cases, increased premiums due to uninsured driving). An additional problem, the lack of uniform application of the scope of the MID across the EU in particular in light of recent ECJ judgements, was identified by the evaluation and the possible scenarios for this topic are assessed in Annex 11. As explained in the introduction, for this topic the proposed policy choice was a codification of existing case-law and therefore does not require impact assessment according to the guidelines, but it is desirable to record the reasoning. Four problem drivers underly these problems: absence of EU-wide rules on compensation of victims for cross-border cases of insolvent insurers, inconsistent minimum amounts of cover for motor insurance across Member States, risks due to uninsured driving (which can lead to higher premiums for policyholders), and lack of acceptance of claims history statements by insurers in case of policyholders moving to another Member State. Insufficient/unequal protection of victims in certain circumstances Insufficient or unequal protection of injured parties across the EU arises from absence of rules for compensation in cases of insolvency of an insurer and unequal minimum obligatory amounts of insurance in different Member States. 2.1.1. Compensation of victims in the case of insolvency of an insurer According to the Directive compensation bodies must be set up in each Member State to meet costs arising from accidents caused by uninsured or untraced vehicles. However, such bodies are not currently required to meet costs arising from claims where the motor insurer of the liable party is insolvent. This means that, if national law does not provide for any specific protection scheme, victims of accidents caused by a vehicle insured with an insolvent MTPL insurer may be left without compensation . As a consequence, in recent cases as shown in confidential Annex 8 where an insolvent insurer was providing services across-borders under the free provision of services it was not clear which party was ultimately responsible for refunding claims of victims, and delays in compensation of victims occurred. An accident which involves a liable party with an insolvent insurer poses two main issues. First of all, to ensure an effective and efficient protection of victims, it is not always clear which compensation body is responsible for the initial compensation of the victim ("front office"). Second, to allow for fair risk sharing in case of cross-border provision of services it is unclear who bears the ultimate financial responsibility for the claim ("back office"). For cross-border cases, this could be the guarantee fund of the home Member State of the insolvent insurer or alternatively the guarantee fund of the host Member State. As the MID does not deal with this, it depends on national law, which might not cover cross-border cases, and therefore the level of protection of victims of accidents in case of insolvency of an insurer is currently unequal across Member States. As shown in the evaluation report (Annex 7), which provides a detailed overview of all possible insolvency scenarios, a distinction is made between domestic cases and cases with a cross-border dimension (Tables 8 and 9). For insolvencies which involve insurers that are based in the same Member State, according to the Council of Bureaux (CoB), all but one Member State (Sweden) have put in place mechanisms to deal with such insolvencies domestically. However, the level of protection of victims by these domestic schemes is sometimes lower than the protection foreseen in the MID. As a consequence, in case of insolvency without cross-border provision of services (and in the absence of application of a voluntary agreement between Member States – see Annex 10), victims are not always fully protected in all EU Member States and therefore might not be compensated or only partly compensated. Furthermore, victims might be compensated in accordance with national requirements but not in full, unlike for accidents caused by uninsured or untraced vehicles.

For cases where an insurer is selling MTPL policies cross-border either using freedom of services or a branch, a number of "voluntary agreements" between Member States have been set up under the umbrella of the CoB. The CoB currently administers three voluntary agreements between national compensation bodies, one for domestic (non-visiting) victims of accidents (1995 Agreement) and one for visiting victims in other Member States (2008 Agreement) and one for insolvency cases in case of insurers operating on a freedom of services basis (2006 Agreement). However, as shown in the evaluation report , these voluntary agreements have some deficiencies as they are not mandatory, thus do not cover all EU Member States, and contain negotiated "opt-out clauses" or limitations for certain national guarantee schemes. Table 1: Overview of rules applicable for different scenarios of insolvencies of an insurer: TYPE OF RULE COVERAGE GEOGRAPHICAL SCOPE DEFICIENCIES National Legislation National insolvencies All EU Member States except SE Lower level of compensation of victims compared to MID in some Member States CoB 1995 Agreement Domestic (non-visiting) victims of accidents EEA with the exception of: HR, LV, LT, LU, MT, RO, IS, NO Reservations by BG, IT, IE, PT, SE, UK, Incomplete geographical scope; the agreement was modified on some occasions and not all Members States signed the modifications. Voluntary Reservations made by some Member States CoB 2006 Agreement Visiting victims in other Member States EEA with the exception of BG, HR, LV, LT, LU, Derogations made by, IE, MT, UK, LI. Incomplete geographical scope Derogations announced by some signatories Only applicable to situations of FoS and not FoE. CoB 2008 Agreement Insolvency cases in case of insurers operating on a freedom of services basis EEA with the exception of EE, HR, IE, RO, SE, UK, IS, NO Incomplete geographical scope Not applicable in case the accident occurred in an EEA country other than where the vehicle is normally based Not applicable if the national law does not foresee intervention of the Guarantee fund in case of insolvency Source: Council of Bureaux For cross-border activities, according to the CoB , the voluntary agreements that tackle this issue have shown in practice a number of significant flaws. In particular, some national bodies have not signed, some others have withdrawn from agreements previously signed and some have signed with reservation clauses and limits. As a consequence, in recent cases (See confidential Annex 8 for a list of recent cross-border failures of motor insurers) where an insolvent insurer was providing services across-borders it was often not clear which party was ultimately responsible for refunding claims of victims, and delays in compensation of victims occurred while discussions or litigation occurred. This demonstrates that in some national or cross-border cases of insolvency of the insurer, victims will not always be protected at the same level. In absence of a voluntary agreement or in case of specific opt outs, victims risk not being compensated in a timely and full manner in line with the deadlines set out in the CoB internal rulebooks. In particular, evidence from recent insolvency cases (see Box 2 below for one example) has shown that victims are likely to experience negative consequences. These include considerable delay in payment of claims due to ongoing court proceedings or claims which are reimbursed only partially. This implies that victims could be compensated considerably less and with a longer delay than if they were victim of an accident in case of an uninsured or untraced vehicle. As shown in the evaluation report in Annex 7 and in confidential Annex 8, in the period 1998-2017, eight cases of insolvency of such insurers have been reported affecting nine Host Member States (and based in five home Member States). Based on a preliminary estimation due to ongoing cases, there were approximately 11,500 claims against policyholders of those insurers after their insolvency for a total value of is approximately EUR 180 million . This is certainly an underestimation of the total problem, as for 3 out of 8 insolvencies information on claims is not available. A rough extrapolation of the total value leads to an approximate value of EUR 288 million. One specific example is described in the box below. Box 2: Case study on insolvency: Setanta Ltd Evidence from delays in claims were reported for the insolvency of Setanta Insurance (“Setanta”) a Maltese incorporated insurance company with Irish management which sold motor insurance cross-border to policyholders in Ireland only. Setanta was placed into voluntary liquidation in Malta in April 2014. More than two years later, in November 2016, there were still 1400 claims unpaid for an estimated value of EUR 90 million to the detriment of victims. If Setana were a solvent insurer, the claims would have been treated without delay. Morover there was a court case in Ireland to determine whether the compensation of victims would be undertaken by the general Irish Insurance compensation fund (which would cover only 65 percent of the value of claims) or the motor insurance bureau (which would reimburse 100 percent of the value of claims); no attempt was made to bring about compensation of victims by any body in Malta, as there was no legal possibility to do so. On 8 of June 2017, an Irish court ruling attributed the settlement to the Irish Insurance compensation fund (ICF), resulting in a payment of claims of up to 65 percent or €825,000, whichever is the lesser, to the detriment of victims of motor insurance accidents . If Setana had been a solvent insurer, or even in case of an accident with an uninsured or untraceable vehicle, the claims would have been treated without delay and with 100% of compensation (up to the minimum amounts laid down by the MID, currently just over €6 million for personal damage and €1 million for material damage provided in the Motor Insurance Directive). Therefore, as demonstrated above, in the event of an insurer becoming insolvent, victims of traffic accidents have difficulties to obtain compensation in some Member States, in a timely way and in full. This is in particular in the case where the liable party is insured by a cross-border insurer. Furthermore, fair and effective risk-sharing in case of insovency and cross-border provision of services is not guaranteed. In the absence of clear rules on the ultimate liability of a claim in cross-border situations, a compensation fund which has reimbursed a victim in case of an insolvent insurer cannot get recourse to the fund of the home Member State of the insolvent insurer. This topic was highlighted as a possible area for action in the 2017 Consumer Financial Services Action Plan.

2.1.2. Insufficient level of cover of MTPL insurance The Directive lays down minimum obligatory amounts of cover up to which compensation must be provided under a MTPL policy. These minimum amounts ensure that there is a sufficient level of minimum protection of victims of motor vehicle accidents across the EU in case of personal injury and damage to property, irrespective of the category of vehicle. These amounts are reviewed every five years in order to take into account inflation. In the case of personal injury, the minimum amount of cover for most Member States is currently set at €1 220 000 per victim or in case of multiple victims €6 070 000 per claim, irrespective of the number of victims. For cases of material damage, the minimum amount is determined at €1 220 000 per claim, independent of the number of victims . However, as shown in the evaluation report at Annex 7 and in Annex 4, a number of Member States currently apply lower amounts than laid down in the Directive. This is due to different reference dates for periodically recalculating the minimum amounts. When the minimum amounts of cover were introduced in 2005 (Directive 2005/14/EC), some Member States were allowed a transitional period until 2012 to apply the full minimum amounts. Although the transition periods have meanwhile expired, the respective dates of the end of the transitional period are still used as reference dates for the periodic inflation updating. Therefore these minimum amounts are still not the same across all Member States. In addition, the procedure and timing of periodic adaptation of the minimum amounts in the Member States are not precise enough to allow for smooth adaptations. In particular, the procedure lacks a clear methodology and exact reference dates to calculate inflation and does not provide deadlines for Member States for its implementation. As a consequence, the limits adopted in accordance with the procedure are not legally enforceable, resulting in different levels of obligatory minimum amounts of cover across Member States. Another question raised in the Commission's public consultation concerned the question whether the current minimum amounts of cover are sufficient to protect victims under all possible circumstances. In particular, accidents involving vehicles with a large number of passengers such as buses or coaches may result in a large number of claims concerning personal injuries. Accidents involving lorries may cause both personal injuries and severe material damage. Finally, vehicles transporting dangerous goods, such as chemicals, can cause significant environmental damage. There is anecdotal evidence that in some circumstances the current minimum amounts may not be sufficient to cover the cost of claims, especially where there are multiple victims. This is one of the reasons why some Member States (BE, CY, ES, FI, FR, IE, SE and UK) have set the minimum amounts of cover considerably higher than the minimum amounts prescribed in the Directive. Therefore it is possible that victims of accidents involving buses and coaches, lorries or vehicles transporting dangerous goods might be not be sufficiently compensated in a number of Member States. Box 3: Examples of road accidents with heavy vehicles and buses and coaches According to the European Road Safety Observatory , in 2014, there were 3,850 fatalities in road accidents involving heavy goods vehicles and 750 involving buses and coaches in the EU as a whole. Examples of accidents with buses and heavy vehicles resulting in high fatalities and high material damage: ·15 December 2017: a train collided with a bus, close to Millas, France resulting in 5 fatalities and 15 wounded children . ·23 October 2015: bus accident in Puisseguin, France, resulting in 43 fatalities and 8 injured parties (4 seriously injured). ·13 March 2012: a bus accident involving Belgian citizens following a crash in a motorway tunnel between Sierre and Sion in Switzerland resulting in 28 fatalities (of which 22 children) and 25 wounded . ·2 June 2008: bus accident in Allinges, France resulting in 7 fatalities (children) 18 injured parties, of which 4 seriously injured. ·22 July 2007: accident with a bus transporting Polish citizens at Laffrey, France, leading to 26 fatalities. ·17 May 2003: bus accident, in Dardilly France, resulting in 28 fatalities and 46 injured parties. ·On 28 February 2001, a collision between a car and a train in Selby, UK, resulting in 13 fatalities and 70 injured parties of which 30 seriously injured, led to one of the largest motor insurance pay-outs for an accident in the UK, reaching approximately £50 million . These examples show that very serious accidents with buses and heavy vehicles often involve a high number of victims and the total material damage can be high. As a consequence, in such case the current minimum amounts of cover provided in the MID might not be sufficient to compensate all victims. In the Member States of the examples, this did not pose a problem as for respectively France, Belgium and UK, the minimum amounts of cover set at national level are above those provided for in the Directive. In BE, FR and UK guarantees for personal injury are unlimited. In BE the minimum amount for material damage is set at EUR 111 Million as shown in Table 10 in the Evaluation at Annex 7. However, it is of course possible that in certain such accidents with many victims the vehicle responsible is not the bus or heavy vehicle itself but a smaller vehicle. It is relevant to note that data show that the overall amount of fatalities with buses and coaches and heavy goods vehicles has decreased by approximately 50 percent in the period 2005 to 2014 in the EU as a whole as shown in Figure 1.2 of Annex 4. This is an indication that there are fewer accidents overall and that accidents are less severe.

Accidents with personal injury or damage beyond the levels of minimum amounts are exceptional. A recent study in France showed that since 1999, 1881 victims of severe accidents received in France compensation beyond EUR 1 Million, which is on average 125 of such victims per year. The study shows that the number of such victims is steadily decreasing, down to 30 such victims in 2015. On the other hand, the average costs of compensation for these victims is increasing and was in 2015 estimated at EUR 5,486,925 per severe injured victim, up from EUR 4,612,779 in 2014. This is an indication that the minimum amounts only apply in a limited number of cases of very severe accidents with low frequency but with high average cost. However even if there are fewer frequent serious accidents, for the purpose of protecting victims of motor accidents, in individual cases it, is important that the total cost of claims of serious motor accidents can be covered by the minimum amounts of cover. Therefore, it remains problematic if some Member States have lower minimum amounts, giving rise to risks of unequal protection of victims. Differential treatment and freeriding behaviour negatively affecting policyholders Policy holders of motor insurance are negatively affected by freeriding behaviour and differential treatement which may result in increased premiums of MTPL insurance. The main drivers are unisured driving and the acceptance of claims history statements when moving across borders. 2.2.1. Uninsured driving According to EREG , the Association of European Vehicle and Driver Registration Authorities, uninsured driving, in essence, circulating with a motor vehicle without a compulsory MTPL insurance, is an increasing problem within the EU. The cost for the entire EU has been estimated by EREG at € 870 million in claims in 2011 for the EU as a whole.. Uninsured driving negatively affects a wide range of stakeholders including victims of accidents, insurers, gurantee funds and motor insurance policyholders. Victims of accidents caused by uninsured drivers do not receive the same treatment to obtain compensation. They have to obtain compensation from the compensation body or relevant national body. To ensure compensation of victims of uninsured driving, article 10 of the Directive therefore requires Member States to create compensation bodies, usually guarantee funds or National Green Card Bureaux. These bodies should have recovery rights against the owners of uninsured vehicles who according to the Council of Bureaux are frequently insolvent or bankrupt and unable to pay back the uninsured claims. Insurers are therefore required to contribute to compensation bodies to cover for claims. Insurers also miss out on righfully due premiums as the uninsured do not pay premiums and thus freeride on premiums paid by regular policy holders. According to the Council of Bureaux and insurance associations, the costs of uninsured driving are transferred to honest vehicle owners with compulsory motor insurance, increasing the overall level of premiums for motor insurance. Uninsured driving is a problem shared between Member States and the EU and should be tackled both at national level within a single EU Member State and at the borders. At national level, Article 3 of the MID obliges Member States to "take all appropriate measures to ensure that civil liability in respect of the use of vehicles normally based in its territory is covered by insurance". While the Directive does not prescribe which actions should be taken, Member States have the obligation to take effective action to reduce risks of unisured driving. They are allowed to conduct domestically systematic verification of MPTL insurance of registered policies, establish roadside checks and effective penalties for owners of uninsured vehicle. However, according to EREG, the current verification of unisured driving at national level often are not sufficient. Sufficient verification would require good data quality for the databases with registered cars and compulsory MTPL insurance, and sufficient exchange of information between the different authorities responsible. As a consequence, there are still significant levels of uninsured driving across the EU as shown in confidential Annex 9. In accordance with the principle of subsidiarity, to address this problem at national level, Member States with high levels of uninsured driving should therefore set up all proportionate actions to reduce levels of uninsured driving at national level by conducting sufficient road checks, prevention campaigns and exchange of information between competent authorities. At EU level, uninsured driving concerns mainly vehicles that circulate beyond the Member States where they are normally registered. It also concerns vehicles that are not registered in the Member State where they are normally based, but in another Member State, even if the MID requires mandatory registration when residing more than six months in a given Member State. However, article 4 of the MID prohibits border checks of insurance on vehicles entering the national territory, as a hindrance to free movement of vehicles in the internal market (and indirectly, of persons and goods). This affects in particular Member States with neighbouring countries with high levels of uninsured driving (see confidential Annex 9). Overall, there remains a considerable amount of vehicles circulating without motor insurance across all Member States. To address the issue of uninsured driving, new technological developments (number plate recognition technology) allow for checks without obstructing vehicles. These new tools are allowed at national level but are explictly prohibited for cross-border traffic under article 4 of the current Directive, which prohibits all checks, including those not requiring the vehicle to be stopped. In addition, such verification of insurance of cross-border vehicles could not be effective without the exchange of data between Member States, which should be done in compliance with EU data protection rules. 2.2.2. Unfair differentiation between claims history statements by insurers in cross-border cases In order to facilitate switching MPTL insurance and to avoid fraudulent benefits, the MID stipulates that Member States must ensure the policyholder has the right to request a claims history statement (article 16 of the Directive). Such information may help a policyholder to obtain a "no claims bonus" (or a better "bonus-malus" rating) with a new insurer, either in the same Member State or another Member State, thus reducing premiums.

Currently, the Directive obliges an insurer to provide such claims history information covering the last five years, and it does not stipulate what use of that information must be made by a new motor insurer. Not accepting claims history has the potential to unduly increase motor insurance premiums for mobile citizens. This topic was highlighted as a possible area for action in the 2017 Consumer Financial Services Action Plan. Insurers have underlined during the public consultation that claims history is only one factor among others (e.g. type of vehicles, level of cover) that determine the ultimate level of premiums. However, in the insurance market of some Member States, the claims history remains an important factor in determining the level of premiums. Furthermore, national systems of "bonus/malus" are different; while in some Member States there are regulatory schemes to calculate no claims discounts, others have industry standards, or insurers are fully free to determine the methodology to calculate premiums. Some insurers do not use this type of discount at all. The cross-border portability of claims history across the EU has been investigated already by EIOPA in 2013, in cooperation with Insurance Europe . EIOPA considered in a letter to the Commission of 13 March 2013 that one of the reasons for reluctance of some insurers may be lack of trust in the authenticity of claims statements originating from an insurer based in another Member State. As an outcome of the analysis then performed, Insurance Europe published 'Guidelines on information for motor insurance claims history declarations for cross-border use' , including common elements for claims history statements, aimed at facilitating the circulation of information on claims history and assessment of bonus/malus by insurers operating in two distinct national markets. The guidelines however are not binding on insurance undertakings, and incorrectly state that such statements are not obligatory. In its letter on cross-border issues in motor insurance, EIOPA highlighted that the use of claims history by insurers should not lead to cases where two consumers in the same situation are not treated equally by a given insurer. This would be the case if the claims history relating to those consumers affected the amount of premium to be paid by each of them differently, for example dependent on their previous place of residence or their previous insurer. EIOPA also pointed to shortcomings in the format of communication of data in claims history statements. In particular, the use of secured means of exchange of data between insurance undertakings could be beneficial, enabling better management of the storage and sharing of data originating from different sources and a more reliable exchange of data among market participants. Box 4: Evidence of issues with claims history statements Concerning the treatment of claims history statements when policyholders move to another Member State, there is no quantitative data on complaints or problems experienced. It is therefore difficult to quantify the dimension of the problem. However, there are a number of indications of the existence of problems in this field. In the public consultation around 70 individuals reported non-acceptance of their no-claim history statements abroad. Two respondents gave more details and reported the non-acceptance of a French and a Dutch statement, both in the UK. Other respondents to the consultation, both institutional and private, acknowledge that there is "some" problem. EIOPA conducted an analysis of this topic in 2012/2013 stating in a letter to the European Commission: "EIOPA Members indicated that some insurers may be reluctant to accept claim statements issued in another Member State due to lack of trust in the authenticity of such certificates." In a more recent letter to the European Commission EIOPA states "For the most part, it is considered to be working well in some domestic markets, although there are particular difficulties in cross-border situations in ensuring a sufficient level of portability of claims history." The Free State of Bavaria, one federal state within Germany, stated in the public consultation that in cross-border mobility cases the acceptance of no claims histories is not always effective and could as a consequence create obstacles to cross-border mobility . The Cost of Insurance Working Group of the Irish Department of Finance states in its report that only a small number of insurers is willing to accept EU no-claims statements whereby most of them accept such statements from the UK . In Germany, an insurance broker contacted many insurers asking them about the acceptance of foreign no-claims histories. At least six insurers of those who had responded stated that they do not take into account no claims histories from abroad. Among those is the insurer AllSecur, the online daughter of Allianz . Problems related to the acceptance of foreign no-claim history statements in the UK are reported by an insurance broker and an expat forum . Problems related to the acceptance of foreign no-claims history statements in Italy are mentioned in an expat forum . The UK, Germany and Italy are among the top destination countries for mobile EU citizens in the working age according to the Commission Annual Report on intra-EU Labour Mobility. The remaining gaps in the use of no-claims history statements in cross-border cases are confirmed by anecdotal evidence through complaints from citizens who move across borders. These complaints indicate that insurers do not always accept or take into account claims history statement from foreign insurers. Individuals with no accidents during the last five year would normally benefit from a "no-claims bonus" and a corresponding lower MTPL premium. However, as they move from another Member State, the no-claims history statement is sometimes not accepted by the potential insurer. Market forces based on competition between insurers seem not to solve the probem. The main reason is that for insurers, the market segment of mobile citizens who move across borders and at the same time require a new MTPL insurance, is very small when compared with the national markets. For example, in 2014, the total number of working population migrating to another Member State, only represented 0.5% of the total population living in the EU-28 and only a fraction of these citizens own a vehicle and are required to obain a new MTPL insurance in the country of destination. Insurers therefore do not specifically target this market segement and consequently, market dynamics are insufficient to overcome this hurdle. Consequently, while small compared to the total volume of motor insurance, it is harmful for those mobile citizens concerned. A different treatment of a claims history statement from a citizen whose initial insurer is based in another Member State, compared to a citizen with the same risk profile at national level, is a case of discrimination and against the fundamental principle of a single market. Such discriminatory treatment based only on the previous country of residence of the policyholder and not in other objective risk factors could make cross-border mobility less attractive, constituting a barrier to the free movement of persons.

A different treatment of a claims history statement from a citizen whose initial insurer is based in another Member State, compared to a citizen with the same risk profile at national level, is a case of discrimination and against the fundamental principle of a single market. Such discriminatory treatment based only on the previous country of residence of the policyholder and not in other objective risk factors could make cross-border mobility less attractive, constituting a barrier to the free movement of persons. 2.3 Other factors outside the scope of this impact assessment In addition to the issues outlined above, the evaluation of the MID also covered a number of other topics. In particular: (i) the scope of the directive in the light of a number of CJEU court rulings; (ii) the suitability of the Directive in the light of technological developments (electric bicycles, segways, autonomous or semi-autonomous vehicles) and on whether the liability system it provides will suit future needs; (iii),the functioning of the system of protection of visiting victims; (iv) the functioning of insurance of exported vehicles; v) the consistency of its terminology and definitions. i) Codification of rulings on scope of the Directive As outlined in the evaluation report (annex 7), there are certain specific issues concerning the consistent application of the scope of the Directive which arose in connection with a number of CJEU rulings. The question of the scope of the Directive, and the codification of recent CJEU judgements into the Directive, are also considered in detail in Annex 11. The evalution showed that certain Member States have interpreted the obligation for MTPL insurance as laid down in article 3 of the Directive as not extending to all motorised vehicles used in all locations and for all purposes. In particular, certain Member States do not impose domestically an obligation for MTPL insurance for certain uses of vehicles outside of road traffic. The uncertainty about the exact scope of the MTPL requirement as laid down in the MID was compounded by the terminology used in different language versions of the Directive. In particular, the English text refered to "the use of vehicles" as falling in the scope of the Directive, whereas the French text referred to "circulation" instead of "use". The CJEU has clarified the scope of the Directive on three successive occasions, as described in Box 10 of annex 11. In the Vnuk ruling the Court ruled that any use of the vehicle that is consistent with its normal function should be covered. In Rodrigues de Andrade , the Court ruled that "normal function of the vehicle" is to be understood to be linked with its "transport" function and not any other function that a vehicle could have (e.g. ploughing in case of a motorised plough). In Torreiro , the Court ruled that the characteristics of the terrain have no bearing to determine whether the vehicle is in "normal use" or not. This means that victims are protected in case of motor accidents, regardless of the characteristics of the property or terrain on which the accident occurred. However, the use of the vehicle in case of a motor accident should be linked to its transport function and not to any other potential function it may have. Given the inherent risks of disorderly implementation in the case of no action, and as the described issues of scope arise essentially as a result of CJEU rulings, the Commission considers it preferable to codify these rulings in order to ensure legal clarity. The codification of the CJEU rulings involves explicitly inserting the key provision of the consecutive rulings on the scope of the directive, (including VNUK, Rodriges de Andrade and Torreiro) in the Directive. This would involve an additional definition of "use of a vehicle". This would mean, as with no action, that the current material scope of the Directive remains unchanged as clarified in the CJEU's rulings on "Vnuk" and "Rodriges de Andrade" and Torreiro" and that the implementation of the rulings in national legislation would be verified by normal transposition checks. This approach would allow Member States to implement the changes implied by the rulings in an orderly and transparent fashion. Furthermore, it would provide more legal certainty for stakeholders on the scope of the MID, as the court rulings would be directly transposed into national legislation. Codification also facilitates the enforcement of EU law in this domain, as it would be accompanied by a standard transposition exercise. In addition, it would provide Member States with sufficient time to implement the Court's interpretation of the scope of the Directive. Infringement procedures would only be initiated after the transposition exercise has been finalised and only against those Member States that failed to transpose correctly. The consequences are otherwise the same as under the 'no action' approach. Enforcing the CJEU rulings directly without codification would however not guarantee the same degree of uniformity across Member States. ii) New technological developments The evaluation assessed whether the Motor Insurance Directive is suitable to deal with new technological developments such as new types of electric vehicles and autonomous vehicles. a) Electric bicycles and other types of new electric-vehicles. The evaluation (see Annex 7) demonstrated that new types of motor vehicles, such as electic bikes (e-bikes), segways, electric scooters etc, already fall within the scope of the Directive as interpreted by the Court of Justice in its case-law. The use of these new types of electric motor vehicles in traffic has the potential to cause accidents whose victims need to be protected and reimbursed swiftly. However, as part of the public consultation various associations representing the electric bike (e-bikes) industry argued that requiring third party liability insurance could undermine the uptake of e-bikes. But the current Directive already provides Member States with the power to exempt them from motor third party liability insurance. If Member States were to exempt them in this way, the national guarantee funds would bear the costs of reimbursing victims of accidents caused by these new types of vehicles. This provides the highest level of protection of victims without the need for any additional EU action. In particular, victims of accidents with such new electric vehicles exempted at national level in accordance with article 5 of the Directive would be reimbursed in accordance with the rules set out in the Motor Insurance Directive. At the same time, such new electric vehicles would not be required to have motor insurance but the costs of claims following accidents with these vehicles would be covered by the national compensation body set up for this purpose by the Member State that decided to exempt such new electric vehicles.

b) Autonomous vehicles The evaluation also showed that according to the GEAR report, a considerable uptake of autonomous and semi-autonomous vehicles can be expected. The report projects that by 2025 autonomous vehicles could represent 20 percent of global vehicles sold and estimates that there will be 44 million vehicles at global level by 2030. The evaluation shows that one positive impact of relevance for third party liability insurance is that autonomous vehicles have the potential to drastically reduce road fatalities, which currently mainly occur due to human error . Nevertheless, the evaluation also concludes that the obligation of the Directive to obtain mandatory motor third-party liability insurance also applies to autonomous or semi-autonomous vehicles. The main rationale is the continuous need to protect and compensate victims of accidents involving autonomous and semi-autonomous vehicles circulating within the EU. This is can be reasonably expected, as a number of accidents caused by autonomous and semi-autonomous vehicles have occurred, and such vehicles can cause victims of road traffic accidents personal injuries and material damage needing to be compensated. The evaluation also demonstrated that it does not matter for the purpose of the Directive whether the policyholder is also the "driver" of the vehicle". Already, for non-autonomous traditional vehicles, an accident may be caused by a driver who is neither the owner of the vehicle nor the policyholder of the motor third-party liability insurance linked to the vehicle, but still the victim of the accident may claim compensation under the Motor Insurance Directive. Consequently, for autonomous or semi-autonomous vehicles, for the purpose of the MID the absence of a driver is not relevant. The owner who has registered the vehicle is required to obtain a MTPL insurance and it is the MTPL insurance which will ensure the compensation of the victims in the event of an accident. In a second step, which falls outside the scope of the Directive, in the event of a potential deficient functioning of the self-driving car, the insurer may seek recourse against the manufacturer. iii) Protection of visitors In contrast to the Green Card system, which protects victims of accidents caused by visiting drivers the MID also provides protection for victims of an accident in countries where they are not residents (visitors). To that end, Member States must require insurers from other Member States to appoint claims representatives. The protection scheme does however not offer the same guarantees as exists within the Green Card system. Consequently, claims representatives wish to be certain of being reimbursed by an insurer before compensating a victim and usually await the advanced payment of the insurer before compensating the injured party. Therfore, in the interest of victims, it might be useful to consider the guaranteeing of compensations paid by claims representatives to injured parties. Nevertheless, this issue should be further monitored to determine the frequency and magnitude of this issue and the impact in terms of delays in reimbursement of injured parties. iv) Insurance of dispatched vehicles Article 15 of the MID on dispatched vehicles was introduced in order to help consumers find MTPL insurance for a vehicle that has to be dispatched from one Member State to another. A number of practical issues and gaps in claims handling in the event of an accident caused by a dispatched vehicle were alleged by stakeholders in the evaluation, but the extent and significance of such issues is unclear. Therefore, it should be further monitored what is the magnitude of the issue of insurance of dispatched vehicles in order to determine which would be the most appropriate approach to overcome such gaps. v) Consistency of terminology and definitions The evaluation in Annex 7 covered an assessment of the terminology and definitions of the Directive. The evaluation concluded that in a few areas it would be beneficial if some of the terminology used in the Directive were harmonised. This would however not entail any material changes to the content of the Directive. These issues are covered by the evaluation report in Annex 7 and remain out of scope of this impact assessment. Analysed in Annex 11 Problem Tree WHY SHOULD THE EU ACT? Legal Basis The legal basis of the current Directive is Article 114(1) TFEU. The Directive implements the international Green Card system in the EU, and also, by going beyond the minimum requirements of that system, achieves free movement of motor vehicles between Member States. Subsidiarity: Necessity of EU Action The Directive protects victims of accidents in EU Member States other than that of their residence, and domestic victims of an accident caused by a driver from another Member State. The measures envisaged can only be enacted at EU level, as they concern cross-border active insurers, cross-border mobile motor insurance policyholders and border insurance checks of vehicles.

Compensation of victims of traffic accidents in case of cross-border insolvency of an insurer is paramount to the smooth functioning of the single market. Uncoordinated action by means of a patchwork of voluntary frameworks and agreements cannot guarantee that victims are duly compensated and that risks are equally shared among Member States. A level playing field across all Member States in terms of minimum amounts of cover to ensure an equal minimum protection of victims of traffic accidents across the EU cannot be achieved by uncoordinated action. Addressing uninsured driving in cases of cross-border traffic cannot be achieved by action at national level. Finally, ensuring equal treatment of claims history statements by insurers for prospective policyholders moving across borders cannot be achieved by uncoordinated action. Subsidiarity: Added value of EU Action The MID regulates cross-border use and cover of MTPL insurance, seeks to ensure the free movement of persons and vehicles across borders and at the same time seeks to ensure a comparable level of protection of victims of traffic accidents. Only action at EU level can ensure the protection of victims in case of cross-border accidents involving an insolvent insurer. Only EU action can ensure a uniform application of the scope of the Directive and enforce the insurance obligation. Furthermore, only EU action can set harmonised minimum standards of protection of victims when moving across borders. Only EU action can ensure the harmonisation of claims history statements across the EU and ensure non-discriminatory treatment of prospective policyholders moving across borders. General and specific objectives Any initiative revising the MID should reinforce the general objectives of the MID which aim to ensure a high level of protection of victims of traffic accidents and ensure the free movement of persons and goods across the EU. These general objectives can be broken down into the following, more specific objectives: Problems Specific objectives Unequal protection of injured parties across Member States in certain circumstances (e.g. insolvency of the insurer). Ensure a high level of protection for victims of motor vehicle accidents (even in case of insolvency of the insurer) Differential treatment and freeriding behaviour negatively affecting policyholders, especially in a cross-border context Ensure fair treatment of policyholders across the EU (in particular when changing Member State of residence). Consistency of the objectives with other EU policies The Motor Insurance Directive supports the main objectives of the internal market, in particular the free movement of persons and goods, which are fundamental freedoms of the European Union. It is also consistent with the principles of the internal market ensuring the free provision of services and free establishment by insurers. The proposed changes to the current Directive are also consistent with the rules on data protection ensuring the appropriate collection and treatment of data for the purpose of law enforcement, permissible within the framework of the Directive. A further assessment of data protection can be found in Section 4.4 (under "option 2"). Consistency of the objectives with fundamental rights The EU is committed to high standards of protection of fundamental rights and is signatory to a broad set of conventions on human rights. In this context, the proposed amendments are not likely to have a direct impact on these rights, as listed in the main United Nations conventions on human rights, the Charter of Fundamental Rights of the European Union which is an integral part of the EU Treaties, and the European Convention on Human Rights ('ECHR'). WHAT ARE THE POLICY OPTIONS AND THEIR IMPACTS AND HOW DO THEY COMPARE?

This section describes for each policy area, the available policy options, their impacts and compares the different options. What is the baseline scenario? Under the baseline scenario, no action is taken in any of the policy areas. Under the baseline, in a case of insolvency of an insurer, there would be no binding EU measure to guarantee the initial payment of the claim to the victim nor to determine the ultimate responsibility for the claim in case of insolvency of the insurer, both for domestic insolvencies and for cross-border insolvencies or accidents with a cross-border dimension where the liable party has an insolvent insurer. This implies that victims have less protection in case of insolvency of the insurer as compared to accidents involving an uninsured driver or untraceable driver, which are covered by the compensation bodies set up in Article 10 of the Directive. It would remain determined at national level if insolvency of a domestic insurer is covered by a guarantee fund or not. If a body has been set up at national level, this will ensure initial and ultimate compensation of claims affecting victims in case of insolvency of a domestic insurer, possibly with levels of compensation below the minimum amounts of the MID. For cases with a cross-border element, the situation described in Section 2.1.1. would continue to apply. For such cases, the existing incomplete patchwork of voluntary agreements (described in Annex 10) would apply. As outlined in Section 2.1.1, in cases of insolvencies involving a Member State not signatory to the agreement, victims would continue to face delays in payment due to legal proceedings, or claims might be reimbursed at lower levels (determined at national level) as compared to the minimum levels of covers set out in the MID. Furthermore, as a consequence of the baseline scenario, the body which carries out the initial compensation may find itself in financial difficulties, or contributions to a guarantee fund in the host Member State may need to be increased, triggering increases in premiums for all policyholders in that Member State (this happened in Ireland after the Setanta failure and other cross-border failures). For those Member States that are not signatories to the agreements, the initial compensation and the ultimate responsibility for compensation may differ depending on the guarantee fund to which a cross-border active insurer contributes. This in turn depends on whether a host Member State makes use of its right under article 189 of Solvency II to require a contribution to the national guarantee scheme. Under the baseline scenario of current legislation, minimum amounts of cover would continue to be unequal across Member States. In some Member States, minimum amounts of cover for personal injury would be below €1 220 000 per victim or €6 070 000 per claim and below €1 220 000 per claim for material damage (the amounts which apply in most Member States). This divergence would continue to exist due to the transition periods that some Member States benefited from. Though these transition periods have ended they continue to affect the actual level of minimum amounts of cover which are consequently lower for a number of Member States (as the five-yearly revision period only starts from the end of the transitional period, giving different revision dates in different Member States). In addition to the fact that the adaptation procedure for updating minimum amounts to take into account inflation fails to set the same calendar to update minimum amounts in all Member States, it also lacks legal certainty. There is no legally binding act embodying the revised minimum amounts, making it difficult to enforce the new amounts. As a consequence, victims in different Member States do not have the same degree of minimum protection envisaged by the Directive, as outlined in Section 2.1.2. This means that victims of accidents can have a different minimum level of protection depending on where the vehicle is normally based. Under the baseline scenario of current legislation, the minimum amounts of cover would continue to apply irrespective of the type of vehicle. Therefore, an accident caused by a vehicle with a capacity of four passenger places would have the same minimum amount as an accident caused by a bus with a capacity of 50 passenger places or an accident with a heavy truck of more than 7.5 tonnes. In some circumstances with accidents involving a high number of victims, or a high amount of material damage, the costs of claims could be higher than the regulatory minimum amounts covered. Some Member States have acknowledged this by setting minimum amounts of cover have higher than those laid down in the Directive, thus providing for a higher level of protection. Under the baseline scenario, detecting uninsured driving deriving from cross-border traffic will remain difficult. This results from the prohibition within the Directive of all systematic insurance checks on borders. Under the baseline scenario, in accordance with article 4 of the Directive, Member States "may only carry out non-systematic checks on insurance provided that those checks are not discriminatory and are carried out as part of a control which is not aimed exclusively at insurance verification". Domestically, away from national borders, systematic insurance checks remain possible but limited to vehicles registered in the Member State where the insurance checks are undertaken. As a positive consequence, the free movement of people goods and services within the EU without border checks, one of the fundamental freedoms under the Treaty, would continue to be ensured. Border checks or other systematic checks to verify whether the vehicle has MTPL insurance would remain prohibited. However as a negative consequence, uninsured driving of vehicles registered in another Member State, entering the territory of a Member State other than where they are normally based, would remain largely undetected. The resulting problem of uninsured cross-border traffic is aggravated as significant differences in the levels of uninsured driving at national level exist, ranging from less than 1 percent of circulating vehicles in some Member States to more than 7 percent in others as shown in confidential Annex 9. Therefore, specifically Member States bordering Member States with high levels of uninsured driving might face a larger number of accidents with uninsured drivers. This directly affects the cost of claims to be covered by guarantee funds. As insurers are responsible for the contributions to the guarantee funds, they face higher costs in turn. A certain proportion of these costs are passed on to policyholders, depending on the level of competition between insurers. Under the baseline scenario, Member States would continue to lack effective tools to detect uninsured drivers resulting from cross-border traffic. Under the baseline scenario, the cost of claims following accidents caused by uninsured vehicles, including in a cross-border context, would continue to place a financial burden on Article 10 compensation bodies, passed on to all MTPL policyholders via a levy on MTPL policies. The current annual claims deriving from uninsured cross-border driving, estimated to lie in the range of EUR 835-870 million , would continue to exist. Under the baseline scenario, no action is taken on the acceptance of claims history statements and the existing obligation of the Directive, requiring insurers to provide a claims history statement for the last 5 years to policyholders, continues to apply. Upon request of a policyholder, an insurer must provide claims history information covering the last five years of the contractual relationship. However under the baseline scenario, there is no harmonisation of such statements and no obligation about how that information must be taken into account by a new motor insurer. Therefore, some citizens moving across borders may continue to face difficulties to have their claims history accepted by a new insurer in another Member State. This reluctance to take into account claims history from a foreign insurer could result from the absence of a common format of claims history statements, which may cause distrust of the authenticity of a statement by a new prospective insurer in another Member State. Furthermore, the existing and distinct national sytems of claims history statements and no claims bonuses would continue to exist. In some Member States there are specific rules on how to taken into account claims history when calculating premiums, while in other Member States this remains unregulated. Under the baseline, insurers could, on a voluntary basis, continue to make use of the very minimal guidelines (one-page) on claims history statements from Insurance Europe, an industry assocation of insurers, as shown in Annex 6. As a consequence, under the baseline, there is no common uniform claims history statement that insurers can use as part of the assessment to calculate premiums. This may continue to raise concerns for insurers as regards the authenticity of statements coming from a insurer in another Member State, leading to reluctance of insurers to take into account such statements issued by a foreign insurer. Under the baseline, competitive market forces between insurers are not expected to solve the problem, as the market segment for mobile citizens moving across borders who require a new motor insurance will remain small as compared to national markets and not specifically targeted by insurers. According to Eurostat , in 2015, a little under 11.3 million EU-28 citizens and 168,000 EFTA citizens of working age (20-64) were residing in a Member State other than their country of citizenship, totalling some 11,434,000 people. In 2014, 1,692,000 working-age nationals immigrated to an EU-28 Member State. This represents approximately 0.55% of the total working-age population living in the EU-28 which is expected to remain relatively stable in the following years. It can be expected that only working age nationals moving across borders would require a new motor insurance in the new Member State in case they own a motor vehicle, which they are required to register and insure in the new Member State within six months. Although there is no data on the exact number of mobile citizens requiring a new motor insurance, it can be reasonably expected that only a fraction of the annual flow of mobile workers has a vehicle and would require a new motor insurance. Failure to take the claims history statement from a foreign insurer into account, as compared to a domestic client, without a valid reason, is discriminatory. For EU citizens relocating across-borders, this could continue to unduly lead to higher premiums in so far as claims history remains an important factor to determine premiums by insurers in many Member States. Policy options addressing insolvency of the insurer 1.Baseline scenario Under the baseline scenario no action is taken and there are no EU rules stipulating who is responsible for the initial payment of the victim or the ultimate responsibility for the claim. Where available national rules apply for domestic insolvencies, and for cross-border insolvencies an incomplete patchwork of voluntary agreements applies. 2. "Front office option": set out rules on initial compensation of victims in case of insolvency of an insurer. Under this option Member States would be required to designate a body tasked with initial compensation of the victim of an accident resident on their territory where the insurer is insolvent. The ultimate responsibility for the claim remains undetermined in EU legislation. This option is referred to as the "front office option". 3. "Front and back-office option": in addition to option 2, set out rules on ultimate responsibility of claims in case of insolvency of an insurer This option would not only determine responsibility for the initial compensation of the victim but also the ultimate responsibility for the claim. This option can be referred to as a "front and back office" option.

For cases of insolvency or winding-up of an insurer a distinction should be made between: 1) the body which takes care of the initial compensation of the victim (front office) and the body which is ultimately responsible for the payment of the claim (back office). While the scenarios as regards the "front office" vary depending on the residence of the liable driver and the victim, for the "back office "the key issue is to determine whether it is the home or host Member State of the cross-border insurer which bears ultimate responsibility for compensation. 2) accidents with a cross-border element and insolvencies with a cross-border element as outlined in Table 8 and 9 of Annex 7. Option 2: Front office option: require that Member States designate a body tasked with initial compensation of the victim of an accident, resident on their territory, in cases where the insurer is insolvent. Description This option would require Member States to designate a body tasked with initial compensation of the victim of an accident, resident on their territory, where the insurer is insolvent or is in winding-up. Member States could designate the existing motor guarantee fund set up to meet costs arising from accidents caused by uninsured or untraceable vehicles (MID Article 10, compensation bodies) or a different body. To ensure an even protection of victims throughout the EU, this option would cover accidents involving a cross-border insurer and also cover insolvency of a domestic insurer irrespective of the residence of the driver or the victim. In case of accidents with a cross-border dimension involving an insolvent insurer, this option would require a body in the Member State of residence of the policyholder to pay the initial compensation. However this option would leave the ultimate financial responsibility for the claim (back-office) unresolved in EU legislation. In case of accidents with a cross-border element, this would mean that existing voluntary agreements would be used where they are applicable. Consequences This option would ensure that throughout the EU, the initial compensation of a victim is guaranteed in case of insolvency of an insurer, both for accidents with a cross-border element and for purely domestic accidents. Therefore, in cases of insolvency of an insurer, both for domestic accidents and accidents with a cross-border element, victims would be protected in accordance with the requirements set out in the MID. This implies that the compensation would be undertaken by the body designated at national level and with the timeframe and minimum amounts of cover set out in the MID. As a consequence, cases of insolvency of an insurer would result in the same protection of victims as compared to uninsured or untraceable vehicles currently laid down by the Directive. At domestic level, this would ensure that in one Member State where there is currently no body designated to act in case of insolvency, such a body would be designated. For other Member States which already have national legislation on the insolvency of a domestic insurer, this would imply that the minimum amounts of cover laid down in the MID would apply. Compensation of the victim would be ensured in principle by a body in the Member State of residence of the victim of an accident (usually, but not always, the Member State where the accident takes place). However, in this scenario the ultimate responsibility for compensation would remain unresolved. If the two Member States concerned participate in a voluntary agreement, the rules of the voluntary agreement would apply. In the absence of an applicable voluntary agreement, it would be uncertain who would bear the ultimate cost of the claim, which may lead to court proceedings (as was the case in the failure of Setanta – see Box 3). In that context the host Member State already has the power provided in article 189 of Solvency II to impose contributions on the cross-border insurer. Assessment The mandatory creation of a "front office" to reimburse victims in case of an insolvent insurer would contribute to a high level of protection of victims in case of insolvency of an insurer in all EU Member States, both for domestic accidents and for accidents with a cross-border element. Victims would have the same protection as compared with accidents involving uninsured or untraced vehicles, which are already covered by the Directive. Compared with the current patchwork of voluntary agreements, this would also enhance legal certainty for victims and ensure the same level of protection across the EU. As the ultimate payment of the claim would remain unsettled, this option would still leave a key role for existing incomplete voluntary agreements in the event of accidents with a cross-border element. Therefore in cases where one or more Member States do not participate in such an agreement it would remain uncertain whether the body which carries out the initial compensation will ultimately obtain reimbursement from a body in the Member State where the insurer is established. If such reimbursement is not obtained, it can be expected that Member States would make use of their option under Article 189 of Solvency II, as regards motor insurers from other Member States, and may start requiring contributions from insurers which provide services on their territory to cover the cost of potential initial compensations due to insolvency of the insurer. Option 3: Front and back-office option: in addition to option 2, also stipulate the ultimate responsibility for compensation of the victim of a cross-border accident where the insurer is insolvent. Description This option would mandate the front- and back-office responsibility in case of insolvency of the insurer. It would include option 2 as regards the initial compensation of the victim (front office) which should be undertaken by a national compensation fund or another body of the Member State of residence of the victim. In addition, this option would also determine which Member State should bear ultimate financial responsibility for the claim (back office).

To determine the ultimate responsibility for the claim (back office), two distinct approaches could be considered: ·Sub-option A: Home Member State Approach Under this sub-option, the Directive would stipulate that the body that bears the final responsibility is in the Member State of establishment of the insurer providing policies on an freedom of services or freedom of establishment basis (Home Member State). The insurer would be required to contribute to the guarantee fund of the Home Member State in case of its potential insolvency. ·Sub-option B: Host Member State Approach Under this sub-option, the Directive would oblige designation of a body in the Member State in which the insurer is providing services or has a branch (Host Member State). The insurer would logically be required to contribute to the guarantee fund of the Host Member State in case of its potential insolvency, using the powers in article 189 of Solvency II. Consequences Under this option, rules would clearly set out responsibilities for both initial compensation of claims and ultimate responsibility. Like option 2, option 3 would ensure a high level of protection of victims. Victims would have the same protection in cases of insolvency of an insurer as compared to cases of accidents involving uninsured or untraced vehicles, which are already covered by the Directive. In addition, this option would determine the allocation of the ultimate cost of claims in case of insolvency of an insurer operating on a cross-border basis. This option would effectively replace the existing patchwork of voluntary agreements with limited territorial scope, with mandatory EU rules ensuring an EU-wide coverage. In comparison with the voluntary agreements, it would not allow Member States to unilaterally withdraw from obligations, negotiate opt-outs or set limitations on the timing or coverage of claims at national level below the standards set at EU level. This option would replace the existing voluntary agreements and render them without object. Option 3 (front and back office) would ensure a high level of protection of victims.

As with option 2, in all EU Member States there would be a body mandated with the initial compensation of victims, both for domestic insolvencies and for insolvencies with a cross-border aspect. In addition, option 3 would determine the ultimate responsibility of the claim and would provide legal certainty. It would determine which body is ultimately responsible to bear the cost of claims for all possible scenarios outlined in table 8 and table 9 of Annex 7. Given the existing voluntary agreements, which allocate responsibility to a body in the Home Member State, sub-option A would require fewer changes to current arrangements for many Member State which participate in such agreements. It would require changes mainly for those Member States which are not signatories of the voluntary agreements or have retracted or have opt-outs or derogations. Sub-option A (Option 3) would be coherent with the system of financial supervision already in place through the Solvency II Directive, based on the Home Member State principle. It would also incentivise the home Member State authorities to carry out strong prudential supervision, which is not necessarily currently the case if an insurer has little or no activity in its home Member State. Comparison of the attributes of the options: Effectiveness Efficiency Option Compensation of victim Ultimate Settlement of Claims Overall cost of the system Option 1 No Actions ·Place of accident/residence of the victim ·Determined by voluntary agreements. ·No EU wide scope ·Determined by voluntary agreements. ·No EU wide scope ·Possible litigation for initial payment ·Possible litigation for Option 2 Set out rules on initial compensation of victims. ·Residence of the victim. ·EU-wide scope ·Determined by voluntary agreements. ·No EU-wide scope ·No litigation for initial payment ·Possible litigation for ultimate settlement Option 3 In addition to option 2 set out rules on ultimate compensation of victims. ·Residence of the victim. ·EU-wide scope ·Home Member States of the insurer or Host Member State ·EU-wide scope ·No litigation for initial payment ·No litigation for final payment Under the baseline scenario, there would be no EU rules in case of insolvency of an insurer. Therefore for domestic insolvencies, existing national rules in all but one Member State would continue to apply. For insolvency cases with a cross-border element, the current patchwork of voluntary agreements would continue to apply. The voluntary agreements do not involve all EU Member States and do not require compensating victims in full, and therefore entail a lower level of protection compared to cases of accidents for uninsured or untraceable vehicles under the current Directive. Member States can also withdraw at any time unilaterally from the voluntary agreements. Furthermore, in case of an accident involving a "visiting victim", it is more complicated and burdensome to obtain compensation of claims. Visiting victims are currently required to claim compensation from the compensation body of the Member State of the accident and not the Member State of their residence. In the absence of an applicable voluntary agreement, there is also no clarity on who is ultimately responsible for the payment of the claims, which opens scope for litigation/arbitration, causing delay of compensation. Evidence shows that recent insolvency cases involved also Member States which are not signatories of one of the voluntary agreements. Those cases also show that it can take several years for court cases to finally determine which body should ultimately compensate the victim . Compared to the baseline scenario, option 2 would provide for a higher level of legal certainty and better protection of victims. In cases of insolvency of an insurer, for both domestic cases and cases with a cross-border element, this option would mandate that the compensation body of the residence of the victim must pay out the victim in the first place (front office). As a consequence the compensation of the victim would be undertaken within a define timeframe and respect the minimum amounts of cover laid down in the Directive. In some cases, this would mean that victims would be compensated with a higher amount in comparison with the baseline scenario, where the determined level of compensation by guarantee bodies is left to the Member States. Option 2 is coherent with the objective of the Directive to ensure a swift compensation of victims. The mandatory determination of the front office would however not deal with which authority is ultimately responsible for the settlement of claims and possibly situated in another Member State. Therefore it would remain unclear from which other body the front office compensating body can obtain recourse. Furthermore, in the absence of defined rules on the body ultimately responsible for the final settlement of the claims, there would be room for litigation, generating additional costs and delays in the ultimate settlement of the insolvency case. Option 3 would create the same level of protection of victims and at the same time achieve a higher overall level of legal certainty for compensation bodies. This option would not only determine the body which initially pays the claim, but also the body that would ultimately pay for the claim (front office and back office). This option would ensure a smooth process to reimburse victims and settle the claim, leaving less scope for litigation as compared to option 2. This option therefore provides for a more coherent process for the compensation of claims in case of insolvency of the insurer as compared to option 2.

Option 3 sub option A (the Home Member State principle) would be coherent with the financial supervision framework in Solvency II and with the current system already in place through the voluntary agreements of the CoB. Consequently, the required changes and impact of the implementation of this approach would be lower as compare to sub-option B. Sub-option B (Host Member State responsibility) would require changes for a majority of Member States, and would also stimulate host Member States to use their right under article 189 of Solvency II to require contributions from cross-border insurers to their guarantee fund, which could deter cross-border activity and work against the single market. Therefore, Option 3 Sub-option A is the preferred option. EFFECTIVENESS EFFICIENCY (cost-effectiveness) Coherence Score Objectives Policy option . Objective 1 Ensure high level of protection for victims of motor vehicle accidents Objective 2 Ensure fair treatment of policyholders across the EU Option 1 No Action 0 n.a. 0 0 0 Option 2 Set out rules on initial compensation of victims. + n.a. + + 3 Option 3 In addition to option 2 set out rules on ultimate compensation of victims. + n.a. ++ ++ 5 Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable Impact on stakeholders Victims Insurers National compensation bodies Policyholders of motor insurance Option 1 No policy change 0 0 0 0 Option 2 Set out rules on initial compensation of victims. ↑ ↑ ↑ ↑ Option 3 In addition to option 2 set out rules on ultimate compensation of victims. ↑ ↑↑ ↑↑ ↑↑ Magnitude of impact on stakeholder: ↑ positive, ↑↑ strongly positively, ≈ marginal/ neutral, ↓ negative, ↓↓ strongly negatively affects stakeholder. Options 2 and option 3 are equally beneficial for victims as they set rules on initial compensation beneficial for victims, ensuring a swifter compensation of the victim. Furthermore, by determining the place of residence as the location where victims can submit claims, the procedure to obtain compensation is facilitated, removing potential language and other barriers. For insurers, national compensation bodies and policyholders of motor insurance, option 3 is more beneficial than option 2 as it provides legal certainty on the initial and ultimate settlement of claims, reducing the need for legal proceedings. Given that the system already in place though voluntary agreements follows the Home Member State approach, the impact and required changes to implement the Home Member State approach across all Member States (sub-option A) would be lower as compared to the Host Member State Approach (sub-option B). Therefore, sub-option A is the preferred option. Policy options to ensure that minimum amounts of cover are equal across the EU In addition to the baseline scenario, two additional options to determine minimum amounts of cover are considered. A second option (after the baseline) sets the minimum amounts equal at EU level from now on at the highest level currently applying in EU Member States, and the third option allows for extending the minimum amounts for accidents with vehicles with a large number of passengers (e.g. buses). The option of maximum harmonisation of minimum amounts is not considered, as being detrimental to victim protection by requiring reductions of amounts of cover in certain Member States. 1. Baseline scenario Existing diverging minimum amounts remain as they are and as a result of a former transition period, not all minimum amounts are the same in all Member States. Process and timing of updating minimum amounts remains a complex process. 2. Harmonise minimum amounts, and amend the procedure and timing of the periodic revision of minimum amounts. Harmonised dates for adaptation of minimum amounts and streamlining of the process of updating minimum amounts ensuring that minimum amounts are the same at all times across all Member States. Member States keep the flexibility to set higher minimum amounts at national level. 3. Introduce distinct minimum amounts for certain types of vehicles The minimum amount for personal transport vehicles could be left as at present or amended upwards. Certain vehicles, e.g. buses, heavy trucks, could have higher minimum amounts of cover. Options 2 and 3 can be combined. Option 2: Ensure that minimum amounts are equal across all Member States. Description This option would ensure that minimum amounts of cover are set at all times equal across all Member States, ensuring that victims benefit from the same minimum standard of protection in terms of compensation. In comparison with the baseline scenario, this option would also introduce a clearer adaptation method and timing for setting the minimum amounts of cover. It would set a uniform calendar and clear deadlines for adaptation of minimum amounts to adjust to inflation. This option would remove any remaining effects of transition periods. It would continue to allow Member States to set higher minimum amounts of cover at national level if they consider it appropriate. Consequences As a consequence of this option, the minimum amounts of cover would be in all EU Member States at all time the same or higher than those prescribed in the Directive, with no more transitional periods or derogations for Member States. For personal injury, the minimum amounts of cover would be set, for all Member States, at the levels currently applying in Member States which had no transition period: €1 220 000 per victim or €6 070 000 per claim, whatever the number of victims; and in the case of material damage, €1 220 000 per claim, whatever the number of victims . Minimum amounts would be adapted in all Member States at the same time every 5 years to take inflation into account. This option would remove any remaining effects of transitional periods that some Member States have benefitted from. Those Member States which benefited from transitional periods would have to increase their minimum amounts applicable . Assessment Under this option the minimum protection of victims would be guaranteed at EU level by a common minimum standard set in the Directive, achieving the objective of ensuring a high level of protection across all Member States. Furthermore, this option would allow Member States to determine an even higher level of protection if necessary and appropriate, creating an even higher level of protection for their citizens.

In those Member States where the minimum amounts are currently lower than the amounts set in the MID, this option could potentially raise the premiums of MTPL insurance, as the amount covered by the insurance would need to be increased. However, as explained further in section 6 on macro-impacts, the minimum amounts of cover are only one factor among others that determine insurance premiums. Minimum amounts only have any effect in very severe accidents. Therefore price increases for MTPL premiums should be limited. The benefits of uniform minimum protection of victims consequently outweigh the potential increase in motor premiums in some Member States. Moreover, the intention of the legislator in the current directive was that the transition periods, and consequently the distinct minimum amounts would disappear over time; the fact that this is not the case seems to be due to drafting oversight rather than the will of the legislator. Option 3: Introduce distinct minimum amounts for certain types of vehicles. Description Accidents with certain vehicles, e.g. buses, coaches or heavy trucks may have the potential to injure a large number of persons or create more material damage. Therefore, under this option, a higher minimum amount of cover would be required for certain large vehicles. In particular certain vehicles, for example buses or coaches with more than 10 places or heavy trucks over 10 tonnes, would have higher minimum amounts of cover than the current levels. For other personal transport vehicles minimum amounts would remain as at present. Consequences This option would provide for a higher level of protections of victims in case of accidents with certain types of vehicles such as buses, coaches and trucks if the total cost of claims would exceed the current minimum amounts of cover in the directive. This is relevant in all Member States with the exception of those (BE, DE, DK, FI, IE, LU, SE, SK, UK) which impose minimum amounts well above the levels set out in the Directive for all types of vehicles. However, some stakeholders (insurers, public authorities) in some Member States have highlighted that increasing minimum amounts of cover could entail negative consequences, as the overall level of premiums of MTPL insurance could increase. Nevertheless, evidence from premiums in Member States with unlimited amount of cover for personal damage implies that this risk would not necessarily materialise. Furthermore, data from Insurance Europe on premiums across Member States show that levels of premiums vary not only because of different minimum amounts of cover, but due to a wider range of factors, and consequently minimum amounts of cover have possibly only a limited impact on MTPL premiums. If this option were chosen, further work would be needed to determine what would be the amount to cover for personal injury and material damage. It should also be determined which types of vehicles would be subject to this provision. Assessment This option would contribute to the objective of protecting victims of accidents involving buses and heavy goods vehicles involving personal injury or material damage beyond the minimum amounts of cover currently laid down in the Directive. This could potentially be beneficial in all Member States with the exception of BE, DE, DK, FI, IE, LU, SE, SK, UK, which have already considerably higher minimum amounts of cover for all types of vehicles. It could be reasonably expected that accidents involving buses or coaches or heavy goods vehicles have a higher level of risk or result in high levels of damage. A recent study shows that the cost of a motor accident can be divided into casualty-related costs (medical costs, production loss, human costs and some other costs) and "crash related" costs (property damage, administrative costs and some other costs), As a consequence, a high cost of claims may depend on a number of factors which are aggravated in case of accidents with buses and coaches or heavy goods vehicles. In particular, accidents caused by buses often entail the risk of higher numbers of victims, as shown by the examples in section 2.1.2. In case of accidents caused by heavy goods vehicles such as lorries, the cost of claims may be higher due to higher levels of material damage, and could include environmental damage. However, a majority of stakeholders and of Member States were opposed to differentiating the minimum amounts of cover depending on the type of vehicle . Their rationale is that the amount of damage to persons caused in an accident is not necessarily correlated to the type of vehicle which causes the accident. In particular a regular personal motor vehicle could cause an accident resulting in significant numbers of victims. For example an accident of a car colliding with a bus could result in many personal injuries and significant material damage, the compensation of which would go well beyond the minimum amounts of cover; the personal car would be liable for this. Comparison of policy options Option 2 would achieve a higher level of protection of victims than the baseline as it would set all minimum amounts of cover equal at all times across the EU, removing the existing difference of minimum amounts of cover, and requiring certain member States to increase their current minimum amounts. Option 3, which would increase minimum amounts for certain types of vehicles, would provide an even higher level of protection of victims, while the magnitude would depend on the design of the measure. This measure could also reduce the discrepancies in minimum amounts of cover between Member States, as some have set minimum amounts at a higher level for all types of vehicles. On the downside, this option could increase insurance premiums for these types of vehicles depending on the actual calibration of the measure; consequently, this could increase costs for transportation firms. For example, the minimum amounts of cover for buses could depend on the capacity of passengers, and for each additional passenger there could be an additional EUR 1 Million of protection for personal injury. This compares to a regular passenger vehicle with a capacity up to 7 passengers covered by the current directive at EUR 6 Million. Both option 2 and 3 would be coherent with the objectives of the Directive to ensure free circulation of people and provide a high level of protection of victims. EFFECTIVENESS EFFICIENCY (cost-effectiveness) Coherence Score Objectives Policy option . Objective 1 Ensure high level of protection for victims of motor vehicle accidents Objective 2 Ensure fair treatment of policyholders across the EU Option 1 No policy change 0 0 0 0 0 Option 2 Set minimum amounts equal + + + + 4 Option 3 Set minimum amounts higher for certain vehicles. ++ + -/? + 3 Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable

Impact on stakeholders For victims of motor accidents both option 2 and option 3 are beneficial. The additional level of protection of victims under option 3 would depend on the actual calibration of the minimum amount. In Member States which already have higher minimum amounts of cover for all types of vehicles, there would be little or no change. For insurers and national compensation bodies, higher minimum amounts of cover would have a neutral effect, since any extra costs could be passed on to policyholders in the form of increased premiums. However, option 2 would lead to limited changes in the level of minimum amounts of cover (an increase of maximum 21%, see annex 3), and only in a limited set of Member States. Option 3 could affect insurance premiums for buses, coaches or heavy goods vehicles as insurers would need to provide for higher cover in case of accidents with these vehicles. However, evidence from Member States with higher minimum amounts show that increases would be low/moderate, as the frequency of occurrence of these types of accidents is low. Furthermore, the price of premiums depends on multiple factors as outlined in section 5.2. For policyholders of motor insurance, both options 2 and 3 could affect the level of premiums at national level to some extent in some Member States. As option 2 consists of an alignment of Member States to the current higher minimum amount for all types of vehicles, provided for in the directive, the increase in minimum amounts is limited (see section 5.2). Consequently, the expected increases in premiums for policyholders of all types of vehicles would be limited. Option 3 would most likely affect MTPL premiums for coaches buses and heavy goods vehicles, as the cover would increase. The actual impact of option 3 on premiums would depend on the calibration of the measure for these vehicles. MTPL premiums for regular motor vehicles would remain unchanged. Victims Insurers National compensation bodies Policyholders of motor insurance Option 1 No policy change 0 0 0 0 Option 2 Set minimum amounts equal ↑ ↓ ↓ ↓ Option 3 Set minimum amounts higher for certain vehicles. ↑↑ ↓↓ ↓↓ ↓↓ Magnitude of impact on stakeholder: ↑ positive, ↑↑ strongly positively, ≈ marginal/ neutral, ↓ negative, ↓↓ strongly negatively affects stakeholder. During the consultation, there was broad support for option 2 from all stakeholder groups including consumer associations, insurers and public authorities, on the grounds that minimum protection of victims of motor accidents should be the same across the EU. As regards option 3, consumer associations favoured a general increase of minimum amounts (instead of a differentiated approach for certain vehicles), but only if this would not lead to increases in premiums. Insurers in general considered that there was no need to make a distinction between types of vehicles as there is no direct link between the vehicle responsible for the accident and the size of resulting claims. Public authorities have differing positions: most do not seem to favour a differentiation between types of vehicles as proposed in option 3. Some Member States with higher minimum amounts of cover would favour an overall increase of the minimum amount of cover (which would affect other member States only). A few Member States have highlighted concerns about the probability of increases in premiums if minimum amounts were to increase. Option 2 is the preferred option as it ensures equal minimum protection of victims across the EU and at the same time the impact on premiums would be limited. Furthermore it has the broadest stakeholder support. Furthermore, option 2 provides flexibility to Member States to set higher minimum amounts of cover if they would consider it necessary for accidents with claims above the minimum amounts currently foreseen in the Directive. The impact of option 3 on MTPL premiums would depend on the actual calibration of the measure.