Opinion of the Economic and Social Committee on 'Consumers in the insurance market'
Date: 1998-01-29
Institutions: European Economic and Social Committee
Subjects: approximation of laws, consumer protection, insurance, insurance law, single market

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producer cannot be identified, each supplier of the
product can be treated as its producer.

developments (such as genetically modified organisms)
can be insured.

3.6.
The Committee is also of the opinion that the
proposed directive should not impose additional burdens
on the producers involved. Furthermore, experience
with the working of Directive 85/374/EEC suggests that
the proposal is unlikely to lead to a substantial rise in
either the number of complaints or the level of insurance
premiums.

The Committee is of the opinion that, following
3.7.
the adoption of this proposal, there ought to be an
overall examination of the system set out in Directive
85/374/EEC in the light of the current state of Com-
munity law and the reports on its implementation.

3.7.1.
The overall examination should take the form
of a green paper, so that representatives of social and
economic activity may be consulted.

The Committee urges the Commission to
3.6.1.
ensure, when drawing Community legislation in the
field of insurance, that new risks arising from market

The examination should focus especially on
3.7.2.
the burden of proof, development risks, economic
ceilings, and time limits for certain products.

Brussels, 29 January 1998.

The President

of the Economic and Social Committee

Tom JENKINS

Opinion of the Economic and Social Committee on ‘Consumers in the insurance market’

(98/C 95/18)

On 20 March 1997 the Economic and Social Committee, acting under the third paragraph of
Rule 23 of its Rules of Procedure, decided to draw up an opinion on ‘Consumers in the
insurance market’.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing
the Committee’s work on the subject, adopted its opinion on 7 January 1998. The rapporteur
was Mr Ataı´de Ferreira.

At its 351st plenary session (meeting of 29 January 1998), the Economic and Social Committee
adopted the following opinion by 77 votes in favour and three abstentions.

1.

Introduction: scope of the opinion

The importance of insurance in general economic
1.1.
activity in the single market is well recognized;
it
accounts for a substantial proportion of the volume of
trade in financial services and a very high percentage of
employment in the sector.

1.2.
Furthermore, in today’s world where technologi-
cal progress entails an inevitable increase in risks and
changes in the concept of fault for the definition of third
party liability, the insurance industry is playing an
increasingly important role in society.

Moreover, in the insurance sector the introduction of
the euro is inevitably leading to new developments,
marked in particular by greater transparency and easier
subscription of cross-border contracts.

The demographic explosion associated with an
1.3.
ageing population, combined with the need for security
which goes hand in hand with the inherently vulnerable
nature of human existence, serves to intensify growing
concern about the future. From this viewpoint, insurance
constitutes an undeniable instrument for redistributing
and spreading risks across society; it is moreover a

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consequence of freer competition and the growing role
of private initiative in the economy.

genuine single market in this field, as pointed out in a
number of Commission and Committee documents (3).

There are many different types of insurance
1.4.
which are of special interest to consumers, either as
policyholders or insured parties, or as third parties
potentially entitled to compensation in the event of a
claim (third party/beneficiary or third party/victim).
Prominent within these two categories are health and
life insurance, insurance for personal accident, compre-
hensive household insurance, car insurance, legal protec-
tion insurance and third party liability insurance (1).

Under the plan to build the single market, the
1.5.
thrust of Community legislation has been to grant
more and more freedom of establishment to insurance
companies, with their legal regulation being based on
the supervision of solvency, accounting harmonization,
and the principles of home-country control, mutual
recognition, minimum harmonization and the ‘passive’
freedom to provide services.

1.6. On the other hand, harmonization of substantive
insurance law (principally the standardization of poli-
cies’ general conditions) and policyholders’ freedom of
choice (the ‘active’ freedom of provision of services) has
not received the same attention.

Even after the third generation directives (2) and
1.7.
the introduction of the ‘single authorization’ system
abolishing prior approval of policies’ general conditions
by Member States’ supervisory bodies, consumers are
not therefore guaranteed non-discriminatory access to
insurance in Member States other than the one in which
they reside or of which they are nationals. Nor has there
been any harmonization of policies’ standard conditions
or of insurers’ practices in order to guarantee clear
information, extensive choice and the creation of a

(1) Other areas such as reinsurance or supplementary retire-
ment pensions, which are either of only indirect concern
to consumers, or have been discussed in specific ESC
opinions or studies, are not covered by the present opinion.
The same applies, for the same reasons, to the effects of
introducing the euro as a means of payment.

(2) Directives 92/49/EEC of 18 June 1992 (OJ L 228, 11.8.1992)
and 92/96/EEC of 10 November 1992 (OJ L 360, 9.12.1992).

1.8.
A key aspect here is the diversity of tax systems,
which has exercised decisive influence in splitting up the
single market along national lines and in distorting
competition between insurance companies, as explicitly
recognized and highlighted in the Action Plan for the
Single Market recently presented by the Commission (4).

1.9. On the other hand, as explained in detail below,
studies have revealed that insurance companies engage
a whole host of practices which, it is claimed, are
frequently the result of technical requirements imposed
by international reinsurance companies; these run coun-
ter to consumers’ interests and legitimate expectations
and in some cases may even infringe legal provisions,
particularly in the area of unfair terms in contracts.

1.9.1.
It should however be noted that insurance
companies also implement agreements which are advan-
tageous to consumers: e.g. to facilitate rapid settlement
of claims or to guarantee collective risks beyond the
capacity of an individual insurer (e.g. insurance pool to
cover natural disaster or nuclear risks).

Furthermore, it should not be overlooked that many
insurance companies are mutual or cooperative societies.
These companies have helped devise new insurance
formulae and they should continue in future to play a
major role in promoting both consumer interests and a
dialogue with policyholders.

1.9.2.
The Commission’s DG XXIV has recorded
more than 240 rulings by courts and other competent
bodies for the 1976-1996 period condemning unlawful
contractual practices by insurance companies in ten
Member States which were detrimental to consumers’
interests.

1.10.
The explicit exclusion of insurance contracts
covering risks situated within the territory of European
Union Member States from the scope of the Rome
Convention on the law applying to contractual obli-
gations, together with the ambiguous wording of the
rules governing conflicts and the protection of ‘the
public interest’ set out in the Community’s second and

(3) Cf. SEC(96) 2378 of 16December 1996, the preparatory
document for COM(96) 520 final on the impact and
effectiveness of the single market, and COM(97) 184 final
on the Draft Action Plan for the single market, together
with the ESC opinions on these documents (OJ C 206,
7.7.1997 and OJ C 287, 22.9.1997); see also the ESC
opinions on the Commission reports to the Council and
European Parliament on the single market in 1994 (COM
(94) 51 final) and 1995 (COM(96) 51 final).

(4) Cf. CSE(97)1 final of 4 June 1997, Strategic target 3,
Action 1: Break down the barriers in service markets.

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third directives on non-life insurance (1), makes the
provision of these services within the internal market an
extremely complex and hazy affair, especially in the
event of a dispute between insurers and insured parties
or insurance beneficiaries. This is particularly so where
the latter are private non-professional consumers, who
have no basic information, no specialist technical know-
ledge and no specific legal support.

coordination of laws, regulations and administrative
provisions relating to direct insurance other than life
assurance and amending Directives 73/239/EEC and
88/357/EEC (12); Proposal for a Council Directive setting
up an insurance committee (12); Draft Action Plan for the
single market — COM(97)184 final (13); Communication
from the Commission to the European Parliament and
the Council on the impact and effectiveness of the single
market — COM(96)520 final (14).

1.11.
This own-initiative opinion takes up an earlier
concern of the ESC, voiced in several documents,
to consider the right conditions and propose and
recommend appropriate measures for the shaping of the
single market so as to achieve the early, effective removal
of the main distortions of competition and increase
consumer confidence in the reliability and quality of
goods and services.

Cf. inter alia: Green Paper — financial services: meeting
consumers’ expectations — COM(96) 209 final (2);
Single market and consumer protection: opportunities
and obstacles (3); Consumer protection and completion
of the internal market (4); The consumer and the internal
market (5); Supplier-consumer dialogue (6); Communi-
cation from the Commission: Priorities for consumer
policy (1996-1998) (7); Proposal for a European Parlia-
ment and Council Directive on the supplementary
supervision of insurance undertakings in an insurance
group — COM(95)406 final (8); Proposal for a Council
Decision on the conclusion of the agreement between
the Swiss Confederation and the European Economic
Community concerning direct insurance other than life
assurance — COM(89)436 final (9); Proposal for a
Council Regulation (EEC) on the application of
Article 85(3) of the Treaty to certain categories of
agreements, decisions and concerted practices in the
insurance sector (10); Proposal for a third Council Direc-
tive on the coordination of laws, regulations and
administrative provisions relating to direct life assurance
and amending Directives 79/267/EEC and 90/619/
EEC (11); Proposal for a third Council Directive on the

( 1 ) Directives 88/357/EEC of 22 June 1988 (OJ L 172,
4.7.1988) and 92/49/EEC of 18 June 1992 (OJ L 228,
11.8.1992).

( 2 ) OJ C 56, 24.2.1997.
( 3 ) OJ C 39, 12.2.1996.
( 4 ) OJ C 339, 31.12.1991.
( 5 ) OJ C 19, 25.1.1993.
( 6 ) OJ C 34, 2.2.1994.
( 7 ) OJ C 295, 7.10.1996.
( 8 ) OJ C 174,17.6.1996.
( 9 ) OJ C 56, 7.3.1990.
(10) OJ C 182, 23.7.1990.
(11) OJ C 14, 20.1.1992.

1.12.
Referring more particularly to the financial
services sector and specifically to insurance, the ESC
— in line with its stance on the Commission’s Green
Paper on financial services: meeting consumers’ expec-
tations (15) — emphasizes the need to identify consumers’
main concerns (the right to information, to legal protec-
tion and to access to legal remedy), along with the
necessary means of guaranteeing a suitable response to
such needs and concerns in keeping with its earlier
recommendations (16).

At the same time, the Committee remains attentive to
the insurance industry’s complaints about frequent
attempts at fraud by policyholders, either by making
false declarations when taking out policies, or making
inflated claims for loss or damage.

1.13.
This opinion also aims to encourage dialogue
between consumers and insurance companies in order
to reconcile their positions and establish conciliation,
mediation and arbitration procedures to deal with any
disputes, in keeping with the Communication from the

(12) OJ C 102, 18.4.1991.
(13) OJ C 287, 22.9.1997.
(14) OJ C 206, 7.7.1997.
(15) COM(96) 209 final of 22 May 1996 — OJ C 56, 24.2.1997;
a Eurobarometer survey of 27May 1997 reveals that the
financial services sector is the one in which consumers
feel least protected, at both Community level, particularly
in view of the development of the new technologies
(96 %), and Member State level (average 58 %, rising to
67 % in Italy and 66 % in Germany). The full results are
available on the DG XXIV home page, http://europa.eu.
int/en/comm/spc/spc.html.

(16) Cf., for example, the ESC additional Opinion on the
consumer and the internal market (OJ C 19, 25.1.1993,
point 4.11.5); ESC Opinion on consumer protection and
completion of the internal market (OJ C 339, 31.12.1991);
and the comments made in the Opinion on the Annual
Report on the functioning of the internal market (OJ
C 393, 31.12.1994, point 5.2.1).

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Commission on the follow-up to the Green Paper on
financial services: meeting consumers’ expectations (1).

The Committee therefore welcomes and supports the
Commission’s recent initiative in launching a dialogue
between representatives of consumers and financial
services, with the specific aim of reaching voluntary
agreements on transparency, consumer information and
resolution of disputes.

1.14.
The Committee seeks, against the backdrop
of the dialogue mentioned above, to urge insurance
companies to take the initiative in drawing up codes
of conduct and appointing ombudsmen, thus lending
greater transparency to their activities and boosting
consumer confidence in the services they provide.

2. Outline of the Community directives

2.1. Existing legislation

2.1.1.
The basic principles of the single insurance
market are laid out in the Treaty of Rome: freedom of
establishment (Article 52) and freedom to provide
services (Article 59). It has, however, to be recognized
that neither the 1985 White Paper on completion of the
internal market, nor the Single Act of 1986, nor, more
recently, the Maastricht Treaty has succeeded in enabling
economic operators or consumers to draw the full
benefits and advantages they might justifiably expect.

2.1.2. Nevertheless, there are now some thirty Com-
munity instruments which attempt to regulate the
insurance sector. They may be grouped as follows:

a) general Directives, laying down the basic principles
of access to and exercise of the two main branches
of the insurance business, namely life and non-life;

b) two competition Regulations concerning insurance;

(1) COM(97) 309 final of 26 June 1997. In this regard, cf. the
report by MEP Elena Marinucci of 17 February 1997
(document A4-0048/97). At the Commission’s initiative,
significant steps have recently been taken in this direction,
by holding meetings between financial service providers
and consumers’ representatives on 14 July, 15 September
and 24 November 1997. Nevertheless, the insurance sector’s
reservations concerning possible compulsory application
by its members of codes of conduct should be noted.

c) specific Directives regulating, in particular, certain
branches such as vehicle insurance, tourist assistance,
credit and guarantees and legal protection, or certain
activities such as co-insurance, reinsurance and
retrosurance;

d) Directives on accounting rules specific to insurance

companies;

e) one Directive and one Recommendation specifically

regulating the insurance broking business;

f) a Directive setting up an Insurance Committee to
provide coordination and technical support for the
Commission in its dealings with national control
and supervisory authorities.

2.1.3.
In addition to establishing the basic principle
of a specialized life insurance branch and harmonizing
a number of fundamental financial rules (mathematical
provisions,
solvency margins, minimum guarantee
funds), the first generation directives for the life and
non-life branches regulated freedom of establishment,
abolishing any form of discrimination on the basis of
nationality while retaining twin control by the home
state and the host state.

2.1.4. Nine years later, in the wake of the White
Paper and the Single European Act and, more specifically,
in response to four major Court of Justice judgments of
4 December 1986 (2), the second generation directives
attempted to take the some initial steps towards the
freedom to provide services (FPS), although still with
major limitations arising, in particular, from the fol-
lowing:

a)

the distinction, in non-life insurance, between ‘major
risks’ or insurance for companies, and ‘small risks’
or insurance for private consumers, with the FPS
principle applying only to the former;

b) the distinction, in life insurance, between active FPS
(at the insurer’s initiative) and passive FPS (at the
insured party’s initiative), with the FPS principle
applying only in the second case.

In other words, for small risks and active FPS, the
freedom to provide services remained conditional upon
official authorization from the country in which the risk

(2) Commission versus Germany, Commission versus Den-
mark, Commission versus Ireland and Commission versus
France, in European Court Reports 1986, p. 3663.

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was situated, while certain other types of insurance
— such as vehicle insurance — were entirely excluded .

of May 1991 and December 1992 to allow — with some
flexibility — certain types of cooperation agreements or
concerted practices between insurance companies. These
applied to the following areas:

2.1.5.
The guiding principles of the third generation
directives were — as subsequently in other financial
services sectors — the following:

a)

joint fixing of risk premiums;

a)

the introduction of a single authorization system
(‘European passport’), enabling any insurer based
and authorized in any of the 17 Member States of
the European Economic Area, to offer its services
throughout Europe either through agencies, subsidi-
aries or branches, or directly under FPS, on the basis
of such authorization and in accordance with the
technical rules and home country financial control,
for any type of life or non-life insurance;

b) mutual recognition of the authorization and control
systems of each Member State by all the others;

c) abolition of prior approval of contract conditions
for policies and premiums, replaced by solvency
checks and accounting rules for insurance com-
panies.

2.1.6.
The third generation directives, with consumer
protection as their basic aim, have established a number
of important rules concerning:

a) compulsory minimum contractual information, lim-
ited in the case of non-life insurance, but broader in
the case of life insurance;

b) determination of standard conditions;

c)

joint cover of certain types of risks in the form of
co-insurance or re-insurance;

d) testing and acceptance of security devices.

Article 7 and the second indent of Article 17 of the 1992
regulation, however, impose major restrictions on such
agreements, either in relation to the specific content of
certain general contractual clauses or concerning any
creation ‘to the detriment of the policyholder, [of] a
significant imbalance between the rights and obligations
arising from the contract’.

2.1.8.
Despite its key importance to the operation of
the insurance sector on the internal market, insurance
broking is covered by only a single directive from 1976,
which did not regulate aspects such as professional
liability, financial guarantees, registers and other busi-
ness conditions. These still come under national legis-
lation. A 1991 recommendation on these aspects was
not followed by the Member States, due to a clear lack
of political will.

b) determination of the law applicable to insurance
contracts, varying in accordance with the type of
insurance, the size of the risk or the location of the
insured party or object;

2.1.9.
A number of important draft directives were
submitted by the Commission over the years but failed,
at the time, to secure the necessary agreement and
political backing for adoption as legislation.

c) concept of general good, as an exception providing
grounds for binding national regulations derogating
from the principles of freedom of establishment and
freedom to provide services.

These were:

2.1.7.
An aspect meriting particular emphasis in
Community rules is competition, it being the explicit
aim of Articles 85 and 86 of the Treaty of Rome that
agreements between economic operators which distort
competition or lead to abuse of a dominant position
should be prohibited.

a)

the proposal for a Council Directive on the coordi-
nation of laws, regulations and administrative pro-
visions relating to insurance contracts (1), which sets
out essentially to harmonize a number of basic rules
of direct insurance contract law;

However, given the specific nature of the insurance
sector, the Commission decided in two regulations

(1) COM(79) 355 final, OJ C 190, 28.7.1979, as amended by
COM(80) 854 final, OJ C 355, 31.12.1980; the relevant
ESC and EP opinions are, OJ C 146, 16.6.1980 and C 265,
13.10.1980 respectively.

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b) the proposal for a Council Directive on the coordi-
nation of laws, regulations and administrative pro-
visions relating to the compulsory winding up of
direct insurance undertakings (1);

c)

for a Council Directive
the amended proposal
relating to the freedom of management and invest-
ment of funds held by institutions for retirement
provision (2).

It would not appear that the Commission intends to
return to any of these topics in the near future, even
though it is the prevailing opinion among both insurance
operators and consumer organizations that a whole
series of obstacles hampering completion of the single
market in this field can be traced back to the absence
of Community legislation on insurance contracts (a
minimum level of harmonization of substantive law).

2.1.10.
At the same time, there are no plans for any
Community legislation whatsoever on major parts of
the insurance business as it affects both economic
operators and consumers. The non-harmonization of
tax arrangements for insurance, for example, directly
influences the terms of competition conditions in the
internal market. Not only are there variations in national
tax levels and bases (including those for parafiscal
charges), and in the exemptions and administrative
requirements of national authorities, but also the tax
exemptions and benefits applied to insured parties differ
territorially. In both areas clear disparities are apparent
between the different Member States.

The recent Wielockx case in which the Court of Justice
decided — contrary to the Bachmann v. Belgium case —
that a Belgian citizen was entitled to enjoy, in Belgium,
the tax advantages of an insurance policy concluded in
Holland, cannot really be interpreted as a significant
shift in the Court’s position in this area given the specific
character of the case, arising from an agreement for
avoiding double taxation.

It should, however, be noted that the Svensson judgment
(14 November 1995) placed a further limit to the
precedent created by the Bachmann case by forbidding
a Member State (in this case, Luxembourg) from
invoking ‘the integrity of the fiscal regime’ to justify a
national measure restricting the freedom to provide

(1) COM(86) 768 final as amended by COM(89) 394 final of
6 October 1989 inOJ C 253; the relevant ESC and EP
opinions are in OJ C 319, 30.11.1987 and C 96, 17.4.1989
respectively.

(2) COM(93) 237 final, OJ C 171, 22.6.1993.

services, since there was in this case no direct link
whatsoever between the benefit provided by the measure
(in this case, an interest rate subsidy for a housing loan)
and the financing of this benefit by means of the profit
tax on financial establishments officially recognized in
the State in question.

For further details and a balanced approach to the issue,
see e.g. J.M. Binon, ‘Avantages fiscaux en assurance de
personnes et droit européen. Après les arrêts Schu-
macker, Wielockx et Svensson, quelle place rest-t-il pour
la jurisprudence Bachmann?’ (‘Personal insurance fiscal
advantages and European law. After the Schumacker,
Wielockx and Svensson judgments, what role for the
Bachmann ruling?’), Revue du Marché Unique Euro-
péen, 1996, p. 129-144.

2.2. Future law

It is reported that the Commission is preparing
2.2.1.
a number of initiatives, some of a general or specific
legislative nature, others ‘interpretative’, in order to deal
with some of the difficulties mentioned. These are highly
relevant to the present Opinion.

On a general level, a proposal for a European Parliament
and Council Directive on the supplementary supervision
of insurance undertakings in an insurance group has
already appeared, being presented by the Commission
on 20 October 1995 (3).

In the specific area of credit insurance, a proposal for
a Council Directive on harmonization of the main
provisions concerning export credit insurance for trans-
actions with medium- and long-term cover (4) has
recently been under discussion at the Commission
(4 June 1997); at the same time, a draft Communication
from the Commission to the Member States on distor-
tions to competition caused by short-term export credit
insurance has been distributed.

2.2.2. More generally — but of the greatest relevance
to the insurance sector — a proposal for a Directive has
been announced aimed directly at protecting consumers
in distance financial services contracts. This is a matter
which is known to have been excluded from the scope
of Directive 97/7/EC of 17 February 1997. It is important
that whatever is adopted with regard to distance selling
does not frustrate the development of the single market
for insurance services.

Elsewhere,

the anxiously-awaited Directive
2.2.3.
97/5/EC of 27 January 1997 replacing Recommendation
90/109/EEC on the transparency of banking conditions
relating to cross-border financial transactions was finally
adopted, with the aim of regulating important aspects
such as minimum transparency requirements and the
rights and obligations of the parties with respect to

(3) COM(95) 406 final: OJ C 341, 19.12.1995; Opinion ESC:

OJ C 174, 17.6.1996.

(4) CABII/160/97.

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certain distance contracts (1). More recently still a
communication from the Commission of 9 July 1997 on
boosting customers’ confidence in electronic means of
payment within the single market included a new
recommendation, supplementing and superseding the
recommendation of November 1988 on the same subject.
In particular it covers the relationship between issuers
and holders and sets out detailed transparency require-
ments, as well as defining the rights and responsibilities
of each party and calling for new means of redress (2).
The Commission has announced that it will be closely
monitoring progress in this area up to the end of 1998
and that, if it judges the results unsatisfactory, it may
propose a Directive.

The possible publication of the promised draft
2.2.4.
Directive on insurance brokers is also, naturally, awaited
with interest, as this is an essential element in the proper
functioning of the internal insurance market.

2.2.5. On 15 October 1997, the Commission proposed
a fourth specific Directive on vehicle insurance, for the
purpose of giving the victims of traffic accidents outside
their own countries the right to take direct action with
respect to the insurer of the opposing party which caused
the physical or material
loss while using a vehicle
registered and insured in a Member State other than
that of the victim’s residence.

In order to significantly reduce the time victims have to
await compensation, the draft Directive stipulates that
the opposing party’s insurer must submit a proposal for
compensation within three months of the date on which
the victim lodges a claim for compensation with the
appropriate representative.

2.2.6.
The Commission has also announced that a
communication interpreting the concept of the general
good as applied to insurance, similar to its recent work
in connection with the banking sector(3),
is at an
advanced stage of preparation.

The draft Communication was published on 10 October
1997 (SEC(97) 1824 final), and represents an important
step towards clarifying the scope, range and meaning of
a number of basic concepts in this sphere, particularly
regarding the freedom to provide services and the general
good.

(1) OJ L 43, 14.2.1997.
(2) COM(97) 353 final.
(3) SEC(97) 1193 final, 20.6.1997.

Given that the Commission, rather than immediately
issuing a final document, has very wisely decided to
open the subject to public debate in order to hear the
views of the various sectors, and that the Committee
will draw up an Opinion on the document in due course,
it suffices at this point to highlight the importance,
necessity and timeliness of the document and point out
that the concerns it voices are in keeping with those
contained in the present Opinion.

a

Lastly,

carefully-prepared Commission
2.2.7.
report to the Insurance Committee points to the Com-
mission’s current concerns regarding the need for better
harmonization of insurance companies’ solvency mar-
gins (4) — the importance of which for effective consumer
protection hardly needs underlining.

2.3. Main difficulties and obstacles in the effective
implementation of the single insurance market

There are a number of recognized general
2.3.1.
obstacles of various types. Some of the main ones are
set out below, though the list is by no means exhaustive:

2.3.1.1. Legislative obstacles at Community level

The first of these is, of course, the total
2.3.1.1.1.
lack of harmonization at the level of substantive law, in
other words, a minimum level of regulation on insurance
contract law in the European Union.

2.3.1.1.2.
This lack of legislative focus at Community
level and the way in which Directives are successively
amended and partially revoked, make legislation difficult
to understand and implement. Consolidation is
necessary (5).

The result is that the three generations of Directives
complement, parallel and supersede each other, generat-
ing major difficulties for both market operators and
consumers. Consolidation of insurance law in the form
of a coherent code could contribute to a more even
application of Community law.

(4) COM(97) 398 final, 24.7.1997.
(5) The outstanding Consolidation of Community Insurance
Law produced by the European Insurance Committee is
particularly worthy of note, as is the recent publication of
two important works on the single market in life assurance
and insurance other than life assurance, which were used
extensively in drawing up this opinion.

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The absence of minimum harmonization
2.3.1.1.3.
in insurance distribution and of real
freedom for
insurance brokers to provide services — insofar as there
is no single licence system for distribution — explains
why insurance intermediaries face artificial barriers
when operating on the Community market.

2.3.1.2. Difficulties in interpretation

2.3.1.2.1.
The first difficulty naturally concerns the
precise distinction between freedom of establishment
and freedom to provide services, and the concepts of
‘temporality’, ‘regularity’, ‘periodicity’, ‘continuity’ and
‘frequency’ which are involved in defining them, in
accordance with Court of Justice jurisprudence (1).

2.3.1.2.2.
The second relates to the concept of the
‘general good’, and arises from the widely varying
interpretations as a result of which each Member State
has been able to justify a range of derogations from
the right to provide services which are quite simply
distortions of competition, of no benefit to consumers
and of no help to operators. It is important that ‘general
good’ should not be mistaken for ‘national interest’ as
defined by each Member State, but should be understood
exclusively as the real interest of citizens as a whole,
which is not the same thing.

2.3.1.2.3.
The third, but equally important, difficulty
in interpreting and applying Community insurance law
relates to the identification and interpretation of the law
applicable to insurance contracts, whenever there is
more than one connecting link which may be subject to
different legal systems.

Having apparently abandoned the idea of harmonizing
insurance contract law, and since the Rome Convention
of 19 June 1980 (2) on the law applicable to contractual
obligations still does not apply ‘to contracts of insurance
which cover risks situated in the territories of the
Member States of the European Economic Community’
[Article 1(3)], the Directives opted — without allowing
the parties any say in the decisive roles allotted to them
— to get embroiled in a new complex set of rules on the
subject of competence and referral. This has had the
effect of turning straightforward determination of the
law applicable (conflict of laws) and, consequently, of

the competent court (conflict of jurisdiction) into an
impenetrable labyrinth, particularly given that one of
the determining elements also involves the ‘general good
enigma’ (3).

2.3.1.3. Difficulties at Member State level

2.3.1.3.1.
Some supervisory bodies do not clearly
indicate which criteria they use in complying with the
principle of non-discrimination and do not inform all
operators working within their territory about the tax
arrangements and regulations applying to the sector.

2.3.1.3.2. National legislation is sometimes obscure
and vague, and operators from other countries providing
services experience difficulty in obtaining legal texts:
there is a pressing need for an up-to-date database of
the national legislation applicable in the Member States
of the European Union. Such national databases should
be consolidated at Union level and incorporated into
the Commission’s system. The Commission should
define the requirements for communication and release
of information and means of access.

2.3.1.3.3.
Cases have also been reported of late,
incomplete or incorrect transposition of Directives on
the part of some Member States, or of certain branches
of insurance, particularly agricultural insurance and
pension funds in certain countries, being exempt from
the need to comply with Directives.

The diversity of tax systems, mentioned
2.3.1.3.4.
earlier, naturally has an impact on the prices applied by
certain operators and also gives rise to discrimination
between nationals and non-nationals, generating serious
distortions of competition as well as constituting effec-
tive ‘technical’ barriers to the single market.

2.3.1.3.5.
Lastly, although it would not be reasonable
to expect rapid harmonization of insurance law, there
are a number of aspects which constitute real obstacles
to the completion of the single market, such as the
differences in the legal maximum duration of insurance
policies.

2.3.2.
A number of barriers specific to certain markets
or branches of insurance were also identified and
reported. Among these the following should be men-
tioned:

2.3.2.1.
Some markets have not abolished prior con-
trol of contracts, as stipulated in the third coordinating

(1) See cases 33/74 Van Bingsbergen, 31.12.1974, Reports
1974, 1299; cases 286/82 and 26/83, Luisi and Carbone,
Reports 1983, 377; case C 148/91, 3.2.1993, Reports 1993,
1487; case C55/94 Gebhard, Reports 1995, I, 4195.

(2) OJ L 266, 9.10.1980 (80/934/EEC).

(3) See B. Dubuisson,

‘Transparence et sécurité dans les
contrats d’assurance en Europe’ (13th International Legal
the European Insurance Committee,
Colloquium of
Dresden, October 1995).

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directive, so that contractual amendments and new
clauses must still be notified to the supervisory bodies
prior to commercialization.

2.3.2.2.
Some supervisory bodies, particularly where
‘compulsory’ insurance is concerned, require compliance
with specific contractual clauses which are apparently
unfair, or prohibit the use of other clauses which have
never been acknowledged by courts as being unlawful.

2.3.2.3.
Some countries infringe the provisions of the
third Directive as regards the requirement that existing
insurance companies should be obliged to communicate
new contractual conditions, or that this condition must
be met by a company before it starts in business (1).

The differences in classification of insurance
2.3.2.4.
products on national markets (e.g.
the distinction
between pension savings and life insurance, or between
these and certain investment funds), together with the
uncontrolled emergence of new products lead to lack of
transparency and hamper the application of the principle
of mutual recognition with regard to the equivalence of
classes of life assurance and non-life insurance, and the
classification of risks.

2.3.2.5.
Some countries still require insurance brokers
from other Member States, intending to work in that
country under FPS arrangements, to seek prior author-
ization (2).

Lastly, in exercising their perfectly legitimate
2.3.2.6.
right to demand the establishment of a ‘fiscal representa-
tive’ in relation to FPS, some Member States lay down
a series of administrative and financial requirements
which are real obstacles to competition and constitute
discrimination towards insurance companies from other
Member States.

2.3.3.
Two difficulties should be mentioned at this
point. The first concerns some Member States’ require-
ment that insurance companies join national professional
bodies in order to be able to be a party to the agreements
for the rapid settlement of claims, which bans insurance
companies operating under FPS from being a party to
such agreements.

The second difficulty lies in the fact that in some
countries where official arbitration systems have been
set up, only policyholders from that country may use
such arrangements: access is denied to policyholders
with companies not from the country in question, even
if the claim has occurred within its territory, or if the
policy has been concluded in a country other than that
in which the policyholder is resident.

3. Contractual insurance relations — policies

3.1.
The position of consumers merits particular
attention and special protection because of the specific
form of contractual relations, embracing the range of
reciprocal rights and obligations flowing from the
conclusion of the contract — the insurance policy (3).

This is, of course, a classic example of what is known
as a ‘standard form contract’, the contents of which are
pre-established and non-negotiable and characterized in
legal theory by the economic superiority of one of the
parties, who is in a position to dictate the contract
clauses to the other, the unilateral nature of the clauses,
drawn up specifically in the interests of the stronger
party, and the invariability of the contract text, which
offers the weaker party a ‘take it or leave it’ option.

3.2.
The particular nature of these contracts finally
led to the adoption, after a lengthy period of preparation,
of Directive 93/13/EC of 5 April 1993 (4) the main
purpose of which is to prevent the use of general
contractual clauses in which ‘contrary to the requirement
of good faith, it causes a significant imbalance in the
parties’ rights and obligations arising under the contract,
to the detriment of the consumer’, and to allow them to
be declared null and void when included in standard
contracts.

The Directive, already transposed in most Member
States, automatically applies to insurance contracts.

The specific nature of insurance activity does however
justify individual agreements, allowed by EEC Regu-
lation No 3932/92 of 21 December 1992, in the area of
standard conditions for direct insurance, provided the
restrictions imposed by Articles 7 and 17, and the

(1) This practice by France was recently the subject of a
‘reasoned opinion’ sent by the Commission to the French
Government.

(2) This occurs in Spain, and gave rise to the Commission’s

recent ‘reasoned opinion’.

(3) In this connection, see the Judgment of the Court of Justice
of 4 December 1986 (case 205/84, Commission v. Germany).

(4) OJ L 95, 21.04.1993.

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fundamental principle of contractual balance, are
observed.

Although, as will be seen below, a degree of similarity
may often be observed in the way insurance companies
in the different Member States use general contractual
clauses, sometimes as a result of national rules, and
which might, under Community law, be deemed unfair,
there is no record of the Commission ever having
investigated or reported such occurrences as an infringe-
ment of the Regulation’s provisions, or having rec-
ommended that Member States amend their national
rules.

3.3. With the exception of Directive 92/96 (life
assurance), the specific insurance Directives referred
to above make only incidental reference, in separate
provisions, to:

— minimum information to be supplied to policy-
holders/insured parties (Articles 12(5), 31 and 43 of
Directive 92/49 and Articles 11 and 18(2) of Directive
92/96);

— publicity (Article 41 of Directive 92/49 and Directive

92/96);

— special

rights enshrined in the legal expenses

insurance Directive (Directive 87/344).

Directive 92/96 (life assurance) is the only one to draw
up a list (in Article 31 and Annex 2) of information
relating to the insurance company and to the content of
the contract which must be communicated to policy-
holders/insured parties both before the contract is
concluded and at the time the contract is signed .

3.4.
There is no legal framework at Community level
defining rules for a minimum level of transparency
in insurance contracts in general, including non-life
insurance or, more specifically, describing unfair general
contractual clauses in insurance, or even laying down
general principles of good faith or contract balance in
the field of insurance.

3.5.
In some Member States, on the other hand, the
legislator has striven to establish, in general terms, the
form and minimum content of the pre-contractual and
contractual information to be given to policyholders/in-
sured parties in both the life and non-life sectors,
together with some rules on insurance publicity and on
the content of certain clauses. The French insurance
code is a case in point.

In other countries, spontaneous dialogue and consul-
tation between insurance companies and consumers has

led to freely adopted codes of practice in such important
areas as joint information to be provided to consumers,
product transparency, prohibition of unfair clauses and
access to legal redress. One instance is the 1994 Protocol
of Agreement in Italy between ADICONSUM and
ANIA.

it

In this respect,
is worth highlighting the UK’s
experience on account of its traditional approach,
deeply-rooted in the country’s legal and cultural prin-
ciples, and its results in terms of pre-contract infor-
mation, negotiation and implementation of insurance
contracts and the settlement of disputes via the Ombuds-
man and the Personal Investment Authority. All parties
seem to find this approach satisfactory (1).

3.6.
Consumers do however share a number of
concerns with regard to the embryonic single insurance
market, ranging from disparities in contract content to
means of achieving judicial or extra-judicial redress,
from the quality of information to the quality of
insurance distribution, from the lack of a specific
regulatory framework for cross-border insurance sales
to the scope of the ‘general good’ clause and from the
effects of tax aspects to the impossibility of comparing
prices.

The different ways in which each Member
3.6.1.
State has regulated these questions — or, alternatively,
the lack of regulation — leaves an entire market, where
competition is far from perfect and those acting for one
side tend to work together to the detriment of the other,
to its own devices. This means that a huge number of
different solutions exist to what are identical situations
within the single market, particularly with regard to
cross-border transactions, which are becoming ever
simpler with the arrival of the information society.

Even in cases where procedures based on
3.6.2.
national codes of practice appear to achieve meaningful
results in the countries where they exist, their ‘temporal’
nature,
in addition to their dependence on specific
cultural factors, means that they cannot be considered
for adoption as an overall solution.

(1) Although the PIA is the competent authority for settling
disputes, it is always the PIA ombudsman who acts as an
independent judge in disputes between consumers and life
assurance companies. Further ombudsmen exist in the UK
who also act as independent judges for other insurance
sectors and are not affiliated to the PIA.

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3.6.3.
The results of the work under way at the
Commission, as part of the discussions with the relevant
trade and consumer organizations, are therefore awaited
with interest since a proper balance must be struck
between regulation by the authorities, codes of good
conduct, and contractual freedom.

The practice of ‘clandestine’ insurance was also con-
demned: this is insurance connected, for example, to a
bank account or a credit card. Insufficient information
about the insurance is given to the insured person; as a
result, they frequently fail to take advantage of the
inherent benefits which they are unaware of but pay for.

3.7.
It is possible, even within each Member State
and in the light of their own legal systems, to detect
insurance contractual relations which are less than
proper and fair.

Both research in this area and decisions by judicial or
administrative bodies with jurisdiction in the field have
revealed contractual practices and conditions which are
less than clear or less than intelligible, even though in
legal terms they might not be unfair,
immoral or
unlawful (1).

Some of the main points arising from such initiatives,
which have an impact on contractual relations in the
insurance sector, are given below.

3.7.1. P r e - c o n t r a c t u a l
i n f o r m a t i o n

a d v e r t i s i n g

a n d

3.7.1.1. With regard to the general advertising of
insurance products, mention was made of such practices
as: intrusive advertising, involving persistent telephone
calls to people at home, encouraging them to take out
insurance policies; direct mailing, serving the same
objective and, in some cases, offering gifts (such as
mobile phones) to people taking out certain policies;
and direct insurance advertising, indicating rates (‘the
cheapest’) or cover which subsequently prove false.

3.7.1.2. Most of the complaints, however, concern
the lack of correct and complete or, at least, proper
pre-contractual
information regarding the essential
aspects of a contract — cover, exclusions, definition of
loss, conditions and deadlines for compensation, insured
party’s obligations, real cost of premiums.

This was regarded as particularly bad in situations where
credit institutions, as opposed to legally authorized
insurance brokers, advertise policies from companies
with which they have links, making these policies
‘obligatory’ for people seeking finance (e.g. life or fire
insurance for people wishing to take out a mortgage).

Also highlighted was the need to make a clear distinction
between genuine insurance products and financial,
savings or investment products, whether insurance-
linked or not, which come under banking and not
insurance legislation and must be regarded as such,
regardless of who sells them.

Special mention should be made of ‘distance’
3.7.1.3.
insurance communication techniques and in particular
the use of modern means of communication such as the
Internet and the appearance of new prospecting and
marketing technologies and sophisticated ‘non-material’
distribution techniques, for which there is no legal
framework at Community level and hardly any in most
Member States.

The Commission’s forthcoming draft Directive, intend-
ed to establish a genuine single market in this field and
to provide consumers with adequate protection while
ensuring the development of electronic commerce, is
eagerly awaited.

3.7.2. N e g o t i a t i o n
t r a c t s

o f

i n s u r a n c e

c o n -

3.7.2.1.
The offer, negotiation and signing of
insurance contracts raises the following main questions:

a)

the nature, quantity and reliability of the information
provided beforehand to clients, involving the need
to:

— guarantee simple and comprehensible infor-
mation about the main features of the contracts,
outlawing the use of ‘technical’ or ambiguous
jargon, without compromising technical and
legal accuracy;

— permit the information to be comparable, avoid-
ing the use of identical terms for different types
of cover;

— demand clarification of the wording of the
clauses in contracts, thereby reversing the burden
of proof;

(1) In this respect, see the reports of the important European
insurer/consumer dialogues, organized by the EIC under
the aegis of the Commission on 17 December 1996 and
16 April 1997.

— ensure the precise indication of the level of the
premiums, how they are made up and what
criteria are used to fix them;

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b) obligation always to provide, prior to the signing of
a contract, the full text of the general and special
conditions, written in a legible and comprehensible
manner;

c)

the need to guarantee generally (and not only for life
assurance policies) a cooling-off period for the
insured party, after which the contract is considered
to be applicable retroactively from the date on which
the insurer’s proposal was accepted, with express
mention of the provisions applicable in the interven-
ing period in the event of a claim and possible
entitlement to the premium;

d) clear definition of the role of the initial ‘question-
naire’ and the consequences of the insured party’s
‘declarations’, as regards not only the penalties in
the event of false information or failure to divulge
information but also the protection and confiden-
tiality of personal data,
in accordance with the
appropriate Directive (1);

e) suitability of the insurance product for the real needs
of the insured party, so as not to sell unwanted
products or products which do not cater for needs;

f) as regards the special case of ‘distance’ contracts

(e.g. via the Internet), the need to:

— guarantee precise knowledge of all the terms of

the contracts;

— define the legal value of ‘electronic signatures’
and the legislation applicable to these new
methods of ‘distance’ marketing;

— guarantee, without prejudice to special cases such
as policies with immediate effect, a cooling-off
period without penalty or requirement to give
reasons;

— clarify the system of compensation applicable in
the event of a claim between the date of ‘signature’
of the contract and the date of its confirmation
in writing;

— protect consumers who do not wish to be
contacted by distance communication methods;

— define the principles for implementing the ser-

vices provided for in distance contracts;

— guarantee the confidentiality of personal data;

— identify the law applicable and the means of

redress available.

3.7.2.2.
An extremely important question in this
context is the role played by insurance brokers and other
middlemen in the marketing of products and provision
of after-sales services.

(1) Directive 95/46/EC, OJ L 281, 23.11.1995.

3.7.2.2.1.
Reference was made to the significant
differences between the provisions in force in the
different Member States, leading to the call for a possible
Directive establishing a Community framework. This
would address the recognized ineffectiveness of Rec-
ommendation 92/48/EEC of 18 December 1991 (2) and
the outmoded content of Directive 77/92/EEC of 13 De-
cember 1976 (3).

3.7.2.2.2.
Emphasis was also placed on the need to
ensure that insurance brokers had the technical training
needed to perform their important task, so as to
guarantee a quality service. Credit institutions and
similar bodies were also criticized for acting wrongfully
more and more as insurance brokers in some Member
States without having any specific qualifications to do
so. They have been giving wrong information and not
providing any after-sales assistance, especially when
claims are submitted, and occasionally made their
financial services subject to the signing of an insurance
contract.

3.7.3. G e n e r a l ,

s p e c i a l

a n d p a r t i c u l a r

c o n d i t i o n s o f c o n t r a c t s

3.7.3.1.
As a standard form of contract, an insurance
policy is drafted in advance for acceptance by the insured
parties. It normally consists of a general part — the
general conditions — and a series of equally standard
options — the special conditions.

The particular conditions set out the real content of the
contract, listing the contracting parties and the risks
covered and excluded and specifying the premium and
how it is to be paid.

In general insurance contracts for private individuals, it
is practically impossible to amend or obtain a derogation
from any general or specific condition, except within
the highly restricted framework of the above-mentioned
particular conditions.

3.7.3.2.
Studies carried out in various Member States
and, in particular, a study commissioned by the Com-
mission and coordinated by the Consumer Law Centre
at Montpellier University (4) on unfair clauses in certain
motor vehicle (third-party and fully-comprehensive) and
house (multi-risk) insurance contracts in the then twelve
Member States revealed the existence of numerous
clauses which infringed the provisions of Directive
93/13/EC.

(2) OJ L 19, 28.1.1992.
(3) OJ L 26, 31.1.1977.
(4) Contract AO-2600/93/009263: summary report prepared
by Anne d’Hauteville and Kristian Vandenhoudt (July
1995).

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The study identified 23 types of unfair clauses used by
insurance companies in the various Member States in
the specified fields.

in insurance policies. DG XXIV has collated a set of
decisions showing the main types of contract clause
considered unfair by the relevant judicial, administrative
or other authorities of the Member States.

Because of its relevance to the present opinion, it is
worth mentioning that these clauses were considered to
be unfair for the following reasons:

a) Formal reasons: ambiguity, imprecision or use of
subjective concepts; reference to legal principles or
rules not to be found in the contract;

b) Content: the contractual guarantee is incomplete;
the insured party is required to provide evidence of
negative facts or ones that are virtually impossible
to prove; the insurer is entitled to alter or suspend
the guarantee unilaterally;

c) Execution of the contract: the insured party is
required to act within very short deadlines, or to
take ‘immediate’ action with no specified deadline;
the policy may be rescinded because the insured
party fails, for reasons which are not his or her fault,
to fulfil minor or secondary obligations; the insured
party is obliged to accept an expert assessment of
arbitration, against his or her will; the insurer
is allowed excessively long deadlines to pay out
compensation; the insured party is obliged to use the
services of a particular lawyer or to follow certain
judicial procedures;

d) Termination of the contract: the insurer is granted
special rights to rescind the contract; the insurer is
entitled to rescind the contract unilaterally without
stating why; the insurer is entitled to rescind the
contract following the first claim; the insurer is
entitled to terminate the contract at very short notice,
while the insured party is required to give much
longer notice; a penalty clause entitles the insurer to
retain part of the premium on termination of the
contract;

e) Legal redress: any legal action must be taken within
a very short deadline; the use of arbitration is
obligatory; the jurisdiction clause (only the laws of
the country where the insurer’s head office is located
apply).

Case law and the competent authorities in
3.7.3.3.
most Member States have often censured unfair clauses

Because of its relevance to the present opinion, it is
worth mentioning that these clauses were considered to
be unfair for the following reasons:

a) Clauses which restrict cover by using unclear, impre-
cise or ambiguous terms, such as: particularly danger-
ous or reckless behaviour (000175); vandalism
(000085); drunkenness
rules
(000206); exceptional weather conditions (000311);
vehicle wear or defect or poor maintenance (000312).

(000129);

safety

b) Clauses which show lack of good faith or abuse of
rights: refusal of the insurer to pay compensation
following the non-payment of the premium, without
any forewarning, when a fire occurs the day after
the deadline for payment of the premium (000176);
demand by the insurer for payment of various
outstanding annual premiums, after the guarantee
has been suspended owing to failure to pay the
premium, when this failure is due to an intentional
delay in collection of the premium by the insurer
(000193); refusal of the insurer to pay compensation
because the premiums were paid to a broker when
the policy states that they must be paid directly to
the insurer (000201); automatic reduction of the
insurance sum, following the first claim, for the rest
of the insurance period, while the premium remains
unchanged (000314); amount of compensation
agreed between the insurer and the insured party,
preventing the latter from taking any action against
the third party who is the reason for the claim
(000327); limited liability clauses which were not
expressly accepted by the insured party and which
are not indicated clearly in the policy (000031);
clause requiring the insured party to notify the
insurer within 48 hours, failing which compensation
will not be paid (000232); clause allowing the insurer
to terminate the policy unilaterally after the first
claim (000152); clause allowing the insurer to alter
the terms of the policy unilaterally at the end of the
year, assuming tacit acceptance of the new terms by
the insured party if he or she does not respond within
a given deadline (000160); clause allowing the policy
to be rescinded in the case of non-repayment of
excess by the insured party (000298); clause waiving
insurer liability if a motor vehicle transports, free of

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charge, more passengers than stipulated in the log
book (000305); clause restricting insurer liability if a
motor vehicle is not driven by the insured party, or
if the driver is not authorized to drive it or does not
have a driving licence (000306); clause freeing the
company of liability for a burglary when the insured
party has not locked all doors, windows and other
possible entry points (000133).

In accordance with good actuarial practice, the ‘pure
premium’ must cover the statistical cost of the risk and
the aim of the tariff rules is to ensure this balance as a
function, in particular, of the capital insured, the nature
of the risks and the duration of the guarantee. Apart
from taxes, the loadings cover a proportional share
of the administrative and acquisition costs (general
expenditure, financial charges, cost of collection and
commissions).

c) Clauses which contain subjective concepts or con-
cepts whose interpretation is left to the insurers: the
company reserves the right to refuse defence (...)
when it considers that the demands of the insured
party are indefensible (000178); incapacity to work,
infirmity,
invalidity, acute or chronic illness or
restriction of pathological activity (000169); any
false statement (even if not intentional) makes the
contract null and void (000170).

d) Clauses not respecting the balance of the contract:
motor-vehicle insurance with a ten-year
term
(000002); increase in premiums (in health insurance)
because of factors which depend solely on the will
of the insurance company (000301); non-provision
of third party motor vehicle cover where accidents
involve the insured party’s spouse or relatives,
despite the absence of effective proof of fraud
(000303); possibility for the insurance company to
make it necessary to obtain an expert assessment,
even without the agreement of the insured party,
with the costs being borne by both parties (000274);
possibility for the insurance company to make it
necessary to obtain an expert assessment, as a
condition for the insured party being able to go
to court (000144); non-repayment of part of the
premium in the event of an insurance contract being
rescinded before its date of expiry when the premium
had been paid in full in advance and no claim has
been made (000300); non-specification of the period
within which a claim is to be settled or compensation
paid by the insurance company, or specification of
a period without indicating the date on which this is
to start or leaving this to the discretion of the
insurance company (000304).

The figures in brackets refer to the case numbers
catalogued by DG XXIV, which the rapporteur was
able to consult.

3.7.4. T h e p r e m i u m s a n d t h e i r p a y m e n t

3.7.4.1.
as agreed on by the parties.

The premium is the price paid for the service,

3.7.4.2.
A first point to be noted is the enormous
difference between the insurance premiums charged in
different EU countries to cover similar risks(1).

In addition, as already stated, when insurance companies
in some Member States negotiate contracts with clients,
they fail to give any precise information about the exact
level of the premiums, and how they relate to the risks
covered. Such information would be useful for making
comparisons.

3.7.4.3.
Equally, some insurance companies fail in
their duty to inform clients that they can adjust the
amounts covered. Nor do they freely adjust these
amounts when this may be to their disadvantage. In the
event of a claim, they usually apply the ‘proportional
rule’ so as to reduce the compensation they pay without,
however, returning any of the excess premium.

3.7.4.4.
It was also found that, in many cases where
insurance contracts are reduced in value, or rescinded
before their normal date of expiry, some companies do
not refund the corresponding part of the pure premium.

3.7.4.5.
It was also pointed out that some companies
which accept the payment of premiums in instalments
charge above the market rates for common consumer
credit.

3.7.4.6.
Finally, it was discovered that vastly differing
arrangements apply when premiums are not paid on
time, especially as regards the renewal of contracts and
irrespective of whether national legislation addresses
the consequences. In particular, the following matters
are affected:

— the immediate effects — termination or suspension

of cover and for what period;

— the additional deadlines for the respective payment,

if any;

However, insurance is a mathematically based activity
based on rigorous commercial principles, meaning that
the ‘commercial premium’ consists of the ‘pure premium’
plus loadings.

(1) A recent study carried out by BEUC/Test Achats for the
motor-vehicle sector revealed differences in the premiums
for similar risks of up to 1 to 4; the increases in premiums
as a result of accidents (bonus-malus system) also diverge
between Member States by 0 to 67 % and in some cases,
100 %.

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— the consequences of a claim arising in the meantime;

— the possibility of demanding the premiums due,
despite the suspension of the insurance, for an
indefinite period (several years).

result of the practice of applying the law at the place
of the accident. This is a cause of injustice. The
Commission’s suggestion that the ‘lex loci delicti’ be
changed into the ‘lex damni’ or the law of the claimant’s
country has not been given the favourable response it
merits.

3.7.5. V e r i f i c a t i o n o f c l a i m s a n d c o m -

p e n s a t i o n

3.7.5.1. More often than not, insurance policies fail
to lay down precise deadlines for the settlement of
claims, using vague and ambiguous expressions such as
‘the utmost care’ and ‘the utmost effort’.

3.8.
The ESC thinks that all the aforementioned
factors should be given close consideration by the
Commission and the Member States and, in particular,
by insurance supervisory bodies and the representatives
of consumers’ interests at both national and EU level.
The aim should be to contribute towards the desired
establishment of the single market in insurance,
in
accordance with the legitimate hopes of customers.

Because of this failure, it has been known to take more
than 120 days to settle claims and thereafter about a
year to pay the compensation. Some companies take
more than two months to simply recognize who is
(ir)responsible.

The ESC is, however, aware that in the short term it
will not be possible to make any significant changes to
many of these aspects and to others which are directly
or indirectly linked thereto and are the subject of other
studies or opinions.

3.7.5.2.
In some Member States where legal proceed-
ings are known to be lengthy (between two and four
years to obtain a declaratory judgement in a court of
first instance), it is customary for insurance companies
to refuse systematically to accept an amicable settlement
or deliberately to offer less than they are required to
pay. This is because of what they gain by paying later,
despite the costs of going to court. In addition, a large
number of claimants never even go to court (because of
their reluctance or lack of money) especially if the court
is not in the country of which they are a national or
their country of residence or if the law applicable is not
the law of the country of which they are a national or if
the proceedings are likely to be slow or have an uncertain
outcome.

3.7.5.3.
The non-judicial avenues available, in turn,
vary considerably from Member State to Member State.
In many cases, not enough is known about them by
citizens of other countries, which creates added problems
in the case of cross-frontier disputes.

It was also mentioned that some systems are not
impartial and do not even provide consumers and
insurance companies with identical guarantees of protec-
tion. They may discriminate on grounds of nationality,
especially in cases where complaints are assessed by
professional bodies or bodies within the insurance
companies themselves.

An exception here seems to be when a case goes to
independent arbitration or when an equally independent
ombudsman mediates (as in the UK).

3.7.5.4.
It is necessary to underline the disparities
between damage assessment criteria especially for physi-
cal or mental suffering and the differences in the
compensation paid for the same type of damage, as a

Therefore, the conclusions which follow list only urgent,
priority measures, as defined within the framework of
this Opinion without prejudice to subsequent develop-
ments in this or other contexts.

4. Conclusion and recommendations

Show support for current Commission initiatives

4.1.
on:

4.1.1.
establishment of a right for victims of accidents
abroad to take direct action against the insurer of the
opposing party (proposal in the fourth motor-vehicle
insurance Directive);

Community regulation on the liberalization of
4.1.2.
insurance broking and the freedom to provide insurance
broking services in any Member State;

regulation of the essential requirements with
4.1.3.
regard to the offer, negotiation and signing of financial
service contracts, including those concluded at a dis-
tance, particularly via Internet, covering aspects such
as:

4.1.3.1.
which consumers must be provided;

the minimum amount of information with

4.1.3.2.
of the services provided for in the contract;

the principles governing the implementation

4.1.3.3.
change their mind;

consumers’ right to terminate contracts or

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4.1.3.4.
court;

arrangements for settling disputes out of

company staff, agents and other intermediaries, and (ii)
availability of adequate, accurate means of information;

4.1.3.5.
that could lead to premium increases;

prohibition on supplying unsolicited services

4.1.3.6.
communications techniques;

restrictions on the use of certain distance

4.1.4.
panies in an insurance group (1);

supplementary supervision of insurance com-

4.1.5.
good’ and what it entails for insurance;

precise definition of the concept of ‘general

4.1.6.
supplementary pensions (2);

close consideration of questions linked to

4.3.2.
the desirability of arrangements to settle dis-
putes by arbitration, or the appointment of insurance
ombudsmen independent of insurance companies;

4.3.3.
the advisability of setting up a rapid system for
provisional compensation in cases of third party liability,
acting before liability is apportioned between insurance
companies, even where cases go to court;

4.3.4.
the need to continue research and discussion
with a view to setting up a guarantee fund on a
harmonized basis for compensation to victims of certain
risks in default of appropriate insurance;

4.1.7.
establishment of a working group to study the
improvements to be made to existing legislation on
insurance companies’ solvency margins (3).

4.3.5.
‘linked’ insurance policies;

the need for a clear ban on ‘obligatory’ and

4.2.

Call on the Commission to begin work on:

4.2.1.
the definition of specific Community-level rules
for cross-border insurance advertising, especially via
Internet, to serve as minimum requirements to protect
the general good at Community level;

4.2.2.
the possibility of harmonizing tax arrange-
ments for insurance, either in terms of the system applied
to insurance companies or tax incentives for policy
holders;

4.2.3.
insurance;

the applicability of the Rome Convention to

4.2.4.
court settlement of cross-border insurance disputes;

a special legislative initiative for the out-of-

4.2.5.
plaints about insurance at Community level;

creation of an observatory to deal with com-

consolidation of insurance-related legislation
4.2.6.
in a single intelligible text which is easy to consult and
circulate.

Direct the attention of the Commission and the

4.3.
Member States to the following in particular:

4.3.1.
the need to improve pre-contract information
on insurance, requiring (i) better training for insurance

the advisability of re-examining the Com-
4.3.6.
mission’s 1979 draft Directive on the coordination of
laws, regulations and administrative provisions relating
to insurance contracts (4) in the light of the principle of
subsidiarity and of progress made in the meantime with
the third generation Directives and the recent Treaty
amendments agreed at Amsterdam, particularly the new
wording of Article 129a of the Maastricht Treaty;

the need to assess the effectiveness of the
4.3.7.
mechanisms provided for in EEC Regulation (EC)
Nos 1534/91 of 31 May 1991 and (EC)3932/92 of
21 December 1992, with a view to monitoring effectively
the unfair nature of some of the general clauses contained
in insurance policies;

4.3.8.
the case for strengthening the powers of the
Insurance Committee so that it can play an effective
part in harmonizing the coordinating practices of the
various national regulators in the field of insurance;

the need to set up national databases of existing
4.3.9.
insurance law and regulations in each country and
coordinate them at Community level, and to draw up
rules on access to, and disclosure of, their content.

4.4.
Prompt trade organizations from the insurance
sector and consumer organizations to engage in dialogue
and concentrate their efforts on regulating their working
practices in accordance with codes of good conduct and

(1) OJ C 341, 19.12.1995.
(2) Green Paper on supplementary pensions in the single
market, COM(97) 283 final; OJ C 19, 21.1.1998, p. 45.

(3) COM(97) 398 final, 24.7.1997.

(4) OJ C 190, 28.7.1979.

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finding the best solutions for settling disputes out of
court.

4.5.
Urge the Commission to spare no effort in
defining Community-level common minimum require-
ments for insurance contracts (draft directive), involving:

4.5.1. minimum pre-contract information modelled,
for example, on the French insurance code (Articles 112
and 132);

4.5.2.

a list of key terms and their meanings;

4.5.3.
contracts;

a list of typical unfair terms in insurance

4.5.4.
insurance contract;

the minimum compulsory content of any

4.5.5.
insurance contract;

all the contractual obligations common to any

4.5.6.
contract;

the basic principles and rules of any insurance

4.5.7.
party liability insurance;

a provisional compensation scheme for third

4.5.8.
compulsory link between premiums and the
value of risks, in particular by means of automatic
depreciation of insured objects in line with their age and
a corresponding reduction in premiums;

Brussels, 29 January 1998.

4.5.9.
establishment of harmonized minimum cool-
ing-off periods within which consumers may withdraw
from a contract;

4.5.10.
requirement for policies to be legible and
understandable and for the general and special con-
ditions to be made available during the pre-contract
stage and before signature.

4.6.
Urge the Commission to continue its efforts to
create a Community-wide systematic inventory and
public register of unfair general terms in insurance
contracts based on.

4.6.1.
mission services;

thorough research and assessment by the Com-

4.6.2.
relevant Member State bodies;

compilation and processing of decisions by the

4.6.3.

publication of results;

4.6.4.

access to information via Internet;

possible description of types of unfair terms
4.6.5.
and bans thereon through legislation, providing the
appropriate Commission service with the necessary
human and other resources.

Press the Member States to set up speedy, efficient
4.7.
systems for the condemnation and judicial, extrajudicial
or administrative amendment of unfair
in
insurance contracts, particularly through class actions
effective across the board, and suggest that the Com-
mission launch support programmes for initiatives in
this field.

terms

The President

of the Economic and Social Committee

Tom JENKINS