Cross-Border (Life) Insurance Business: A Constant Goal with (Almost) Impossible Legal Obstacles
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- 2025
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Abstract
1 1Introduction 1
Already thirty years have passed since the liberalization and the associated opening of the insurance market in the European Union on 1 July 2024.
2 One of the main objectives of the European Union has been being ever since the realization of a single European market. Better rates, lower costs and access to a broader, more diverse, more innovative and, more recently, a more sustainable product range are among the benefits often attributed to the single European market.
3 These targets should also be achieved for customers of insurance products, while at the same time creating market and growth opportunities for companies in the insurance sector. The policy of minimum harmonization initially pursued in this context has been abandoned in favor of complete harmonization; at least partially in insurance supervisory law due to the increasing support for internationally oriented supervisory standards, particularly following the experiences of the financial crisis. In this regard, the European legislator stated in recital 11 of Directive 2009/138, better known as ‘Solvency II’
4: ‘It is therefore appropriate to bring about such harmonisation as is necessary and sufficient to achieve the mutual recognition of authorisations and supervisory systems, and thus a single authorisation which is valid throughout the Community and which allows the supervision of an undertaking to be carried out by the home member state.’
5 As a result, the European Union has addressed the harmonization and strengthening of the European insurance market by initiatives such as PRIIPs Regulation,
6 IDD Directive,
7 and, most recently, the comprehensive ESG legislation,
8 as well as PEPP Regulation
9 to name just the major regulations governing life insurance.
Although insurance companies based in a member state of the European Union have been authorized to offer their products in other member states for 30 years now, both by the Lisbon Treaty and by various regulations and directives, under the freedom of establishment and/or the freedom to provide services, from a consumer’s point of view, even in 2024, insurance markets are still largely strongly dominated by national insurance products.
10This is especially due to the fact that insurers mainly offer their products only in their home markets. This article argues that legal obstacles are still a major hurdle for (life) insurers to offer their products cross-border.
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Concerning life insurance, broader access to products seems particularly important from a customer’s point of view. Life insurance has various functions. For example, it provides financial resources to support the policyholder’s family after death. However, it also provides financial resources for support (through investments) during the policyholder’s life in conjunction with a death benefit.
11 In addition, life insurance has an essential function as security for loans. Above all, however, the focus is on providing financial resources for the policyholder’s retirement phase (old-aged provision). As part of the publication of the PEPP Regulation, the European legislator once again pointed out that although households in the EU have the highest saving rates worldwide, most of these savings are available at short notice in bank accounts. Old-age pensions which are typical for life insurance in many member states or are at least regularly available as an option for capital life insurance products, represent a significant proportion of pensioners’ income. Moreover, for many people, adequate old-aged provision makes the difference between a comfortable life and poverty in old age. If more of the savings available in the European Union could be channeled into long-term investment products, such as voluntary pension products aimed at long-term retirement savings, both the whole economy (not only insurers) as well as individuals would profit massively. Individuals would in this regard especially benefit from higher returns and more adequate old-aged provision.
12 According to the European Commission, a more extensive European market for private pension provision would also help to ensure that more funds are available for institutional investors and investment in the economy.
13 In this context, the European Commission once again explicitly emphasized that the single market for private pension products is still not working.
14 _The example of life insurance, in particular, underscores the significant challenges in achieving a harmonized European single insurance market; a goal which has yet to be achieved. Instead, recent developments sometimes seem to be going in the opposite direction, as insurers shy more and more away from offering their products cross-border.
15
Whether consumers have access to life insurance products from foreign insurers in their national market ultimately results from the entrepreneurial decision of individual insurers based in other member states of the European Union. They decide to offer a particular product across borders on the same basis as they decide for (purely) national product launches. They make a business decision based on all opportunities and risks associated with it. Decisive parameters include the target market’s size and potential customers’ purchasing power. However, experience in recent years has also shown that the high legal hurdles that still exist for cross-border product launches in the European Union represent a significantly greater challenge than in a purely national environment and often lead to cross-border business being abandoned in cases of doubt or - at least initially - being put on the back burner behind other company projects. This paper provides an initial overview of the legal challenges that arise in these decision-making processes of insurance companies. In addition, this paper identifies potential improvements from a legal perspective that could help to strengthen the cross-border life insurance business. Moreover, to provide the reader with a complete overview, the Paper emphasizes briefly legal issues the European regulator needs to address reviewing the PEPP regulation.
2 2Regulatory Aspects of Cross-Border Life Insurance Business
2.1 2.1Single License Principle
From the insurance company’s perspective as a product provider in cross-border business, the first question is what is required to be authorized to offer products in another member state of the European Union. If an EU or EEA member state grants a licence to an insurer to do business, this licence is valid in all EU or EEA states (Art. 14 and 15 Solvency II). It is, therefore, a ‘European passport’ (so-called ‘single licence principle’).
16 The single licence principle is based on the mutual recognition of authorizations and supervisory systems within the EU.
17 An authorization granted from the supervisory authority of one member state entitles the insurance company to operate in all member states within the insurance lines for which it has been granted authorization.
18 The single licence principle is a key component of harmonizing insurance supervisory law in the EU and promotes the freedom to provide services (‘FoS’) and the freedom of establishment (‘FoE’) in the insurance sector. It enables insurance companies to operate across borders without having to apply for a separate licence in each member state. The supervisory authority of the home state is responsible for the financial supervision of the insurance company, which includes solvency criteria and the formation of technical provisions.
19 This principle was introduced as part of the third generation of directives and is now regulated in the Solvency II Directive. It forms the basis for the realization of a single European market for insurance, which is based on the FoE/FoS and the harmonization of legal systems. The supervisory authority of the country of domicile is primarily responsible for ongoing supervision within the EU. It is also primarily authorized to intervene. However, in addition, the supervisory authority of the host country is – within the framework of general legal supervision – to a limited extent responsible for supervising the business activities of an insurance company under FoS and FoE. If necessary, the host country supervisory authority may carry out checks and requests the insurance company to take appropriate measures. In the event of non-compliance, the supervisory authority informs the authority of the home state. If the latter also fails to take binding measures against the insurance undertaking, the authority of the host state may, as a last resort, make binding decisions against the insurance undertaking in accordance with Art. 155 Solvency II.
If an insurance company domiciled in an EU member state wishes to offer its life insurance or capitalization products in another member state, it first is necessary following the provisions of the Consolidated Life Insurance Directive 2002/83/EC, which was incorporated into Solvency II, for the company to conduct a notification procedure.
20 The conditions for the acceptance include the insurer’s notification that it wishes to establish a branch in the territory of another member state (or offer its products under freedom of services)
21 which requires inter alia the submission of certain documents required by the respective supervisory authority as part of this notification procedure.
22 The purpose of the notification procedure is to provide the supervisory authorities of both the home and the host ember State with the information required for joint supervision;
23 it is mainly similar to the procedure for notifying the commencement of the freedom to provide services.
24 The supervisory authority of the home state checks whether the requirements (e.g. the reliability of the authorized representative of the branch) for granting the licence are met in the case of an intended establishment of a branch in another member state and then informs the supervisory authority of the state of the branch about the granting of the licence.
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2.2 2.2Applicable Supervisory Law and Competent Supervisory Authority(ies) for Cross-Border Business
Once these formalities, which are manageable from the product provider’s perspective, have been completed, the insurance company is faced with the question of the legal structure of the products. The first step is to clarify which law applies to the design of the products. A distinction needs to be made between supervisory law and private law. In accordance with the single licence principle, the supervisory law of the home member state should always and fully apply to the company and the product, as indicated above in the quote from the European legislator. The reasoning behind is that the supervision of the entire business of an insurer domiciled in a member state, including the business which is written in another member state under FoE or FoS, is and remains the responsibility of the home country supervisory authority, i.e. supervisory authority at the company’s registered office (so-called home country control). This comprehensive regulatory framework is further underscored by the three-pillar model of the Solvency II supervisory regime,
26 which assigns the qualitative requirements for insurance companies’ capitalization and governance system to supervisory law. The same applies to the regulations on reporting and disclosure obligations both to the supervisory authority and to the public. Solvency II requires insurance and reinsurance companies to maintain an effective governance system that ensures their business activities’ sound and prudent management.
27 The main objective of regulating and supervising insurance and reinsurance companies under Solvency II is the appropriate protection of policyholders and beneficiaries.
28
For the supervisory authority of the country of operation, supervision is – as implied above – limited to the ‘general legal supervision apart from that’.
29 Therefore, the host country supervisory authority is only supposed to check whether the insurer complies with the relevant legal provisions that serve the ‘general interest’, i.e. compliance with consumer protection aspects for policyholders living in the host country.
30 In principle, this indicates a clear separation between supervisory and private law, which goes hand in hand with a clear separation of tasks between home and host country supervision. The supervisory objective of both host and home country supervision is to adequately safeguard the interests of policyholders,
31 insured persons and beneficiaries in every respect.
32 This obligation continues throughout the entire duration of an insurance company’s business operations. For example, according to the German Federal Administrative Court case law, the interests of policyholders and insured persons are not sufficiently safeguarded if the interests of the insured persons worthy of protection are impaired. The impairment of the interests as a whole and the unique features of the class of insurance concerned is considered unreasonable and so severe that official intervention is justified.
33 Nevertheless, supervision is limited to the extent that it may only be exercised in the public interest. Any further optimization is not permitted.
34
The regulations on the framework conditions for product development and product design are assigned to insurance supervisory law. Product design is an area where few harmonized standards at the European level exist, and national supervisory regulations dominate. In particular, supervisory laws of the member states of the EU reveal a broad spectrum of regulations on overall accounting, surplus participation systems, fund-based products, and risk minimization techniques. As a result, life insurance products are also structured differently, initially promising a broad market from the consumer’s perspective. Insurance companies design their products based on the supervisory law of their home country and bring these products across the border as part of their single licence. Consequently, the home country’s supervisory authority has to ensure that product development is carried out in accordance with the national supervisory regulations as well as that the insurance company does not engage in non-insurance business. However, it is important to note that product monitoring and control or better product oversight and governance (POG) has been harmonized through European initiatives.
35 As part of the product-specific product approval process, which applies both to new insurance products and to significant changes to the product, companies must define the target market and determine and assess the relevant risks for the target market. These tasks must also include corrective measures for insurance products that are disadvantageous to the customer. Furthermore, insurers must define an appropriate sales strategy for the respective target market and provide the relevant necessary information to the respective sales partners. These measures are not least intended to ensure the respective insurance product is sold to the specific target market. Only products that are compatible with the needs, characteristics, and objectives of the customers belonging to the target market can be marketed by the product providers. When assessing whether an insurance product is compatible with a target market, product providers have to take into account the level of information available to the customers belonging to that target market and their financial literacy. In addition, the insurance company must define the process for monitoring and regularly reviewing the insurance product. These requirements ensure that insurance products are always designed considering customers’ interests and characteristics and preventing negative effects on customers at the earliest possible stage and at any time. Thus, it can be summarized that the standardized requirements for POG ensure that the interests of customers (throughout Europe) are prioritized already in product design and throughout the entire life cycle of a product.
36 All product providers, and moreover all distributors,
37 in the European Union are obliged to comply with these almost standardized requirements throughout the European Union, regardless of the country in which the product is ultimately offered.
38 As a result, Insurance Based Investment Products (IBIPs), for example, have similar, if not identical, content, so the products do not differ significantly, and product providers have (anyway) no economic interest in these products differing significantly.
39 Therefore, if a cross-border insurance company (intends to) offer them throughout Europe, there will be no significant differences from the product provider’s point of view, at least in the national markets where the potential customers have similar characteristics. Nowadays, these differences are based in particular on necessary adjustments due to national insurance laws applicable to the insurance contract (see III. Below).
40
The final responsibility for monitoring the rules regarding POG in cross-border business has still not been clarified. From a product providers point of view, it makes sense that the supervision of the POG regulations falls under the supervision of the home country. This is also supported by the fact that the IDD is only a directive and not a regulation, and it is open to national legislators, also those in the countries where the insurers are based in the respective transformation acts,
41 to go beyond the directive provisions. And indeed, although it is not clear from the provisions of the IDD on the POG that the home country supervisory authority is also responsible for monitoring distribution in the host country, the author’s experience at least shows that the home country supervisory authority does inquire about the distribution of products abroad that have been withdrawn under domestic supervisory law.
Certainly, complementary to the IDD’s product and oversight governance provisions (although they precede the provisions of the IDD in terms of their publication date and validity) are product classification systems under Solvency II. Consequently, products that a life insurer intents to offer must also be classified, at least on a general basis, according to Annex II of the Solvency II. As part of the notification procedure, insurers must indicate which class of products under Annex II of Solvency II they wish to sell in the respective member state.
42 Although Annex II of Solvency II specifies standardized classes throughout Europe without restricting the scope for product developers too much, individual national legislators and supervisory authorities may have drafted parallel or supplementary regulations on classifications.
43 In this respect, it can prove challenging for insurers operating across borders to categorize their product, developed and classified by the national supervisory law of their home country, in the product classification scheme of the host country. On the one hand, such categorization is usually requested by the host country’s supervisory authorities when the product is launched. On the other hand, the national regulation on pre-contractual information sometimes also requires the national classification to be mentioned in particular (pre-)contractual documents, which are often additionally required due to national legislation.
44 Moreover, additional processes, such as supervisory or customer notification processes, might be linked to the national categorization. If modern foreign product concepts have yet to be known in the host country – currently, modern dynamic hybrid concepts can be named as an example – categorization is already tricky. Arising thereby: the processes and obligations linked to the national categorization, which are not or only partially compatible with the new (foreign) product concepts, prove to be a significant hurdle.
45 As a result,, the purpose of the nationally implemented obligation or processes and associated the added value for the customer cannot be achieved since the documents may not be meaningfully adapted to the product concepts and thus the actual purpose of the documents might be lost. Moreover, the fulfilment of the additional obligations increases the difficulties associated with the product launch. This leads to higher implementation costs on part of the product provider, including additional lengthy coordination rounds, necessary costly legal opinions, and discussions with supervisory authorities. This, in turn, results in higher costs for the life insurance products, which are likely to be borne by the customer. In economic terms, this makes the insurer’s product less attractive to customers and reduces competitiveness compared to national products.
The single license principle is the basis for cross-border life insurance business. The formalities for entering cross-border business are straightforward and make sense from a consumer protection point of view. The supervisory authorities need to know which insurers operate in their country to protect their policyholders effectively. The basic applicability of the law of the insurer’s domicile to insurance supervisory law is also beneficial in terms of a functioning single market. Solvency II and, in particular, the POG Process regulations published as part of the IDD Directive provide a solid basis for product development and monitoring, especially in the cross-border insurance business. However, national interpretations of European directives and regulations by national legislators and supervisory authorities significantly impede cross-border product launches, particularly concerning regulatory requirements. This is evident not least in national product classifications deviating from Solvency II and the associated processes or documentation obligations. Moreover, the responsibilities of supervisory authorities are not always clearly defined. Hence, it is worth discussing, not only with regard to European harmonization or standardization initiatives such as PRIIP or IDD, if it is still necessary that national legislators or regulators require specific nationally regulated processes or the obligation to create additional customer documents
3 3Challenges from the Area of Private Law
Once the regulatory hurdles have been overcome, the product provider must turn its attention to private law and clarify which private law regulations apply to the insurance contract. This initially concerns questions of private international law and then national insurance contract and consumer protection law, as well as other regulations that are to be applied based on national supervisory orders.
3.1 3.1International Private Law
3.1.1 3.1.1Choice of Law: Art. 7 Rom I Regulation
The applicable private law is determined by Regulation 593/2008
46 on the law applicable to contractual obligations (Rome I Regulation). Life insurance contracts are contracts for mass risks (Article 7(3) of the Rome I Regulation) as they do not fall under category ‘contracts for major risks’ within the meaning of Article 7(2) of the Rome I Regulation in conjunction with Article 5(d) of Directive 73/239/EEC. This limits the choice of law (and thus also private autonomy) to those legal systems in which the specified connecting criteria suggests a connection to the specific insurance contract.
47 The options in Article 7(3) subpara.1 (a) to I of the Rome I Regulation are on an equal footing.
48 By restricting the freedom of choice of law and thus private autonomy, the legislator sought to protect the policyholder as the weaker part. The contracting parties can decide which option they wish to use if several alternatives are relevant. As a rule, the law applicable to life insurance contracts will be the law of the member state
49 in which the risk is located in accordance with Art. 7 (3) subpara. 1 (a) of the Rome I Regulation.
50 When determining the location of the risk, the time of the conclusion of the contract is always decisive.
51 Accordingly, a relocation of the insured risk to a non-member state after the conclusion of the contract is irrelevant to the applicability of the conflict of law rules under Art. 7 Rome I Regulation. In the case of life insurance contracts, Art. 7 para. 6 Rome I Regulation locates the risk in the state of the obligation within the meaning of Art. 13 no. 14 Solvency II Directive.
52 Accordingly, the member state of the obligation is generally the state in which the policyholder has his habitual residence.
53 If the policyholder is a legal entity, partnership or other association, the member state of the undertaking or establishment to which the insurance contract relates is decisive in this regard.
54 Alternatively, under Article 7(3) subpara. 1 (c) of the Rome I Regulation, only the law of the member state of which the policyholder is a national may be chosen for life insurance policies.
55 The rationale behind the provision in Article 7(3) subpara. 1 (c) of the Rome I Regulation is that the policyholder usually remains bound to his home state even if he now has his habitual residence in another state.
56 In practice, there is hardly any other choice of law in life insurance apart from the alternatives described. Art 7 (3) subpara. 1 Rome I Regulation itself does not contain a conflict of laws provision but refers in Art 7 (3) subpara. 2 Rome I Regulation to the private international law of the member states. The provision, therefore, even contains an opening clause.
57
Although the European legislator has, in principle, created the possibility for member states to create a choice of law options, hardly any member state has made use of this possibility to date, particularly concerning life insurance, and it is currently unlikely that this will change soon.
58 Only the Italian legislator has endeavored to enshrine a corresponding choice of law for life insurance contracts in Art. 181 of the Italian Private Insurance Act. In addition, Austrian law, for example, also provides in Section 35 para. 1 IPRG that the parties may choose any other law in the cases of Art. 7 para. 3 subpara. 1 (a), (b) aI(e) Rome I Regulation, provided that the choice of law does not result in the policyholder being deprived of the protection afforded by the mandatory provisions of the law applicable without a choice of law (Section 31 para. 1 IPRG). However, the Austrian Supreme Court has ruled concerning the provisions of § 35 IPRG that life insurance policies are explicitly mentioned in Art 7 para 3 (c) Rome I Regulation.
59 Thus, according to the Austrian Supreme Court, the parties may only choose the law of the member state of the policyholder’s nationality following Art. 7 para. 3 lit. c Rome I Regulation.
60 Hence, it can be concluded that the Austrian Supreme Court is of the opinion that the extension of the choice of law option according to Section 35 (1) IPRG should not apply to life insurance policies.
61 Overall, it is worth discussing whether there is a need for such a substantial restriction of private autonomy for life insurance contracts. The discussion should take into account that policyholders, unlike investors, inevitably transfer some or all of the investment risks to the insurer due to the insurance mechanism behind.
The restriction on the freedom of choice of law also applies to all contracts under the term ‘life insurance’. The term ‘life insurance contract’ within the meaning of Art. 7 Rome I Regulation is to be interpreted autonomously with recourse to other acts of the European Union. Art. 7 Rome I Regulation also refers to this (secondary) legislation in other contexts, a definition based on the life insurance branches listed in Art. 2 para. 3 no. 1 lit. a (i-iii) and no. 2 (i-ii) Solvency II Directive could be evident. This means that Art. 7 (3) subpara. 1 Rome I Regulation extends to life insurance which comprises assurance on survival to a stipulated age only, assurance on death only, assurance on survival to a stipulated age or on earlier death, life assurance with return of premiums, marriage and birth insurance, annuity insurance and supplementary life insurance. According to a widespread but unconvincing view, this should also apply directly to capitalization products, as these are also mentioned in Art. 2 (3) No. 1 lit. a (i-iii) and No. 2 (i-ii) Solvency II Directive. According to Art. 2 (3) no. 1 lit. b (ii) Solvency II Directive, capitalization products are products whose development and distribution are permitted for life insurance companies. Capitalization products are products in which the single or recurring premiums fixed in advance and the obligations assumed are determined by duration and amount using a mathematical method.
62 Capitalization products are, therefore, life products, but not life insurance contracts in the traditional sense. In this respect, it is argued that it is at least worth discussing whether the protective framework of Art. 7 Rome I Regulation must apply to capitalization products from the customer’s perspective or whether the European or national legislation should allow an exception to the strict corset of Art. 7 (3) subpara. 1 Rome I Regulation concerning life insurance, at least for capitalization products. At least with regard to the term ‘life insurance contract’, the question must be asked whether the biometric risk that characterizes life insurance contracts, namely the life, death or longevity of the insured person, should not play a decisive role in the context of Art. 7 para. 3 subpara. 1 Rome I Regulation. However, such a biometric risk is not inherent in capitalization products. The current treatment of this legal issue has resulted in an artificial synchronization between supervisory and private law at this point,
63 with the indirect consequence that national supervisory authorities (still) declare insurance contract law to apply, at least in part or principle, to capitalization products.
3.1.2 3.1.2Extent of the Choice of Law: Art. 10 to 12 Rom I Regulation
In accordance with the provisions of Art. 10 and 12 of the Rome I Regulation, the law appointed to apply under Art. 7 of the Rome I Regulation decides in principle on all substantive legal issues relating to the insurance contract. It follows from these provisions that the contract statute covers all questions relating to the formation of the contract, its validity, interpretation, performance and termination (cancellation, rescission, avoidance or termination). Furthermore, the insurance contract statute also decides on the inclusion of the general insurance conditions (GIC) and on the claims, duties and obligations resulting from the contract.
64 The form of the insurance contract is determined in accordance with the alternative link of Art. 11 Rome I Regulation. Accordingly, life insurance contracts must fulfil the formal requirements of the contract statute or the formal requirements of the law at the place of performance.
65 Art. 6 Rome I Regulation plays a crucial role in determining the form of consumer contracts. It stipulates that the form is determined by the law of the policyholder’s habitual residence (Art. 11 para. 4 Rome I Regulation).
3.1.3 3.1.3Overriding Mandatory Provisions: Art. 9 Rom I Regulation
Irrespective of the choice of law, it should also be noted that in the event of a direct conflict, such provisions, which are often regarded by a country as decisive for safeguarding its public interest in social organization, can even be regarded as overriding mandatory provisions within the meaning of Art. 9 para. 1 Rome I Regulation.
66 Art. 9 Rome I Regulation is, therefore, a necessary valve through which the conflict of laws opens up for fundamental state regulatory concerns, but at the same time, it always has an exceptional character to the unitary connection according to Art. 3 et seq. Rome I Regulation, and thus also to Art. 7 Rome I Regulation.
67 The basic requirement for the application of a provision as an overriding mandatory provision in the sense of Art 9 Rome I Regulation is the mandatory nature of this provision. To this end, the legal provision must fulfil several requirements. At the first level, the rule in question must not be at the disposal of the contracting parties within the framework of the legal system to which it belongs. Whether this is the case is not determined by Art. 9 Rome I Regulation but solely by the regulatory content of the provision in question and must be determined by its interpretation. The national interpretation standards of the respective enacting legislation are decisive.
68 In addition to its mandatory nature, the respective provision must have an international claim to validity.
69 With their effect of breaking through the contractual statute, overriding mandatory provisions thus have a considerable influence on the basic principle of modern private international law, which assumes the fundamental equivalence and interchangeability of all private law systems and, therefore, subjects the international situation to the law that is most appropriate in terms of territory. In this respect, it can be argued that Art. 9 of the Rome I Regulation already provides sufficient protection for policyholders.
Despite these possibilities, which are or better would be in particular resulting from a correct utilization of Art. 9 Rome I Regulation, the European legislator has so far adhered to the strong restriction of private autonomy in the area of private international law in the insurance sector, as laid down in Art. 7 (3) subpara. 1 Rom I Regulation. This is certainly one reason why cross-border life insurance business is only successful to a limited extent. It is obvious that the applicability of only one legal system for its products would not only save costs for the insurer in terms of product development, but also in terms of ongoing contract management, which would then also be governed by a single national law, and consequently without having to adjust documents and processes to different legal systems.
3.2 3.2General Good Requirements
3.2.1 3.2.1General Good Requirements: Backgrounds
Beyond the challenges on cross-border life insurance imposed by the Rom I Regulation, the so-called ‘general good requirements’ (GGR) (or ‘general good rules’) also pose a considerable challenge from the perspective of the product provider. The European Commission’s interpretative communication on the freedom to provide services and the general good in the insurance sector (2000/C 43/03)
70 stipulates that the host country may lay down certain provisions of its national law that EU companies operating in its territory under FoS or FoE (based on the Single license principle) must comply with when carrying out their activities (Articles 146(3), 156 and 180 Solvency II).
71 As the GGR can restrict or hinder FoS and the FoE, the European legislator has specified that a national provision can only be classified as a provision of general interest if it fulfils the following conditions:
72
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The legal norm must relate to a non-harmonized area and pursue an objective that is in the general interest. In addition, the standard must not be discriminatory.
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The purpose it pursues must be objectively necessary and the restriction imposed by the standard must be proportionate to the objective pursued.
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Finally, the public interest objective must not be guaranteed by the rules to which the provider is subject in the member state in which he is established.
The supervisory authorities of the host member state shall publish these general product rules on their websites. The supervisory authorities should inform insurers established in other member states of the relevant national public-interest legislation, particularly consumer protection rules, which must be observed when selling insurance products in that member state. Looking at the extensive and sprawling lists of the GGR that can nowadays be found on the websites of the (host country) supervisory authorities,
73 the question must be allowed as to whether all of the provisions listed there actually fulfil the stated criteria. This is particularly doubtful when supervisory authorities list entire or almost entire codes of law and do not refer specifically to individual regulations. The comprehensive lists are sometimes difficult for foreign companies to oversee. In addition, the legal provisions listed there are adapted in unregular intervals, i.e. due to changes and amendments to the law. For foreign insurers, this means that law firms operating in the host country would generally have to be permanently mandated in order to not miss any changes and to be in a good position to make necessary adjustments. Product providers urgently need to comply with the GGR, since according to Article 180 of the Solvency II, neither the home, nor the host state may prevent policyholders from concluding a contract with an insurer authorized under freedom of service as long as the conclusion of the contract is not contrary to the legislation listed in the GGR of the member state.
3.2.2 3.2.2General Good Requirements: Application Cases
The GGR are always applicable when an insurance-related situation arises in the host country, governed by FoS or FoE. In this respect, it should also be noted that the European legislator has not made any reference to the choice of law provisions of Art. 3 et seq. of the Rome I Regulation. What this means in detail can be illustrated by the following brief examples: As long as, for example, a German life insurer wishes to sell a life insurance policy to a Spanish citizen whose center of life is in Madrid, Spain, this has no significant impact purely in terms of the applicable private law provisions published in the list of the GGR by the Spanish supervisory authority, as Spanish (private) law
74 will apply according to the Rom I Regulation to the contract anyway (see above). If the same German life insurer wishes to sell a life insurance policy developed in accordance with German law to a German citizen who has his center of life in Madrid, he can do so, as shown above, by concluding a life insurance contract with him to which German law applies per Art. 7 para. 3 subpara. 1 I Rome I Regulation. However, the fact that the German national has his center of life in Spain means that insurers who wish to sell to nationals and the law of the policyholder’s nationality is chosen must take into account the GGR of the host country. This may result in the fact that essential elements of the contract may have to be adapted. The reason repeatedly given is that the insured person needs to be protected by the laws of the member state in which the commitment was entered into. This also means, for example, that pre-contractual information obligations specified in the GGR of the host country prior to the conclusion of the contract must also be fulfilled. In this context, it is also unclear what happens if the provisions of the laws specified in the GGR of the host country conflict with those of the home country applicable to the insurance product. It remains to be seen whether a solution can always be found in the policyholder’s best interests.
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3.2.3 3.2.3General Good Requirements and the ‘Correspondence Insurance’
Similarly, the situation is unclear in the case of so-called ‘correspondence insurance’. The correspondence insurance refers to a situation in which a policyholder contacts an insurance company in another member state on its own initiative.
76 Let us assume a French customer living in Brussels, Belgium, who contacts a French insurance company on his own initiative. In this respect, it is debatable and still not finally clarified whether these cases are subject to FoS or FoE at all or whether the correspondence insurance should initially be an exceptional case in that it should be regarded as purely domestic business.
77 The fact that the insurer’s business is not focussed on the ‘host country’ in the case of correspondence insurance certainly speaks in favor of the correspondence insurance being out of the scope of FoS. This is supported by the fact that there are generally no targeted advertising measures conducted or websites designed specifically with the ‘host member’ state in mind. Additionally, there is also usually no translation of documents or advertising materials. The freedom of supervision with regard to the ‘host country supervision’ of correspondence insurance can probably also be justified by the fact that a policyholder who deliberately approaches an insurance company abroad cannot expect the supervisory authority of his home country to supervise the insurance company abroad. By actively acting across the border, the policyholder deliberately places himself in the hands and under the supervisory regime of the insurance company’s home country. Irrespective, this should not be detrimental within the EU, whose supervisory regime is, as shown, largely fully harmonized under Solvency II. On the contrary, Solvency II aimed to facilitate cross-border insurance business within the EU (and also the EEA). If one assumes, contrary to the view expressed here, that the cases of correspondence insurance also are subject to FoS or, as is sometimes formulated, a so-called ‘passive freedom to provide services’, this would initially mean that in the example mentioned above, the French insurer would have had to notify the regulatory authorities of the commencement of the freedom to provide services in Belgium before concluding the contract. Furthermore, and generally much more critical for insurance companies, the question then arises as to whether this would also have the consequence that this life insurance contract, which would only be concluded because the French citizen actively approaches the French insurer (across the national border) in order to obtain insurance cover, would also mean that the Belgian GGR would apply (in full) to this contract. For the insurer, this is likely to mean that, in case of doubt, it will not be able to conclude the corresponding contract – at least not without a significant delay and effort –, as the insurer is unlikely aware of any possible consequences for its insurance contract regarding the GGR published by the Belgian supervisory authority; at least not without conducting a comprehensive review of the GGR (and adjusting the contract). For the policyholder, this is inevitably associated with an (unnecessary) narrowing of the available product range.
3.2.4 3.2.4General Good Requirements and the ‘Departure or Relocation Cases’
Furthermore, it has not been conclusively clarified whether the GGR extend to so-called departure or relocation cases.
78 If, for example, a German citizen with a center of life in Germany or an Italian citizen with a center of life in Germany each conclude a life insurance contract with an insurance company based in Germany, the contracting parties can in both cases choose German law. Suppose both parties decide to relocate their center of life to France after a few years of the contract duration. In that case, the question arises as to whether the insurance contracts are subject to the freedom to provide services and, therefore, also to the application of the French GGR, as the GGR, unlike the Rome I Regulation, does not recognize the time of conclusion of the contract as a regular connecting factor.
79
3.2.5 3.2.5General Good Requirements: Summary
The GGR represent a major, if not the biggest, challenge in the cross-border insurance business. Whether such a far-reaching restriction of the freedom to provide services and freedom of establishment is necessary should be reviewed by the by the EU’s institutions, particularly by EIOPA. Moreover, as mentioned before, particularly with regard to the life insurance sector – and as important consumer protection, especially regarding the purposes of life insurance, undoubtedly is – Solvency II and more recent regulations such as IDD and PRIIP have created such a high level of protection for policyholders throughout Europe that it does not appear to be necessary to protect policyholders even more through national regulations. Given the strict provisions of private international law for insurance law, whether the GGR are ultimately needed might also be discussed. Moreover, as explained above, Art. 9 Rome I Regulation sets out the conditions that may nevertheless guarantee a high protection of policyholders in case of any lack of mandatory protection by national provisions in individual cases.
3.3 3.3Requirements of National Private Law
Once it has been clarified during the product launch process which national law must be applied to the life insurance contract, the insurer operating across borders must ask what effects this will have on the insurance conditions and other pre-contractual and contractual documents originally drafted for the home country, the processes and whether there will even be any effects on the product as such.
3.3.1 3.3.1Overview
Most insurance contract law regulations in the European Union are still the result of national legislation. National insurance contract laws are generally tailored to national supervisory law and, therefore, to ‘domestic’ insurance products. Many aspects of consumer protection are also anchored in national contract laws. There is no European insurance contract directive or regulation.
80 All corresponding initiatives have failed so far. The national provisions of insurance contract law often prevent the parties from opting out (mandatory provisions) or deviating to the detriment of the policyholder (semi-mandatory provisions). Such mandatory or semi-mandatory rules may restrict the insurer’s freedom to provide services across borders (and thus constitute obstacles) always with the indication of consumer protection. Without any doubt, it might be argued that this is positive from the point of view of both consumers and national supervisory authorities. Consumers are most familiar with their contract law. National supervisory authorities might know their own national insurance contract law regulations best and can, therefore, best fulfil their task of protecting consumers resident in their country. However, in view of the range of products available, this certainly also has disadvantages for customers.
With regard to insurance contract law, more than ten years ago
81 the European Commission set up a group of experts to analyze the impact of differences in national contract law on cross-border insurance business under the freedom to provide services and the freedom of establishment.
82 Its final report of 24 January 2014
83 concluded that both pre-contractual information obligations and the calculation of surrender values are highly relevant to cross-border life insurance business. In addition, issues such as the diverging cancellation periods, the consequences of cancellation, various national questionnaires, the regulations regarding the payment of premiums and different cancellation regulations in individual European jurisdictions are often very obstructive concerning cross-border life insurance business.
3.3.2 3.3.2National Provisions of General and Special Insurance Law
To give the reader a first rough impression of the variety, peculiarities, and differences in the national insurance contract law regulations, some of the divergent regulations in the national regulatory frameworks are presented below as examples.
84
3.3.2.1Conclusion of Contract
If product providers in cross-border business are in the process of launching a product, the first question in relation to contract law that arises, also in order to be able to set up IT processes correctly at an early stage, is the question of the contract conclusion procedure and directly associated obligations, such as formal requirements. Although differences in the actual or technical handling of the conclusion of the contract, which do not necessarily have legal reasons, always come to light at this stage, it is also obvious that the legal differences in the area of contract conclusion are significant from country to country. In Germany, the insurance contract is bilateral. The policyholder makes an offer, which the insurer accepts after a review. A special requirement of form, text form or even written form of the contract is not required, but the insurer must issue an insurance policy, § 3 para. 1 of the German Insurance Contract Act (VVG). This policy must be handed over to the policyholder in writing, i.e. at least in text form. As long as the insurer has not issued the policy, the applicant is not obliged to pay the premium (§ 33 VVG). Insurance cover can be refused if the policyholder has not paid the first premium due (cf. § 37 Para. 2 VVG). Under Austrian law, the insurance policy must be sent to the policyholder on paper or electronically, § 3 Austrian Insurance Contract Act (VersVG). In Italy, a contract is concluded following the provisions of Article 1326 et seq. of the Italian Civil Code (codice civile (CC)). Accordingly, the offer is usually made by the policyholder and is binding for 15 days. The contract is concluded when the insurer accepts the offer and communicates this acceptance to the policyholder. According to Article 1888 CC, the contract must be recorded in writing for reasons of proof. The insurer is obliged to provide the policyholder with a copy of the contract. Unless otherwise agreed, contracts must be written in Italian. Under Spanish law, the insurance contract becomes effective when the policyholder notifies the insurer of acceptance of the offer. There is no legal obligation to conclude the contract in a specific form.
85 The conclusion of an insurance contract in France is governed by Article L112-3 of the French Insurance Code (C.assur.). According to this article, the contract and all related information provided by the insurer must be in writing, in French and in an understandable format. The contract itself is concluded by the parties’ mutual agreement, regardless of whether this is given orally or in writing. The written form is only required as proof of existence and content of the contract. If the parties agree on a different law per Article 7(3) subpara. 1 I of the Rome I Regulation, they may also choose a different language for the contract.
3.3.2.2Information and Documentation Obligations
Once the issues relating to the conclusion of the contract have been clarified, it is then necessary to discuss whether specific information obligations exist under the national law of the host country. For example, depending on the national general insurance law, a certain clause relevant to the design of an insurance product may be declared null and void because formal requirements have not been met. According to French law, Art. L 112-4 C.assur., exclusion clauses must be printed in bold in a visible place on the policy. An insurance policy from a foreign product provider sold on the French market without complying with this formal requirement would render any exclusion clauses invalid. In some member states, national provisions of insurance contract law also require that the insurer must be able to prove that the policyholder has received, read and accepted the terms and conditions of the contract. In addition, the French Insurance Code contains several very detailed provisions on the content and form of the documents to be provided to the policyholder in the pre-contractual phase.
86 Other national regulations provide for specific deadlines to be met by the insurer, e.g. for the application of sanctions following the discovery of a non-disclosure or misrepresentation, an increase in risk or any other fact relevant to the contract. In some member states, the insurer is obliged to warn the policyholder in some instances, e.g. under the VVG, the insurer is obliged to inform the policyholder of the consequences of a breach of the duty of disclosure or misrepresentation,
87 a breach of the contractual duty to disclose and provide information about an insured event,
88 or the non-payment of the premium.
89
3.3.2.3National Life Insurance Law
In life insurance, product-related mandatory regulations are another point to consider for the cross-border business. If, for example, death risks are insured, as it is typically the case with term life insurance, statutory or contractual exclusion clauses, which are intended to exempt the insurer from liability in the event of the suicide of the person at risk, are often restricted by mandatory provisions. However, these differ regularly in detail. In Germany, the insurer must always pay the insured amount if the person at risk commits suicide more than three years after the contract was concluded.
90 Within the first three years of the policy term, the insurer only has to pay the insured amount if the person at risk commits suicide while lunatic (§ 161 Para. 1 Sentence 2 VVG). In contrast, the latter rule applies in Austria, for example, irrespective of the time of suicide (cf. § 169 VersVG). Another example is the written consent required under Austrian and German law from the person at risk on whose life a life insurance policy is taken out.
91
With regard to life insurance, contractual and pre-contractual information obligations play an essential role both in a purely national context and especially in an international context. The recent developments on the European legislative stage are fundamentally positive for cross-border business transactions. For example, the PRIIPs Regulation has laid down standardized rules for pre-contractual information for IBIPs.
92 These relate to the format and content of the key information document to be prepared by PRIIP manufacturers. The aim is to enable retail investors to understand and compare the key features and risks of the PRIIP.
93 The regulation aims to provide investors with concise and clear key contractual information for pre-contractual decision-making.
94 Like other financial products, life insurance contracts that are subject to the PRIIPs Regulation are to be explained comprehensibly, thus creating cross-sector comparability of different financial products.
95
Despite numerous standardization and harmonization efforts, national regulations remain the key players in the field of (pre-) contractual information obligations. For instance, the French Insurance Code is home to a plethora of highly detailed regulations on the content and form of the documents that must be provided to the policyholder in the pre-contractual phase (particularly under Arts. L. 132-5-1, L. 132-5-2, A. 132-4 and A. 132-8 C.assur.) The German Regulation on information requirements for insurance contracts (VVG-InfoV) also houses comprehensive regulations that product providers must adhere to. The obligation to provide ongoing contractual information, a feature present in many legal systems, is a prime example of how a single rule can be found across all legal systems. However, the structure and level of detail pertaining to the information to be provided vary from member state to member state, highlighting the crucial need to understand and navigate the national regulations.
96 Furthermore, it can be observed that Member States have, for example, implemented EU law requirements on pre-contractual information in different ways
97 or have also issued additional requirements in order to achieve an (even) higher level of protection for national consumers in their member state, a practice often referred to as “gold plating”.
98 As a result, there are still significant differences in legislation and case law between the member states as a whole concerning (pre-)contractual information requirements.
3.3.3 3.3.3(National) Supervisory Regulations Within (National) Private Law
In addition to the provisions that are exclusively attributable to private law, the following additional aspect must be considered from the perspective of the product provider. As mentioned, the national insurance contract laws are based on the respective national supervisory law. In many jurisdictions, supervisory law and contract law are not entirely separable from each other. Instead, provisions can be found in the contract law regulations that refer to the national structures of national supervisory law. This inevitably leads to difficulties when launching products in the cross-border insurance business.
For example, Section 153 VVG grants policyholders of life insurance contracts a right to participate in the surpluses generated by the insurer (including hidden reserves). These profits must be calculated and distributed as prescribed in Section 153 VVG.
99 The right to profit-participation may be excluded in total. However, if a contract that offers profit participation is offered, a change or exclusion of the policyholder’s rights as laid down in § 153 Para. 1 VVG is prohibited. The provision of Section 153 VVG, which is also included in the list of GGR published by BaFin, applies in principle to foreign insurers, in particular those based in the EU or EEA, if they conclude insurance contracts with policyholders who have their habitual residence in Germany.
100 According to the explanatory memorandum to Section 153 of the VVG, the law is to be applied to foreign insurance companies with the provision that the profit is to be determined based on the annual financial statements the company must prepare. For insurance companies domiciled in an EU member state or an EEA contracting state, the respective transposition provisions of Directive 91/674/EEC as amended by Directive 2003/51/EC and Directive 2006/46/EC apply. The annual financial statements, prepared in accordance with the relevant law of the country in which the company is domiciled, are the basis for determining the surpluses. The extension of Section 153 to foreign EU/EEA member states interferes with their product design and, therefore, restricts their freedom to provide services and freedom of establishment. Whether this restriction is justified by the interest of consumer protection, is doubtful, at least not sufficiently substantiated.
It is also noteworthy that national supervisory regulations are increasingly finding their way into the member states’ respective national insurance contract laws. Another illustrative example from the recent past can be found in French law.
101 The new Article L 131-1-2 C.assur. was introduced to increase the offer of solidarity and responsible funds and green funds in life insurance contracts. Every unit-linked contract taken out from 1 January 2020 must offer at least one unit of account in its range of financial products consisting of assets that meet at least one of the following three conditions: A proportion of between 5% and 10% must consist of securities issued by authorized solidarity-based social utility companies, by venture capital companies as defined in Article1(1) of Law No. 85-695 of 11. July 1985 or by venture funds, at least 40% of whose assets consist of securities issued by solidarity-based companies, having obtained a label recognized by the State that meets the criteria for financing the energy and ecological transition in accordance with procedures laid down by decree or having obtained a label recognized by the State and meet the criteria for socially responsible investment in accordance with procedures laid down by decree (C. ass. Art. L 131-1-2 new, paras. 1 to 5).
102
,
103
As a result, insurers aiming to sell their products in another member state must comply with these regulations, which are, technically, supervisory law, when designing and distributing their products. The same applies to official announcements by the supervisory authorities. These are often addressed to domestic insurers and those operating in the respective member state under the FoE or FoS. As far as purely contractual or consumer protection aspects are concerned, this may appear uncritical. However, regulations that concern essential aspects of product design, i.e. supervisory law, can easily be categorized as consumer protection. At the same time, many national contract law regulatio–s - for example, with regard to documentation requiremen–s - are very much tailored to national supervisory requirements and, therefore, to domestic products. Nevertheless, foreign insurers must comply with these requirements even though these regulations do not fit their products, and consumers often do not benefit from their compliance by foreign insurers. In addition, there are significant differences in insurance law and terminology. This poses a significant challenge for product design and the cross-border distribution of products. Furthermore, the issue of inconsistent terminology will likely play a significant role in the future comparability of products within the Open Finance Initiative.
104
4 4Excursus PEPP
When discussing cross-border (life) insurance business, the regulation on a Pan-European Pension Product (PEPP) has been a recurring theme in recent years. Thus, this EU initiative should as a last point at least be briefly touched.
105 The PEPP is supposed to be a private pension product of the third pension pillar that all financial service providers, authorized under European law, can market in the European Union. This includes also insurance companies. The PEPP does not harmonize existing pension products; it is an additional optional product. For product provider (and customers), this sounds promising at first. However, contrary to the EU Commission’s and EIOPAs original announcements,
106 it turns out that PEPP has not become a successful model since its market launch in March 2022, and there is still no (significant) PEPP manufacturer.
107
,
108 Firstly, there are actuarial reasons for this, which are not least due to the provisions of Commission Delegated Regulation (EU) 2021/473 of 18 December 2020.
109But secondly, it is also the case that the PEPP is far from being an original European product from a legal perspective. There are some deviations of the PEPP Regulation from existing European Regulations, which are not always necessary. In particular, the diverse and complicated references to national law, various sectoral supervisory regimes, a confusion of national and European law, legal sources of different normative quality and legal areas of different systems (supervisory law, tax law, contract law, etc.) due to the unique conception of the PEPP with so-called accounts and sub-accounts that have a deterrent effect.
110 The example of the PEPP has rather shown that the fundamental legal and tax framework must first be created before such a comprehensive, original European product can function. PEPP in its current form has so far not been the answer for a flourishing cross-border (life) insurance business. To achieve this goal in the future, the EU Commission must carefully address the points mentioned in a future review of the regulation.
5 5Concluding Remarks
Insurers who want to offer their products across borders still have to deal intensively with foreign legal systems, as the existing choice of law options only generally lead to applicability of the law of the host country being applied to the contract in cross-border business. In addition, the regulations of the General Good Requirements also imply that a wide range of regulations of the national insurance contract and supervisory law of the host country are to be applied to the product or contract. Furthermore, there are still significant differences in national insurance contract and consumer protection laws, adding to the complexity of the situation. In addition, it is important to note that the variations in the implementation of directives across EU member states, along with the associated differences in supervisory practices, remain a significant issue. This was a point of contention for the EU during the 2008/2009 financial crisis, and it continues to be a challenge for the single insurance market. Despite the ongoing flood of European regulation, it has not yet been possible to standardize European competitive conditions in life insurance.
111 A genuine common market for life insurance seems desirable from the point of view of both insurers and policyholders.
Although indeed customer protection seems to be the right measure to tackle many problems which were revealed during the financial crisis, increasing complexity as highlighted in this paper clearly is not. As consequence, insurers cannot simply offer products marketed in their home country in another member state without time-consuming and costly legal analyses and often very complex adjustments to the legal requirements of the host member state. Products designed and calculated according to the actuarial principles applicable in the insurer’s home member state may even have to be recalculated according to the ‘contract law’ requirements of the target market. Actuarial science, and therefore the life insurance business, is based on the law of large numbers and risk diversification. It could therefore be more efficie–t - and less costly in terms of premiu–s - if an insurer would only have to develop and market one single ‘European’ product (or tariff). This could certainly open up the market to a broader range of (still very well-protected) customers. However, this has not yet been possible. Irrespective of other factors, the large number of mandatory rules and their diversity in the different member states poses an operational problem for an insurer entering into a new market. Moreover, the complexity of these regulations often hinders an insurer from having the same staff and IT system dealing with these matters in different jurisdictions. The insurer has to hire specialists and maintain a separate IT system for each member state. This incurs additional costs that may prevent an insurer from becoming seriously active in other EU member states. These costs increase with the number of member states an insurer operates in. It can therefore be stated that – despite all efforts – the single licence principle is still not decisive for a noteworthy cross-border business in the life insurance sector. Admittedly, a joint European effort to achieve more flexibility in the choice of law or, even, a common unified private insurance law would open up the opportunity to truly create a European single market for life insurance. From the author’s point of view, a comprehensive, targeted and perhaps completely rethought review of the PEPP regulation could be a good start.
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