Insurance Guarantee Schemes (IGS) afford an insurance policy holder with emergency protection should an insurer be unable to perform their contractual obligations. Only a few of the 27 member states that make up the union currently have such a scheme in place. In present economic times, with fears of companies becoming insolvent, such protection has probably never been more warranted. The European Union has been investigating how best to protect individuals insurance policies.

It makes sense that an individual who has paid an often substantial premium should have good protection. People usually purchase premiums either out of necessity or for added peace of mind, certainty and stability, if the policy is not guaranteed then the benefits for purchasers are perhaps not sufficiently protected.

Since 1994 guarantee schemes have been in place in banking and security sectors and in 2001 the Commission began assessing extending guarantee schemes to cover insurance. The Commission is concerned that lack of community wide harmonisation in this area could cause the sector many problems, ultimately risking the market stability of the insurance sector. Without this trust and stability in marketplaces economic recovery will be much harder. The introduction of such schemes can increase consumer faith leading to higher levels of spending which in turn could revitalise a struggling economic community. It consequentially makes great sense for the European Commission to attempt harmonisation in this area.

To achieve this, the Commission have made suggestions published in the White Paper on

Insurance Guarantee Schemes. Their preferred option is essentially to issue a Directive setting out minimum standards member states must meet with relation to IGS. By issuing a Directive it will however provide them member states with the autonomy to decide the most suitable method of them achieving the minimum standards. In the paper the Commission invited all relevant parties to convey their views on the proposal by November 2010. Consequentially the Commission should now be in a position to evaluate these and perhaps be in a position to pass a Directive in the not too distant future. Let’s hope any IGS system introduced does not encourage insurers to take riskier decisions when deciding who to grant policies and at what price. Surely we do not want a repeat of the banking bailout. It is therefore logical that any Directive passed should clearly ensure that its benefits are purely conveyed on the consumer, rather than providing insurance companies with an opportunity to take greater risks.