Commission Interpretative Communication - Freedom to provide services and the general good in the insurance sector

Published date16 February 2000
Subject MatterFreedom of establishment
Official Gazette PublicationOfficial Journal of the European Communities, C 43, 16 February 2000
EUR-Lex - 32000Y0216(01) - EN 32000Y0216(01)

Commission Interpretative Communication - Freedom to provide services and the general good in the insurance sector

Official Journal C 043 , 16/02/2000 P. 0005 - 0027


Freedom to provide services and the general good in the insurance sector

(2000/C 43/03)

The Third Council Directives 92/49/EEC and 92/96/EEC(1) completed the establishment of the single market in the insurance sector. They introduced a single system for the authorisation and financial supervision of insurance undertakings by the Member State in which they have their head office (the home Member State). Such authorisation issued by the home Member State enables an insurance undertaking to carry on its insurance business anywhere in the European Community, either on the rules on establishment, i.e. by opening agencies or branches in all the Member States, or under the rules on the freedom to provide services. Where it carries on business in another Member State, the insurance undertaking must comply with the conditions in which, for reasons of the general good, such business must be conducted in the host Member State. Under the system set up by the Directives, the financial supervision of the business carried on by the insurance undertaking, including business carried on under the rules on establishment or on the freedom to provide services, is always a matter only for that insurance undertaking's home Member State.

In the course of its contacts with umerous economic agents, the Commission has come to realise that uncertainty surrounds the interpretation of the scope of the Treaty rules and of the provisions of the Insurance Directives, in particular the basic concepts of freedom to provide services and the general good. In many cases this results in the application by the supervisory authorities of measures or penalties in respect of insurance undertakings wishing to do business in the single market or in the imposititon by them of certain constraints or conditions regarding the conduct of business on their territory. The situation in which insurance undertakings find themselves is far from clear and they thus face considerable legal uncertainty, both as regards the arrangements applicable to them in the different Member States and as regards the content of the products they wish to offer. The differences of interpretation seriously undermine the workings of the machinery set up by the Third Directives and are thus likely to deter certain insurance undertakings from exercising the freedoms created by the Treaty which the Third Directives set out to promote and, hence, to restrict the free movement of insurance services in the European Union. These differences are also preventing those seeking insurance from having access to insurance undertakings elsewhere in the Community and to the range of insurance products available within the single market in order to select the one that best fits their needs in terms of cover and cost.

In its communication to the Council of 28 October 1998 on financial services(2) which was drawn up at the request of the Cardiff European Council of June 1998, the Commission identified differences in interpretation of the Community rules and the resulting legal uncertainty as one of the factors preventing the single market in financial services from functioning properly. At its meeting in Cologne on 4 June 1999, the European Council endorsed the Action Plan(3) including the proposals and priorities contained in it, which was presented by the Commission following discussions within a group of personal representatives of the finance ministers which it chaired. This Action Plan includes the adoption of a Commission interpretative communication on freedom to provide services and the general good in the insurance sector among the priority objectives for helping to ensure that the single markt operates effectively.

This interpretative communication is the Commission's contribution to the discussions it has held on the problems associated in the insurance industry with the freedom to provide services (Part One) and the general good (Part Two), particularly in the light of the third Council Directive on insurance (92/49/EEC and 92/96/EEC).

The Member States (particularly within the framework of the insurance committee and the sub-group on the interpretation of insurance directives), private operators, the European Parliament and the Economic and Social Committee have been involved in these discussions.

Before adopting the Action Plan, the Commission published in the Official Journal of the European Communities a draft communication(4) which marked the beginning of a wide-ranging consultation process. Following publication of that communication, it received numerous contributions form all the groups concerned (Member States, professional associations representing insurers and intermediaries, insurance companies, consumer organisations, law firms, etc.). It also organised hearings with interested parties.

The Commission deems it desirable to draw attention to and to systematise the principles governing the right of establishment and the freedom to provide services, as elucidated by the Court of Justice, and to consider how they apply to the Third Insurance Directives(5). This interpretation is based on the provisions of the Treaty, the texts of the community Insurance Directives and on the decisions of the Court of Justice, which has set out a large number of principles essential to the observance of the right of establishment and the freedom to provide services(6).

In publishing this interpretative communication, the Commission is seeking to make transparent and to clarify the common rules which it is its task to see are observed. It is supplying all those concerned - national administrations, economic agents and consumers - with a reference tool wich explains the Commission's opinion with regard to the legal framework in which insurance business may be carried on.

The interpretations and ideas set out in the present communication, which concern only the specific problems of the insurance sector(7) do not claim to cover all possible situations that can arise in the functioning of the single insurance market, but merely the most frequent or most likely.

It should be pointed out straight away that the interpretations given in the present communication do not necessarily represent the often very divergent views put forward by the Member States and should not, in themselves, impose any new obligation on them. Neither do the interpretations prejudge the Commssion's subsequent interpretations of the principles of establishment and freedom to provide services with regard to the development of communication technology and its use in the insurance business. European Community policy on the information society and electronic commerce is designed to promote the expansion of information society services and their movement between the Member States, especially electronic commerce(8). The development of electronic commerce in the insurance and financial business should become very important and should eventually change the machinery for distributing insurance products in the European Community. The current legal framework for the single market in insurance is based on machinery where consideration has not been given to how to use this new technology for carrying out insurance business in the single market, and further work may possibly have to be carried out in the area. In this connection, the proposal for a European Parliament and Council Directive concerning the distance marketing of consumer financial services(9) will provide a proper harmonised legal framework for distance transactions carried out with consumers, thereby contributing to the growing use of new remote communication techniques, such as the Internet.

It goes without saying that the Commission's interpretations do not prejudge the interpretation that the Court of Justice of the European Communities, which is responsible in the final instance for interpreting the Treaty and secondary legislation, might place on the matters at issue.



1. Freedom to provide services

(a) Temporary nature

Article 49 et seq. of the Treaty establish the principle of the free movement of services. The principle acquired direct, unconditional effect on the expiry of the transitional period(11). It confers on the parties concerned rights which the national authorities are required to observe and uphold, by refraining from applying any conflicting provision of national law, whether legislative or administrative, including specific, individual administrative decisions(12).

It should be noted that, according to the decisions of the Court of Justice, the freedom to provide services may involve the movement of the provider of the service, as envisaged in the third paragraph of Article 50 of the Treaty, or the movement of the recipient of the service to the Member State of the provider; the service may, however, also be carried out without any movement, either of the supplier or of the recipient(13). In other words, Article 49 et seq. of the Treaty apply in all cases where a person providing services offers those services in a Member State other than that in which he is established, wherever the recipients of those services may be established. It is only when all the relevant elements of the activity in question are confined within a single Member State that the provisions of the Treaty on freedom to provide services do not apply(14).

Where business is carried on under the freedom to provide services with the provider present on the territory of the Member State of provision, the...

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