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Freedom to provide services
The objective of the Communication is to provide economic operators and Member States with the Commission's interpretation, specifically in the context of the Insurance Directives, of the concepts of freedom to provide services and the general good.
Interpretative communication of the Commission concerning the freedom to provide services and the general good of the insurance sector [Official Journal C 43 of 16.02.2000]
The main objective of the Third Council Directives Nos 92/96/EEC (life assurance) and 92/49/EEC (non-life insurance) is to allow any insurer authorised in a Member State to carry on its insurance activities throughout the European Union, whether under the rules on branches or under the freedom to provide services. The Directives introduced a single system for the financial supervision of an insurer by its Member State of origin (home-country control). However, the Commission has identified differences in the interpretation of the Community rules that are hampering the smooth functioning of the insurance sector within the internal market.
Freedom to provide services and right of establishment in the insurance Directives
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 concept of the provision of services is basically distinguished from that of establishment by its temporary character, while the right of establishment presupposes a lasting presence in the host country. According to the case law of the Court of Justice, the temporary nature of the provision of services is to be assessed in the light of its duration, regularity, frequency and continuity.
However, there is a grey area between the two concepts, in particular in the following cases:
- Recourse to independent persons established in the host Member State: On the strength of the Court's case law, the Commission considers that, in order for an insurer to be covered by the rules governing the right of establishment rather than those applicable to the freedom to provide services, the independent person must meet the following three cumulative conditions:
- he must be subject to the direction and control of the insurer he represents;
- he must be able to commit the insurer;
- he must have received a permanent brief.
However, the Commission considers that, in order to conclude insurance policies under the freedom to provide services, an insurer can have recourse to an establishment opened in the Member State of the provision of services for support activities either upstream or downstream of the conclusion of the insurance policy (e.g. use of risk assessment services or of local medical services, receipt of notices of claims relating to policies entered into under the freedom to provide services);
- Electronic machines performing insurance business: ATM-type electronic machines can be covered by the right of establishment if they fulfil the above-mentioned criteria laid down by the Court of Justice. For such machines to be treated as establishments, they would have to have human or electronic management.
The use of remote means of communication, in particular electronic commerce, to conclude insurance policies should be regarded as insurance business carried on under the freedom to provide services. In order to determine the place of establishment of the insurer with which a policy is concluded, it is necessary to take account of the Member State of establishment of the insurer doing the business in question rather than the location of the Internet server. The Commission has already stated in its Financial Services Action Plan that it intends to bring out a Green Paper to examine whether the existing provisions of the Directives provide a regulatory framework that is propitious to the development of electronic commerce in financial services while ensuring that the interests of consumers are protected.
The procedure for notifying the opening of a branch or the intention to carry on business under the freedom to provide services is designed to facilitate the exchange of information between supervisory authorities. It should not therefore be regarded as a consumer protection measure or as a measure affecting the validity of any insurance policy concluded without the procedure having previously been followed.
The Third Insurance Directives lay down that insurers with head offices in Member States may advertise their services in the Member State of the branch or of the provision of services, subject to any rules governing the form and content of such advertising. There are no forms of advertising (e.g. mail, fax, electronic mail, etc.) that are subject to the notification procedure
.The general good in the Third Insurance Directives; applicability of rules promoting the general good
A Member State may have recourse to the concept of the general good in order to enforce compliance with its own laws by an insurer wishing to carry on its business within its territory under either the right of establishment or the freedom to provide services. However, the concept of the general good is not provided for in the Insurance Directives, which are limited to a description of the requirements of the Court of Justice.
An insurer must comply with the rules of the host country, even if they entail a restriction. For such a measure to be justified as being in the general good, it:
must not have been harmonised at Community level;
- must be non-discriminatory;
- must be justified by imperative requirements in the general interest;
- must be objectively necessary;
- must not duplicate rules of the country of origin;
- must be proportionate to the objective pursued.
Application of the "general good" principle
Prior notification of policy conditions is specifically prohibited except in cases where it is provided for by the Community Directives (e.g. compulsory or health insurance which is a substitute for a statutory social security system). As regards life assurance, a Member State may require notification of the technical bases used for calculating scales of premiums.
Capital redemption operations of insurers may be carried on anywhere in the Community, even in a Member State where they are not authorised for local life assurance companies on the grounds that such operations are regarded as banking operations and are therefore reserved for credit institutions. However, the insurer must comply with the rules in force in the host Member State which are justified by reasons of the general good (taxation, advertising, etc.).
As regards uniform no-claims bonus systems (coefficients for the reduction/increase of premiums taken into account in calculating the premiums for third-party motor insurance), the Commission considers that, to the extent that such systems constitute tariff measures, they are contrary to the Third Directive (92/49/EEC). In its view, a Member State cannot invoke the general good in order to preserve the mandatory nature of such systems as the systems have already been coordinated at Community level.
In order to protect consumers, some Member States require the language of the insurance policy to be the national language. However, the Commission considers that consumer protection is not a valid reason in the case of large commercial or industrial risks. With regard to mass risks and individual life assurance, account should be taken of policies with an international dimension.
Professional codes of conduct valid on the territory of a Member State are in principle also valid with regard to foreign insurers and failure to observe them incurs commercial penalties. The Commission also notes that agreements between firms must comply with the competition rules in Article 81 et seq. of the Treaty.
Maximum technical interest rates for life assurance are fixed by the insurer's home Member State. Since the host Member State has no competence as regards financial supervision of an insurer duly authorised in its home Member State, it follows that it cannot impose compliance with its own prudential principles or check such compliance through substantive control of premium scales.
The imposition of standard clauses or minimum insurance conditions is aimed at protecting the weaker party in a contractual relationships whilst maintaining a contractual balance. The Commission considers that such a clause should be imposed only where it is objectively necessary.
With regard to clauses imposing mandatory levels of excess in insurance policies, insurers should be free to assess the advisability of including an excess in the policies which they market. Where an insurer is approved by its home Member State, it should be free to decide market insurance policies, with or without excesses, in the host Member State, clearly indicating to customers that it is doing so without being forced by binding national rules.
Compulsory stipulation of a surrender value in life assurance policies is justified by the concept of the general good, as it gives consumers flexibility and the ability to mobilise their savings. However, the Commission wonders whether there are other means, such as the obligation to give detailed information to the policyholder prior to the conclusion of a policy, which could protect the economic interests of policyholders.
In order for a host Member State to introduce practical arrangements for charging indirect taxes on insurance premiums for policies concluded under the freedom to provide services by appointing a tax representative of the insurer, the arrangements must comply with the requirements of proportionality and necessity laid down in the case law of the Court of Justice.
The Court of Justice has already recognised the right to prohibit the marketing practice of "cold calling" in order to protect consumers.
Operators faced with a national rule that constitutes an unjustified restriction of the freedom of establishment or the freedom to provide services may resort to the courts or lodge a complaint with the Commission.