The right of an insurer authorized in one EU state to cover risks in another without establishing there, supervised exclusively by its home country.
The single insurance market rests on home country control: an insurer authorized in one member state may cover risks in all the others on simple notification, and it is its national supervisor that checks its solvency, wherever the risks are written. The arrangement opened competition and lowered prices, and it carries a weakness several failures have exposed. The home supervisor has neither the means nor the incentive to police business whose policyholders, claims and litigation are elsewhere, while the host supervisor, who sees the complaints accumulate, has no power to act. The imbalance is sharpest in long-tail lines such as construction, where under-reserving takes years to become visible. The failures observed led to stronger supervisory cooperation and prior exchange of information, without questioning the principle, and they left national guarantee funds to compensate policyholders their own regulator had never supervised.
The liquidation in July 2016 of Enterprise Insurance Company, an insurer authorized in Gibraltar and writing on a freedom of services basis in several member states, left French and Italian policyholders without cover and exposed the limits of home country control.
LPS, freedom of services, passeport européen, libre établissement