Insurance Union’s missing third pillar: can the EU passport insurance without passporting policyholder protection?

EU RegCORE Client Alert | Investment Union, Insurance Union

QuickTake

Europe has spent more than a decade building increasingly European rules for the insurance sector. Solvency II provides the prudential architecture. The Insurance Recovery and Resolution Directive (IRRD) now adds a harmonised framework for managing insurer failure. Yet what happens to policy-holders when those mechanisms are no longer sufficient remains substantially dependent on national geography.

On 1 September 2026, the European Insurance and Occupational Pensions Authority (EIOPA) published its final technical advice to the European Commission on minimum common standards for Insurance Guarantee Schemes (IGSs).Details available here.Show Footnote EIOPA’s conclusion is deliberately incremental: the EU does not need one centralised European insurance guarantee fund. It does, however, need considerably greater convergence between national schemes on coverage, activation, claims, payouts, liquidity and their interaction with resolution.

The significance goes beyond consumer protection. An insurer authorised in one Member State can use its European passport to write business across much of the EU. The protection available to the customer if that insurer fails may nevertheless depend upon where the insurer is established, where the risk is situated, whether the host Member State operates an IGS and how the relevant national scheme is designed. EIOPA describes this as a structural imbalance: the Single Market operates for insurers but does not yet produce equivalent protection for policyholders following resolution or insolvency.

The following will likely remain key issues:

1. IGS harmonisation should no longer be treated as an isolated consumer-protection initiative. Read together with Solvency II and IRRD, it could become the missing safety-net component of an emerging European Insurance Union architecture.
2. The difficult questions are increasingly cross-border and institutional rather than simply quantitative. Which scheme protects a policyholder where insurance is passported? Who funds continuity or compensation? How should an IGS interact with a national resolution authority (NRA)? Should the resources available depend upon whether an insurer enters resolution rather than ordinary insolvency?
3. The legislative discussion remains open. Article 98 IRRD requires the Commission, after consulting EIOPA, to report to the European Parliament and Council by 29 January 2027 on the appropriateness of minimum common IGS standards and, where appropriate, accompany that report with a legislative proposal. EIOPA’s advice matters precisely because the political architecture has not yet been fixed.

For insurers, the question is no longer whether the EU will harmonise IGSs. It is how much of the economic and institutional architecture of insurer failure will ultimately become European—and how much will remain national.

Five developments that matter most

1. Europe may be moving towards a three-layer Insurance Union architecture
   
   The EU has progressively harmonised the beginning, middle and now much of the end of an insurer’s regulatory lifecycle. Solvency II provides a common prudential regime and the basis upon which an insurer authorised in one Member State can conduct business elsewhere in the Single Market. IRRD introduces common recovery and resolution concepts, tools and powers for failing insurers. What remains fragmented is the final layer of protection when policyholders face losses notwithstanding supervision, recovery and resolution.
   
   EIOPA expressly notes that insurance remains the only major retail financial sector without comparable minimum harmonisation of guarantee schemes at EU level: banking has the Deposit Guarantee Schemes Directive (DGSD) and investment services have the Investor Compensation Schemes Directive.
   
   What to consider now: firms should treat IGS reform together with Solvency II and IRRD implementation rather than as a separate consumer-protection workstream. The interaction between the three frameworks will determine the eventual economics of failure management.
2. The passport/protection mismatch has become the central Single Market issue
   
   The most important proposition in EIOPA’s advice is not one of its detailed technical recommendations but the diagnosis underlying them. An insurer may operate across borders on the basis of a single authorisation, but policyholders do not necessarily receive a convergent level of protection when that insurer fails. Cross-border coverage may depend on the location of the insured risk, the policyholder’s residence, the insurer’s home Member State and the territorial reach of the relevant national IGS.
   
   EIOPA points to past failures in which policyholders purchasing effectively the same product from the same insurer received different protection because of national IGS arrangements. It also identifies circumstances in which consumers resident in a Member State with an IGS may purchase online from a passporting insurer established in another Member State and wrongly assume that their domestic scheme protects them.
   
   This becomes increasingly significant as the EU seeks to deepen the Savings and Investments Union (SIU) and encourage households to allocate more savings towards investment and insurance products. Greater cross-border distribution without greater convergence of failure protection risks integrating distribution faster than protection.
   
   What to consider now: cross-border insurers should map IGS coverage to actual distribution footprints rather than analysing the home-state scheme in isolation.
3. EIOPA favours targeted harmonisation, not an insurance equivalent of a single European deposit fund
   
   EIOPA does not recommend complete uniformity. Its preferred architecture remains a network of national IGSs operating subject to common minimum standards, with Member States retaining considerable discretion concerning institutional design, additional coverage and calibration of funding.
   
   The proposed baseline would nevertheless extend materially into matters that today differ across national regimes: EIOPA recommends common approaches to eligible policies, activation triggers, claims-submission periods, maximum payout periods, insolvency ranking and minimum liquidity safeguards.
   
   For eligible coverage, EIOPA validates the categories identified in its 2020 Opinion. These include substantial parts of life, savings and health business and, for non-life insurance, specified property, liability, accident, suretyship and sickness risks. Member States could go further nationally.
   
   What to consider now: the emerging model is minimum harmonisation with national optionality above the floor. For groups operating across several Member States, the compliance question will therefore be both the European baseline and the national overlays that survive above it.
4. Funding is becoming an operational-resilience question, not simply a levy question
   
   EIOPA stops short of prescribing a common EU funding percentage. Its preferred approach is to require adequate liquidity safeguards, combined with sufficient ex-ante funding or an operational buffer, while allowing Member States to determine the appropriate scale in light of national market conditions. Where ex-post levies are used as a safeguard, EIOPA considers that their use should be supported by an assessment of market conditions rather than assumed to be available irrespective of sectoral stress.
   
   That distinction matters. An IGS legally entitled to raise contributions eventually but unable to mobilise liquidity at the point of failure may be ineffective precisely when policyholders require protection. It also raises a procyclicality issue: a system relying heavily upon post-failure contributions from surviving insurers may work for an idiosyncratic failure but become materially more difficult where insurers are simultaneously affected by interest-rate movements, catastrophe losses or another common shock.
   
   What to consider now: insurers should model IGS reform as a potential funding and liquidity cost, including the interaction between ex-ante contributions, ex-post levies and existing national arrangements. The ultimate burden is likely to vary materially between Member States.
5. The hardest question is the boundary between IRRD resolution and IGS protection
   
   EIOPA is most cautious where IGS reform meets IRRD—and that caution is important. IRRD applies from 30 January 2027 and Member States are still determining aspects of their national resolution architecture. EIOPA therefore declines to recommend a single model for the role IGSs should play in funding resolution.
   
   The underlying problem is nevertheless clear. An IGS may merely compensate policyholders after failure. Alternatively, it may fund a portfolio transfer, support a bridge undertaking, itself act as a bridge undertaking or manage a portfolio in solvent run-off. These are very different institutional functions.
   
   If one Member State has an IGS capable of financing continuation while another provides only post-insolvency compensation, materially similar insurer failures could still produce different outcomes after IRRD has been fully implemented. EIOPA consequently recommends, at a minimum, formal cooperation arrangements between NRAs and IGSs, including sufficiently clear roles, responsibilities and in-formation-sharing arrangements.
   
   What to consider now: IRRD implementation and IGS design cannot sensibly proceed as separate projects. The resolution plan needs to know what resources and operational capabilities the IGS can actually provide.