The European Commission has published its interim report on the inquiry into the business insurance sector. Market fragmentation is a serious issue and the report highlights several factors that may adversely affect competition. These include lack of transparency in brokers' fees, standardisation of terms between reinsurers, prohibition of commission rebating by insurers and brokers' conflicts of interest. The insurance block exemption is likely to be subject to detailed scrutiny by the Commission in the next stage of its investigation. Comments on the report are invited before 10 April 2007. The final report is due this summer.

What is Solvency II?

The European Commission, jointly with Member States, is carrying out a fundamental review of the regulatory capital regime of the insurance industry (the Solvency II project). Its objective is to establish a solvency system that is better matched to the true risks of insurers enabling supervisors to protect policyholders' interests as effectively as possible. A draft Solvency II directive had been expected last year but this has been put back to July 2007. Implementation of the directive by EU member states is scheduled for 2010, assuming adoption of the directive in 2008. The Treasury and the FSA have recently published a joint discussion paper of the proposals. For further information see The Treasury’s page on EU financial services.