The US and European Union’s insurance laws have rarely been compared. This has been due to both sides of the market, insurance companies, knowing their own markets well and not being open to revealing the competitive landscape to outsiders. The US Chamber of Commerce said that, “the most useful product of comparison is often the questions it causes one to ask about one’s own [insurance] system which, until after comparison, tends to seem a part of the natural order of things.” This article will explore differences in the US and European markets’ insurance laws and will determine which market caters more to the consumers welfare.
Comparing the Statistics for Insurance Markets
According to statistics from 2016 and before, the American insurance industry is 7.3% more profitable than the European insurance industry. American insurance premiums, in 2014, accounted for 7.3% of the Gross Domestic Product. European insurance premiums, in 2016, accounted for 7.19% of the Gross Domestic Product. This difference may not seem vast, but American insurance consumers were found to spend much more of their income on their insurance. European insurance consumers spend, roughly, $2200 while American insurance consumers spend, roughly, $4000. This is mainly due to the weaker state of the American insurance industry’s consumer legal protections, in comparison the European Union (EU).
United States Codified Law and Insurance
The US has their insurance law derived from court decisions and legislation. American insurance law is codified and comes from the US Federal Regulations and State Codes. But, the impact of Federal Regulations on the US insurance law system is minimal. This is because the US Constitution states that the states have the power to manage the insurance law system, unless the federal government has an overriding reason to take control of a specific field or regulation. Due to this, the American insurance consumer’s protection is determined by their state. This is at the consumers’ expense, because American insurance consumer protection has made little progress for decades due to the lack of enforcement mechanisms. If a consumer has been wronged by an insurance company they are unlikely to receive adequate assistance from the state insurance Commissioner. Due to the unregulated state of the insurance industry, consumers often face disappointing settlement opportunities and have difficulty finding an attorney willing to litigate their case seeing that the hourly cost of litigation is excessive.
The EU has created a centralized body of insurance regulations
Over the past few decades, the Commission of the European Union has created Directives which have established a centralized and controlling body of insurance regulations. A primary body, the European Insurance and Occupational Pensions Authority (EIOPA), has also been established. The EU has worked to create a body of financial regulations that protects European citizens and has taken the failures of the United States to create appropriate regulations. International Association of Insurance Supervisors (IAIS) offers insurance supervisors which promote EU laws that apply to insurance. Solvency II is the primary body of legislation targeted at the EU insurance industry. This body regulates insurance company insolvency and regulates brokers, agents and other insurance intermediaries at the European Union level. Important Regulations and Directives are the General Data Protection Regulation, Insurance Distribution Directive (IDD) and the Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs). The IDD requires the member states to make sure that insurance distributors and companies always act honestly, fairly and professionally in accordance with the best interest of customers. Additionally, the EU and its advisory bodies continue to actively involve consumers in the legislative drafting process. Initiatives have been created to include all entities who are regulated by the insurance Directives to be involved in rule drafting by providing feedback to expert groups or by participating in public consultations.
Consumer Protection: US vs EU
Both the US and EU have insurance regulations which are meant to protect consumers from insurance company defaults and to maintain fairness between the consumer and the insurance company. America has consumer protection acts, such as the Unfair Trade Practices Act (UTPA) and the Unfair Claim Settlement Practices Act (UCSPA), which has been adopted by most states, but they are rarely enforced. Although the EU has made progress in consumer protection, there is no insurance law, as of yet, that addresses the peculiarities of a contract between an insurance company and an insurance consumer. There is also no act which addresses the unfair business practices of insurance companies. These issues are left to the separate member states to regulate as they see fit. These regulations are upheld as long as they do not compromise the effectiveness of the EU Directives. The same applies to the regulations by states in the US being upheld as long as they do not compromise Federal law.
The Bottom Line
The United States’ insurance consumer protection strategies are decentralized and reactive, while the European Union has created, and continues to improve, a centralized and proactive approach. Due to the United States’ history of often supporting the ‘free market’, American society has grown to be individualistic in nature. This shows in their lack of insurance regulations and enforcement. Due to this, only considering consumer welfare, the European Union seems to provide a better environment for their insurance consumers.