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The problems in cross-border shopping

Multinationals hoping to shop across Europe for the best value group schemes still face a number of hurdles, notably in the area of tax

With the question of insurance solvency levels being discussed actively again at the EC, the financial strength of insurers is an issue that multinational and other employers must keep in their sights when looking at cross-border purchasing of insurance services, says James Ball of JBI Associates in Luxembourg, which specialises in insurance company advisory services. The minimum capital required for an insurer is still just 800,000 units of account."

But the euro will have an impact and may stimulate employers to see if they can put together group insurance schemes once the currency risks are removed and there is certainty about the face value of policies.

He points to the preparations being made within the insurance and banking industry in Luxembourg for the pan-European op-portunities for such products. "The insurance industry in particular sees openings for the group risk products, which are an important element of provision."

There are also moves at the EC level in Brussels to see how the the barriers to cross-border insurance markets can be liberalised further and this could give an impetus down the road to greater activity here, assuming any Commission proposals become reality.

While there are certainly difficulties facing those who want to provide their employees with benefits across Europe, it would seem logical that some of these problems would ease with the impact of the euro on insurers' matching requirements.

Employers wanting to shop across borders still face real problems, in Ball's view. "There is the question of the laws governing the contract. A buyer of insurance is often protected in their own market by not just the insurance laws but other consumer measures. Even where you have choice of law for the contract, if the law you chooses gives you less rights than your home country law, there can be subsequent difficulties. Currently, you have excellent grounds for applying for the higher protections you receive in your country of residence." He sees the European markets sticking with this and even though the requirements have a consumer orientation, they will apply even to group schemes: "Individuals are going to be travelling about Europe and enquiring about their rights under the schemes."

These "general good" and linguistic re-quirements are likely to apply where an em-ployer makes the move to buy insurance cross-border and it is not a question of being marketed to by an insurer based in another member state. For a multinational employer trying to co-ordinate markets across a number of European countries where it has operations, these factors undoubtedly would cause real difficulties.

"But where, for example, you have a small to medium- sized German company, who find they can get a good group deal from a Dutch insurer for group life cover, say, this should be much easier to arrange than trying to set up a pan-Europe programme for a multi-national. Legally, of course, this is possible now under EC regulations, so the arrival of the euroshould make such moves easier since it removes the currency fears."

Ball points out that still leaves the tax issues to be dealt with - as ever. "Here some member states are adamant that insurance companies establish in their market before their products can be considered eligible for the same tax treatment as domestic insurance contracts." But where this applies, he points out that for an insurer to operate a local branch is no longer an onerous undertaking, the main constraint is the tax treatment of the branch itself. "So a non-domestic insurer can easily establish a branch to meet the tax requirements of the policyholders."

Already there are moves by advisers and their clients to shop across Europe, particularly for smaller group risks. Ball is certain that there is potential in the marketplace on cost grounds, for shopping outside national boundaries, with significant differences in life cover rates, for example, between countries. "The group permanent health insurance market is another area where there could be great interest, but it will take some time before a number of continental markets are ready for it."

But Ball warns: "The euphoria about the potential market in group and pensions products due solely to the arrival of the euro is over-hyped. Currency fears have certainly been a factor restraining cross-border insurance shopping, but sadly, not the only one." Fennell Betson"

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