Feasibility and affordability of an insurance guarantee scheme in the Netherlands

In January 2019, the Dutch Act on the Recovery and Resolution of Insurers came into effect, which seeks to improve policyholder protection in case an insurer runs into trouble. For instance, the Act ensures that certain pay-outs continue while an insurer is in resolution or bankruptcy proceedings, and it gives DNB powers to wind up insurers in an orderly manner while sparing policyholders as much as possible. Nevertheless, policyholders may still face pay-out curtailments. Unlike some neighbouring countries, the Netherlands does not have a guarantee system to prevent this from happening.1 Schemes are in place in the Netherlands that protect deposits (deposit guarantee scheme – DGS) and investments (investor compensation scheme – ICS). An insurance guarantee scheme (IGS) can support the continuity and/or value of insurance policies. An IGS is sector-funded and can be used to cap curtailments imposed on a failing insurer’s policyholders.

The question of whether an IGS should be introduced in the Netherlands is a political one. The Minister of Finance has announced to start discussions with stakeholders on the desirability and feasibility of an IGS in the Netherlands.2 What we have looked into is whether an IGS could be feasible and affordable in the Netherlands. We believe specific IGS designs are conceivable that offer policyholders affordable additional protection.