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The insurance industry has welcomed the FSA and Treasury's joint discussion paper on the EU insurance sector, stating it will lead to better value for customers

The discussion paper concerns the UK's proposals to reduce the administrative burden on insurance groups and aims to encourage more effective supervision.

A key focus of the discussion paper centres around Solvency II, which is a project to create a single risk-based framework for supervision of insurance companies operating in the EU. This is in line with proposals put forward by the Chancellor of the Exchequer for the creation of colleges of supervisors. Under these proposals EU regulators would work more closely through colleges, which would increase effectiveness of cross-border supervision of insurance and reinsurance groups.

The Association of British Insurers has welcomed the move and said consumers should see a benefit from the suggestions included in the discussion paper.

Malcolm Tarling, media relations officer general insurance for ABI, said: "The paper builds on the earlier UK 'groups' proposals and explains how the establishment of a college of supervisors can overcome concerns of smaller member states. It should lead to more effective group supervision which in turn will be advantageous for consumers."

A spokesman for the Treasury said the government remained committed to a proportionate and risk-based approach to EU financial services rules and this, in turn, would benefit consumers.

He said: "We remain committed to working on rules that will contribute to the competitiveness and modernisation of the insurance sector. This will, in turn bring benefits to consumers throughout the EU with more innovative and better value insurance products."

The FSA said this was a significant move and working towards a framework which was not only flexible, but also robust enough to withstand volatile conditions, was of interest to the entire industry particularly in the current climate.

A spokesman for the FSA said: "The commission's proposal for group supervision, particularly the innovative group support regime is as an important initiative to reduce regulatory burdens and deliver an harmonised prudential framework for the risk-based supervision of insurance groups in Europe.

"It is vitally important for policyholders that this regime, particularly group support, provide a regulatory framework which is robust and effective in both stressed and benign conditions. This paper represents a significant contribution to the analysis surrounding the group support regime for the benefit of current discussions of the commission's proposal by governments and supervisors."

The Solvency II framework will be implemented through more detailed legislation and is expected to come into force in 2012. Negotiations are currently underway in the council of ministers and the European parliament regarding the directive.