The European Insurance and Occupational Pensions Authority has proposed synthesizing national insurance guarantee schemes, which compensate policyholders of failed insurers, across the European Union.

The regulator is recommending a plan that involves setting up a network of insurance guarantee schemes that are "adequately funded and sufficiently harmonized."

The other options are maintaining the status quo, which EIOPA described in a discussion paper as "a patchwork of different approaches across the member states in Europe," and establishing an EU-wide insurance guarantee scheme, which it ruled out.

In a statement, EIOPA said that minimum harmonization "would benefit policyholders, the insurance market and more broadly the financial stability in the European Union." The regulator said it is now seeking feedback from interested parties regarding its proposal and the potential design features of insurance guarantee schemes.

The deadline for responses is Oct. 26.

EIOPA Chairman Gabriel Bernardino in a statement said guarantee schemes are "essential elements" to resolve failing insurers and protect policyholders and beneficiaries.

"The existing fragmented landscape for insurance guarantee schemes cannot fully serve this purpose and can create particular problems in the case of failures involving cross-border business," Bernardino said.