The near-collapse of British insurance company Equitable Life revealed poor cooperation and complacency among national regulators in the European Union, EU lawmakers said.
The European Parliament is investigating the debacle that almost wiped out the savings of a million policyholders in Britain, 8,000 in Ireland and 4,000 in Germany.
"It was a disastrous personal event for thousands of EU citizens - the loss of their pension investments," said Diana Wallis, the British liberal MEP authoring the parliament's report, told a debate in Strasbourg, France.
The near demise of the world's oldest insurance company came in December 2000 when the United Kingdom's House of Lords overturned the insurer's decision to cut final payouts on some policies. Equitable had to set aside £1.5 billion to cover the liability.
Lawmakers are looking at whether EU insurance law was applied properly in the run-up to the debacle.
The assembly was angered by the "ping pong game" between British, Irish and other national market regulators, leaving policyholders outside Britain unable to seek redress.
"Victims have been sent from pillar to post," Mr Wallis said. Cooperation between Equitable's home regulator and host country regulators in Ireland and Germany failed to help policyholders outside Britain, she said.
Equitable's top management was completely changed in 2001, and the new team tried and failed to sue the company's former directors and auditors in Britain.
The European Parliament has no power over the British authorities or funds to offer as compensation. "We have no magic wand to restore the fortunes of the aggrieved policyholders," British centre-right lawmaker, Robert Atkins said.
But there was evidence of "benign complacency" among regulators, Mr Atkins added.
EU Internal Market Commissioner Charlie McCreevy told lawmakers that planned Solvency II rules to regulate the bloc's insurance industry would protect policyholders better.
"The Equitable Life affair was the cause of much anguish, and we must draw appropriate lessons for the future," Mr McCreevy said.
Solvency II rules would introduce a "harmonisation of supervisory practices to contribute to avoiding this kind of crisis happening again," Mr McCreevy said.
"Host state control would not have made a difference in this case, but we should not accept a passing-the-buck attitude, and this is something we need to address," Mr McCreevy said.
Parliament is expected to delay its final report until after a report from the British parliamentary ombudsman in November.