24 September 2013

Insurance Europe: EICL - Response to Discussion Paper V

Insurance Europe commented on Discussion Paper V, forming the basis of discussions during the fifth meeting of the expert group on European insurance contract law (EICL) (held on 9-10 September 2013).

Procedures

Insurance Europe’s members wish to participate as actively and constructively in the work of the expert group as possible. To this end, Insurance Europe believes that procedural rules should allow members of the expert group, including representative organisations, to provide constructive substantive input to the work of the expert group. This is currently difficult to do due to the tight timeframes being set for comments and if written comments after meetings are no longer permitted. Insurance Europe is also of the view that important discussions within the expert group, such as on the extent of the mandate of its work, should be permitted within the procedural rules and that the weight of contributions which representative members, such as Insurance Europe, make are safeguarded.

In the spirit of collaboration and reflecting Insurance Europe’s members’ desire to contribute actively and constructively, Insurance Europe would ask the Commission to reconsider the volume of materials necessary for reflection and input in what are very tight timeframes, and the impact which ad hoc procedural rules may have on the quality and representativeness of the final report.

Organisation

Insurance Europe wishes to contribute as much and as constructively as possible to the work of the expert group. The organisation of the work of the expert group should however enable members of the expert group to do so, to avoid jeopardising the outcome of the work of the expert group. In particular, there is a real risk that the input the European Commission seeks, and the timeframes permitted to collate and develop responses, jeopardise the ability of the European insurance industry, through Insurance Europe, to be as constructive as is desired by the industry.

Scope of work

Insurance Europe is concerned to see that several issues raised in the discussion papers are not matters of contract law but rather reflect differences in national regimes, legal, regulatory and taxation regimes, diverse national general best practice rules and cultural practices that are specific to each jurisdiction. Insurance Europe has in previous responses to Discussion Papers noted that aspects raised were not within the mandate of the expert group as they did not amount to contract law issues.

During the last meeting of the expert group on 9-10 September, the issue of the scope of the work of the expert group arose – in the context of liability insurance for lawyers – with a wider implication for the work of the expert group. Insurance Europe would ask the Commission to launch further discussions of the scope of the work of the expert group within the expert group in order to ensure that non-contract law issues are not mistakenly included in the scope of the work of the expert group. In particular, issues such as risk evaluation, pricing and product design are not contract law issues, but arise from, and must remain within, insurers’ freedom to contract.

During the last meeting of the expert group, there was some discussion on whether reinsurers would benefit from a harmonised European insurance contract law, on the basis that underlying insurance contracts would then be subject to uniform triggers. The need to leave reinsurance out of the scope of the work of this expert group is imperative to safeguard the continued capacity that reinsurers offer insurers. The reinsurance market has historically been permitted substantial freedom to contract in a bid to safeguard the availability of sufficient reinsurance capacity to support the insurance markets. It is imperative that this remains so, as any unforeseen consequences on the reinsurance markets could seriously jeopardise the insurance markets to the detriment of consumers.

Lack of evidence

Thirdly, it remains unclear whether there is any evidence to suggest that a cross-border insurance market would develop if differences in contract law were removed. No evidence has been provided to suggest that there would be any demand for these products that would warrant the resulting business costs associated with the supply of cross-border insurance products. Further, no evidence has been presented to show that consumers, businesses or insurers would benefit substantially from any attempt to address differences in national contract law provisions.

Several factors affect insurers’ decision to offer insurance cross-border. These include important factors such as ‘knowing your customer’, understanding the true risk proposed for cover, language, culture (including expectations of the local policyholder), the form and prevalence of frauds, the legal, regulatory, supervisory and taxation environments.

Likewise, there is no certainty that consumers would willingly take up cross-border products. Several factors come into play for consumers considering their preferred service provider, including knowledge and expertise, reputation, pricing levels, service levels and so on of the insurance provider.

Full position paper

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