Insurance Europe: Insurance does not hinder EU freedom of movement

14 August 2013

Availability of insurance cover is not hindering service providers or other professionals looking to provide services in an EU Member State other than their own, Insurance Europe says in its response to a European Commission consultation.

Insurance Europe raises the following points about providing cover for service providers or other professionals on a cross-border basis:

• The geographic scope of an insurance cover is based on the information provided to the insurer by the policyholder (ie service provider) at the inception of the insurance policy and is moreover explicitly stated in the written policy itself. Many professional indemnity policies offered in the EU provide worldwide cover (excluding North America) as standard. Businesses purchasing such policies are therefore automatically covered for their activities in other member states. Service providers may also contact their insurer (or intermediary) directly at any time to obtain clarification about the scope of their policies.

• Should a service provider wish to expand this scope, many insurers provide products targeted for cross-border services. Insurers also work with their insured service providers to custom-design extensions to their existing cover (eg expand the geographic scope of a current General Liability Third Party policy) depending on that service provider’s needs, the level of the insurer’s expertise in the market and the financial capacity of the insurer to expand the cover.

• Policyholders wishing to seek a different insurance cover than they already have (eg to enter another market requiring a different scope of insurance) may also consider the common practice of using an insurance intermediary to obtain the necessary information.

• There are many prerequisites that any company seeking to develop cross-border business needs to reflect upon, such as:
  • potential language barriers;
  • different legal regulatory and taxation systems;
  • diverse national general best practice rules;
  • cultural practices that are specific to each jurisdiction;
  • whether a physical presence is needed; and
  • availability of data for the respective market.

• The provision of cross border professional liability insurance is not straightforward, as professional liability insurance responds to the various national liability laws where the claim arises and each Member State has differences in these laws, some of which are substantial. Thus, there are sector-specific issues for each insurance company to evaluate and resolve prior to conducting business abroad, such as (but not limited to):
  • the level of experience and familiarity with the national liability laws and the particular risks faced by service providers in the other Member State;
  • additional resources for the handling and managing of claims filed in the other Member State;
  • level of demand for the cross-border cover, as low interest indicates that the effort to invest in another market may be disproportional to the demand;
  • insurer capacity to cover potential claims while fulfilling solvency requirements and financial obligations to investors, both of which maintain financial capacity of the insurer;
  • feasibility of maintaining a continuous and flexible relationship with policyholders domiciled in another Member State (whether permanently or temporarily); and
  • ability to comply with the other Member State’s legal and regulatory requirements for insurers.

• The above factors require insurers to continually assess the market situation in the other Member State and update their information accordingly so as to continue providing adequate cover to the insured service provider. Service providers seeking cover for another jurisdiction benefit most from those insurers that are fully competent to cover risk in that particular jurisdiction.

• When a professional provides services or exercises its activity within the EU on a cross-border basis, two solutions are possible for the provision of professional liability insurance cover in such a situation:
  • either the insurer from the home Member State follows his professional customer and adapts the insurance contract to the conditions of new business abroad; or
  • the insurer cannot follow the service provider/professional customer given its risk acceptance policy, which may not permit the insurer to underwrite risks in the foreign jurisdiction. In this case, in particular with the help of insurance intermediaries (eg brokers of the home Member State or the other host Member State); it is possible to find another insurer which will provide the appropriate cover required to develop the cross-border provision of services.

In conclusion, while it must be noted that there are limitations to what insurance can offer, Insurance Europe is not aware of any evidence that could suggest that insurance acts as a barrier to the movement of service providers offering services in another Member State.

Full statement

© InsuranceEurope