29 January 2013

Insurance Insight: Pan-European insurance contract law a 'logistical minefield'

The principles behind a pan-European insurance contract law are sound, but any attempt to implement such a framework would be a logistical minefield, according to industry insiders.

On 17 January 2013 the European Commission established an expert panel to investigate whether insurance contract law was a barrier to cross-border trade in insurance products. If the panel, which is due to submit its response by the end of 2013, finds that contract law is an obstacle, one recommendation could be the creation of a single pan-European contract law. But does the market really need this?

"Anything that would provide a more certain and more simplified structure to writing business throughout the European Union would be welcome", said Paul Clarke, global regulatory leader at PwC.

He continued: "You have this overarching framework of EU directives - things like Solvency II - which are looking to harmonise the way insurance companies are regulated. Where it falls over is that although the Directives are clearly harmonised and the same throughout Europe, there is no harmonisation of the underlying contract law of each country".

"If you have an insurance contract and you write it under UK law and you sell it cross borders, its application will be policed by, let's say, French law. You can get into a tangled web of different ways of thinking about things because the law of each country is rather different."

Many questions surround what form a universal European contract law would take. The most likely model at the moment seems to be quasi-parallel regime specifically for insurance contracts which would be the same throughout all of Europe and which insurers and insureds would opt in to.

But according to Vidonja [head of single market and social affairs at Insurance Europe], serious questions need to be asked about how such a system would be implemented and whether it would be cost effective. He explained: "Including insurance in an instrument on European contract law would require a textual basis that is acceptable by and advantageous to both customers and the insurance industry. Such a basis does not exist yet. More preparatory, technical and legal work is therefore necessary.

"In addition, the potential benefits as well as the potential costs, burden, and other downsides for all market participants should be analysed and quantified. Further research and tests demonstrating practical and legal feasibility, efficiency and utility of the various options would also be needed."

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