What light does a new report shed on the availability of cross-border insurance products?
A few days ago, the European Commission published the final report of its Expert Group on European Insurance Contract Law, which had the task of analysing whether differences in contract laws form an obstacle to cross-border trade in insurance products.
The group was made up of 20 members from different sectors of the industry and beyond, from 12 member states. The UK was represented by Lloyd’s Market Association and Standard Life. Lawyers were represented not only by my own organisation, the Council of Bars and Law Societies of Europe, but also by the Law Society itself, among others.
The headline trumpeted by the commission on publication was that differences in contract laws do impede the cross-border supply of insurance products, by increasing costs, creating legal uncertainty and making it hard for consumers and businesses to take out insurance in other member states.
The report chose lawyers’ professional indemnity insurance (PII) as one of the areas to be studied. The final conclusions do not have much to say about it – just that for many PII products, insurance companies have to adapt their contracts to the national rules of policyholders, so have to develop new contracts to comply with, say, rules on pre-contractual information.
In the detail of the report, there is evidence of a struggle between those – presumably from the insurance industry – who felt that the reason why PII is not always available cross-border is because of bar rules, and those – presumably with experience of trying to find such insurance – who felt that the insurance industry has not done enough to be flexible in its cross-border approach.
At the heart of its 83 pages, here is what the report says about lawyers’ PII: ‘Those who want to exercise the legal profession abroad often have to incur additional costs due to the difficulties in assessing the risk. This may also be the case where foreign matters are involved in domestic cases. For example, liability insurance contracts generally limit the coverage to losses arising from legal advice and assistance in matters governed by the national law of the lawyer’s home country while in many cases lawyers have to argue and give advice referring to foreign laws.
‘This can happen quite often, and not only in “frontier cases” involving foreign parties or legal services supplied outside the lawyer’s home state, but also when a lawyer gives advice to domestic clients on foreign law that is applicable under the relevant choice-of-law rules. As a result, lawyers who want to provide services cross-border are often compelled to take out professional liability insurance in more than one country which arguably increases costs and, in the final outcome, the price to be paid by clients.
‘The economic consequences of the legal divergences thus include the absence of tailor-made products, i.e. single liability insurance policies providing cross-border cover, and high premiums for cross-border cover reflecting the difficulty for the insurers to price the risk.’
One might think that that is a pretty small conclusion for a long report. In any case, it is less useful for English solicitors because of the existing coverage of the Minimum Terms and Conditions beyond the borders of England and Wales. The outcome for lawyers overall is also minimal, probably because, at least for PII, contractual clauses may not be the chief difficulty.
There is a classic problem in mandatory insurance for regulated sectors, which is that the insurer eventually gets to decide who will be covered by insurance, and so who will be able to carry out the regulated activity. If the bar is also the insurer, then the regulator continues to decide who can practise as a lawyer.
But if the bar has outsourced PII to the private sector, then it is the insurance industry which decides who can practise, despite this being the province of the regulator. We saw that clearly in the last renewal round for solicitors, when a large number of firms had to close down by decision of insurance companies and not of the Solicitors Regulation Authority. That obviously prevented those lawyers from acting both domestically and cross-border. (To be fair to the report, it recognises that other factors - it names items such as language, culture, tax and labour law, the legal, regulatory and supervisory environment, and cross-border redress options - might also pose an obstacle, beyond purely contractual clauses.)
So this report may not make much of a contribution to our own PII debate, but I trust it will be the beginning of a movement that forces the insurance companies to be more European and cross-border in their general coverage.
Jonathan Goldsmith is secretary general of the Council of Bars and Law Societies of Europe, which represents around a million European lawyers through its member bars and law societies. He blogs weekly for the Gazette on European affairs