Insurance law an enterprise-wide concern say Ferma/Aida

Speaking at the European insurance law: When theory meets practice conference, organised by the two representative bodies, Jorge Luzzi, President of Ferma, said collaboration is essential for both insurance and risk managers because insurance law has enterprise-wide repercussions. It is imperative therefore that risk managers and legal experts understand what occurs when law is applied in business, Mr Luzzi said at the event in Paris. “Taking Ferma’s 22 member associations together, we represent about 4,500 individual risk and insurance managers. I say risk and insurance managers deliberately because today not all risk managers deal with insurance. Insurance law, however, is important to all of them. If there is a problem over a major claim, it can impact the company’s cash flow, the balance sheet and even the directors’ personal liability,” he explained.hideBy way of example he pointed out that collecting a claim is much more difficult if a major partner on a coinsurance programme drops out of a consortium, and can have serious consequences for the business. The implications of trade embargoes and expanding regulatory action against directors and senior managers are some other ways in which insurance law has far reaching repercussions. The Paris gathering on 3 June was the first jointly held conference by Ferma and Aida. It represents a developing relationship between the two bodies that can help strengthen lobbying efforts in areas of common interest at European institutions, said Ferma. A thorough understanding of insurance and its law leads to stability for companies, noted Colin Croly, Chairman of Aida-Europe. “The more we know about the law, the more we will know about the insurance industry and about buying insurance, and we know that business people seek certainty,” he said. He added that a better understanding on a range of issues can have a big impact on premium prices and ensure companies are covered in the event of a loss. Mr Croly said this is even more pertinent for companies that have expanded into emerging markets. “There is a very big difference in the reception that you will get in a court of arbitration in England from what you might receive in China,” he said. More than one hundred risk managers, lawyers, insurance professionals and brokers attended the day-long event, which focused on subjects with international significance. In particular it concentrated on areas where insurance laws are either in flux, differ widely depending on jurisdictions or simply do not exist. Such conditions make it extremely difficult for organisations to anticipate the relevance of their insurance contracts. One such issue arises from multiple liability claims resulting from a defective product or service, creating what experts at the conference called ‘serial claims’. There are no clear rules in virtually any European law codes relating to this phenomenon, the experts said. “There is a lack of legislation to define when a claim becomes serial,” said Jérôme Kullman, a French lawyer, and lead of the Institute des Assurances de Paris, a research centre. “Most countries do not have provisions about serial claims. France is an exception. We have a [reference] to serial claims in our insurance laws. It is a very short one, which is impossible to understand, but it is still is a [reference] ,” he pointed out. Because of this lawyers have to fall back on decisions previously taken by courts to gain insight into likely rulings in this area. But often there have not been enough rulings to create firm jurisprudence and bring certainty to contracts, the experts said. Mr Kullman said that when several claims are aggregated into one, it affects not only the amount of money that an insurance company may have to pay as compensation, but also other aspects of an insurance contract. The issue of claims aggregation is set to gain new relevance in Europe with countries such as France set to introduce the use of consumer class actions. Many of these potential suits will have to be settled by insurers that sold third party liability policies to providers of products and services, the experts said. Buyers must be wary of this because the increased risk may not have been factored into pricing, and claims settlement may not run smoothly. An absence of clear insurance laws should also concern risk and insurance managers that transfer risk via co-insurance arrangements. Herman Cousy, a professor at KU Leuven, a Belgian university, said that there is insufficient clarification on the subject both at European and national levels. “Is the current insurance law framework adequate to co-insurance? The answer is no,” he remarked. He added that, in practice, there is an ‘empty box’ of co-insurance laws in Europe. As a result, it is vital for both buyers and insurers to clarify in the contract all issues that are not covered by legal systems. It is crucial therefore that buyers demand that the duties and responsibilities of leading insurers are detailed explicitly in insurance contracts, the experts advised. “Transparency is the key word,” said Jo Willaert, Corporate Risk Manager at Agfa-Gevaert. “If all steps are taken in full transparency between insured, potential insurers and brokers, the existence of co-insurance is a non-issue.” Trade embargoes were another complication discussed at the conference. Embargoes pose real challenges because their restrictions are often hard to follow and their impact on insurance contract not easy to ascertain. Insurers have drafted a raft of sanctions clauses. Because of the use of trade embargoes as a foreign policy tool, such as the recent EU measures against Iran. These have created much confusion in the market, said Harry Daugird, Senior Adviser on Risk Management Insurance at ABB. “It is a nightmare introducing such clauses in global insurance programmes,” he said. Mr Daugird said that embargo regulations are highly complex and it is difficult to predict the reaction of authorities when a suspected breach takes place. Moreover, governments change embargo rules with increasing frequency, often with repercussions for insurance contracts, he added. If a contract falls foul of a trade embargo, it can be made void and there can be criminal proceedings against directors at the insurance companies involved. It does not help that the authorities responsible for enforcing the embargoes are often not fully aware of how the rules should be implemented. Insurance executives explained the problems they faced when trying to glean from France’s Treasury Ministry how to comply with recent European embargoes. One insurance company was even told that it was allowed to collect premiums from companies dealing with affected business partners in the Ivory Coast, but not to pay a loss if the contract resulted in a claim. New class action legislation in countries such as France is also likely to make it harder for companies to include liability risks in their captives, according to Pierre Sonigo, Secretary General of Ferma. Ferma is negotiating with the EU certain exemptions for captives from the Solvency II Directive. Mr Sonigo noted that because of the threat of class actions, authorities have shown a willingness to rule that companies transferring certain liability risks via their captives are actually insuring third parties. As a result they argue that captives should comply with the full extent of Solvency II like any other insurance company.

Insurance law an enterprise-wide concern say Ferma/Aida

Want to read this article?

Read Next

Over 50% of exporters considering moving supply chains due to geopolitical risk

Quarter of public companies using GRI’s Tax Standard

New carbon capture and storage insurance product from Aon

Nordics come top in global cyber security poll

EU strengthens CO2 emission standards for heavy-duty vehicles

Over 50% of exporters considering moving supply chains due to geopolitical risk

Quarter of public companies using GRI’s Tax Standard

New carbon capture and storage insurance product from Aon

Nordics come top in global cyber security poll

EU strengthens CO2 emission standards for heavy-duty vehicles

Want to read this article?

Read Next

Over 50% of exporters considering moving supply chains due to geopolitical risk

Quarter of public companies using GRI’s Tax Standard

New carbon capture and storage insurance product from Aon

Nordics come top in global cyber security poll

EU strengthens CO2 emission standards for heavy-duty vehicles

Related Articles