A spectre is haunting Europe — the spectre of social inflation: Zurich
Social inflation may be coming to Europe in force on the back of regulatory changes with the capacity to create a “cultural shift” towards class actions that might already be drawing the attention of litigation financiers, top officials at Zurich Insurance Group have warned.
“A rather large systemic shift” could yet result from a convergence of regulations now present and still pending on the European market, Penny Seach, Zurich’s group chief underwriting officer, told a briefing.
Amongst a number of EU initiatives at various stages of implementation, eyes are largely focused on the EU's representative actions directive, with its options for collective redress action, plus the detail of how the directive is being implemented across the EU states.
“There is now a framework in place to allow a cultural shift in the way in which litigation is brought in Europe,” Tom Thornberry, global head of financial line claims, told the conference.
While the early read on the directive is one of a levelled playing field, without any doors explicitly opened for nuclear verdicts or other would-be pathologies, signs across the pond suggest lawyers and financiers are sharpening their teeth.
“The question we have is how and to what degree will that framework, as it is currently envisaged, may change over the years as it's implemented in each country,” Thornberry said.
Sierra Signorelli, Zurich's CEO of commercial insurance, cited “an increasing presence” of third party litigation funders in Europe, at over 100 and counting on the continent, now holding 16% of the global litigation funding assets under management.
“It's not going to happen immediately, but it is going to play out over the next couple of years,” Signorelli said. Eventual impacts will “probably not be to the same degree of size” with the US, but certainly enough for European insureds to be caught unawares, Signorelli said.
Some European insureds with US exposure have not been entirely dismissive of the threat, despite the European lack of a jury awards system and the gap in judicial system reputation.
“They are cautiously curious to understand,” Signorelli said of client reactions to the new EU regulatory outlook.
One of the eventual market impacts could be in structures, increasing deductibles and eliminating “single stretches of capacity supplied by a single carrier,” Signorelli suggested.
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