12 April 2018 Insurance

Insurers worry about class actions in Europe

The EU Commission that it intends to grant consumers the right to form collective group actions across the European Union in a move that could have a major impact on the insurance sector.

"EU Commission proposals to grant consumers the right to form group actions could have a seismic impact on consumers, industry and the insurance sector," Henning Schaloske, partner at law firm Clyde & Co.

"Currently, access to the courts on a group basis varies significantly within Europe and there is no mechanism for seeking a multi-country collective redress action at European Union level. This proposal may please consumers, but is likely to cause alarm in corporate and insurance circles," Schaloske explained.

"If these proposals went ahead, it's likely to create a perfect environment in which super-charged claimant lawyers and litigation funders could thrive."

“Change is not imminent given these proposals would need approval by national governments and the European Parliament. However, their backing by Vera Jerounva the EU’s Justice Commissioner combined with support from Commission President Jean-Claude Juncker suggests progress will be made."

"Insurers will need to move fast to communicate concerns around the risk of claims inflation and the unintended impact on consumers in terms of higher premiums," Schaloske noted.

Lobby group Insurance Europe has also voiced concern over the implications of proposal for a directive on representative actions for the protection of the collective interests of consumers. The proposal would repeal the 2009 Injunctions Directive, and govern how consumers launch collective legal actions against organisations, such as insurers.

William Vidonja, head of conduct of business at Insurance Europe, commented: “While welcoming the Commission’s focus on strengthening the enforcement of EU consumer law, it is disappointing that the Commission’s own 2013 recommendations, which set out a strong basis to develop collective mechanisms in member states, have not been adhered to.

“In the latest proposals, good principles that the Commission promoted to safeguard against the potential abuse of collective mechanisms — such as that the loser pays the costs of litigation and that consumers should actively choose to participate in collective actions — are compromised,” Vidonja said.

Insurance Europe is concerned that collective actions could become investment opportunities for third-party funders with no interest in the outcome of proceedings, other than the return on investment.

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