2018 will be a pivotal year for the German D&O market

“Dieselgate” not only changed the game for consumers and car companies, it’s set to have a deep and lasting impact on the German and Continental European litigation environment. In 2018, the new German government intends to bring in collective redress mechanisms that will create new exposures for insurers and fresh opportunities for the litigation funders and US plaintiff law firms now setting up shop in Germany. Could this sound the death-knell of the languishing German D&O market, or is it the trigger for hardening rates which is so badly needed?

Traditionally, legislators in Europe, and particularly Germany, have been reluctant to introduce anything akin to US-style class actions. But the Volkswagen case exposed a protection gap for consumers which was promptly filled by the platform myRight.de which filed a consolidated action on behalf of 15,000 plaintiffs in early November, forcing a legislative/governmental response.

In July 2017, the government published a discussion draft of its Model Declaratory Action. In line with new EU recommendations, this would enable consumer groups or their plaintiffs to bring an action for a ‘declaratory judgement’ which should, in principle, have a binding effect on all claimants who electronically registered their claims. Individuals would still need to enforce their claims individually, but the declaratory judgement should ensure this would be a smooth and straightforward exercise.

Germany has long been a litigation hot spot, particularly in the field of D&O insurance where the country is counted amongst the most litigious places globally. The market has been soft for more than a decade, with D&O insurance statistics published by the German Insurance Association (GDV) for the first time in November 2017 revealing shocking combined ratios for 2015 of 145% and for 2016 of 125%. Is this is the blow that finally kills off the German D&O market, or is it the trigger for hardening rates which is so badly needed? We’ll know the answer in 2018.