In January 2013, the European Commission set up an expert group composed of 20 members from 12 Member States and tasked it with examining whether differences in Member States’ contract laws impeded cross-border supply of, and use of, insurance and insurance products. The Commission’s concern was that differences in insurance contract law were restricting the free movement of services.

The Group published its final report recently. It concluded that differences in insurance contract laws did create legal uncertainty and made it hard for insurers and businesses to take out insurance in other EU Member States. However, these differences were one of many factors which prevent cross-border supply of insurance. The other factors were identified as:

  • “Knowing the customer” and understanding the true risk proposed for cover
  • Language differences
  • Variations in culture, including the expectations of local policyholders
  • The need for local claims handling
  • The form and prevalence of fraud, particularly in motor insurance
  • Tax and labour laws, particularly for private pension products
  • A country’s legal, regulatory and supervisory environment
  • Cross-border redress options.

However, the Commission pointed out that currently a citizen who chooses to move and work in another EU Country may have to take out a new car insurance policy or face problems in having their rights under a private pension plan recognised if bought in their country of origin.

Companies with several branches in different EU Countries may have to buy separate policies under different conditions in each country instead of a single policy for their entire EU business, although it was recognised by the Group that large risks suffer less from the differences in contract law as the law tends to be decided by the parties to the insurance at the outset.

These other factors may have a greater impact on the cross-border provision of insurance than differences in contract law because they affect the risk to be underwritten by the insurer, the design of the insurance product and the subsequent management of claims and customer support.

In addition, the company’s risk appetite, type of insurance (mass or large risks), the class of insurance (life, non-life or investment-linked) and the target policyholder (individual, SME or large business) also affect an insurer’s decision to offer services cross-border.

The Commission now plans to consult consumers, businesses and the insurance sector on possible solutions.