Contrary to what some politicians would have you believe, the UK’s departure from the European Union (EU) was not a single, discrete event. It is a hugely complicated process with countless moving parts, and even now – nearly seven years on from the vote that started that process – some impacts are only just starting to make themselves felt.
For UK insurers, while business continues, there are hurdles. Knotty jurisdictional barriers stand in the way of cost recovery, and some previously straightforward operations have become significantly more complicated. Far from taking back control, many have simply had to get used to the new normal, as they deal with the effects of decisions far beyond their sphere of influence.
“Insurers have worked through the increased regulatory complications imposed by Brexit and come out the other side,” said Carl Carter, Chief Commercial Officer at Blink Parametric.“ In some cases, they have incurred duplicated costs by having to establish parallel operations and branches, or set up new framework agreements between offices.”
But the impacts are not just financial. “There has been significant additional opportunity cost in terms of the loss of prior flexibility given to both consumers and UK/EU insurers for single market simplicity and transparency,” said Carter. “This has become increasingly complicated for expatriates and international mobile workers looking to purchase cover that operates between the UK and EU. Some smaller insurers also made the decision to focus on their own respective territories and not establish cross-border branches, resulting in a reduction in choice for both broker and consumer. [Other challenges have included] additional regulatory burden, restrictions in movement of specialist labour and skills and complicated legal structures.” So, what has changed in legal terms?
Before and after
“When an insurer provides an indemnity to a customer, the insurer (or underwriter) acquires the right of the remedies available to its insured, including suing an at-fault party,” Ian Brown, Partner at international law firm Trowers & Hamlins LLP, told ITIJ. “This transfer of rights arises as a matter of law under the doctrine of subrogation. While this is a familiar concept, the actual mechanics of seeking a recovery can vary from country to country, making it a complex field to navigate for travel insurers.”
In England and Wales, for example, any cost-recovery proceedings must be undertaken in the name of the insured – meaning that the insured’s direct cooperation needs to be sought, at least in the first instance. However, other jurisdictions operate differently. In some EU member states, insurers are legally entitled to launch cost-recovery proceedings under their own names, without the requirement for direct customer cooperation.
“So, the starting point in any subrogated recovery claim will be to consider the factual circumstances, including the place of accident and where the parties involved live,” said Brown. “Whether the at-fault party has insurance is a material (as well as practical) consideration in this context. It is not controversial to say that Brexit has complicated matters.”
EU insurers often have difficulty understanding the rules surrounding subrogation, according to Daniel Scognamiglio, Partner at international law firm Blake Morgan, and the fact that English/Welsh law does not necessitate a subrogation clause in the policy wording. “Therefore,” he said, “it is normal to bring a claim in the insurer’s own name, albeit within the same claim or set of court proceedings that their policyholder is making.”
Some insurers have incurred duplicated costs by having to establish parallel operations and branches, or set up new framework agreements between offices
Before Brexit, if a resident of England or Wales was travelling within the EU and an accident occurred, claims proceedings could be pursued either in the courts of the member state where the accident took place, or the courts of the claimant’s country of origin. This set-up is beneficial for the claimant in various ways. Complicated legal proceedings would be undertaken in English, rather than a foreign language, and at a court close to the claimant’s home – and should the outcome favour the claimant, legal costs would be recovered.
“The claimant in such a claim must be an individual,” Brown pointed out. “The rationale being that the injured individual is the ‘weaker party’ in a claim against an insurer – so the law operated to seek to redress the balance. An insurer, proceeding in its own name, would have to sue a defendant in the place where it was domiciled – or in simple terms, proceedings would essentially need to be pursued abroad.”
However, post-Brexit, this legal mechanism is no longer in place, meaning it is now much more difficult to pursue a claim in England or Wales following an accident abroad.
“Brexit has had a significant and negative impact on the ability to bring these claims in the UK,” said Scognamiglio. “Absent the UK being part of the European regime or agreeing a bilateral treaty, injured claimants will, more often than not, have to bring their claims in the EU jurisdiction, rather than within the UK. This is of particular significance where there was an accident within the EU, as post-Brexit, where the defendant is resident in the EU, there is no automatic right for a claimant in the UK to bring such a claim directly against the insurer within the UK.”
However, there are exceptions to this, and both legal experts were at pains to say that firms are working to find solutions. For example, Scognamiglio said: “Lawyers are making use of ‘gateways’ to bring some claims within the UK, despite our having left the EU. It is still possible to bring some claims for policyholders following accidents in the EU. This will include accidents during a package holiday, where the insured is bringing a claim in accordance with the Package Travel Regulations, where the lawyers are able to make use of a ‘gateway’ and successfully argue that England/Wales is the most appropriate jurisdiction – usually as that is where the claimant policyholder has suffered their loss.”
This is not straightforward, though. “Case law in the area is still developing,” said Brown. “Indeed, in certain cases the insurer may need to be named as a party to the proceedings if the law of the country in which the accident occurred so dictates.”
Difficult is, of course, preferable to impossible – but additional legal complexity means additional headaches for insurers. In that case, what options are available to the industry to navigate this uncertain new terrain?
Rule of law
The good news is that there remains a wide variety of tools and legal mechanisms that insurers can access in order to settle claims and recover costs, despite new Brexit-related hurdles. But everyone ITIJ spoke to emphasised that all these existing processes have become more complicated, and the need for local partnerships and cross-border networks is key.
“Just as (if not more) important to consideration of how to make a recovery is how to obtain the money owed, if it is not readily forthcoming,” said Brown. “So, for example, even if a judgement is obtained in an English court, will a foreign court recognise it for the purposes of enforcement? Post-Brexit, the answer to this question is that it is certainly less straightforward, so it ought to be the case that the ability to enforce a judgement should be a determining factor on choice of jurisdiction.
“Put simply, an insurer may be best advised to litigate in the country of accident (or where the at-fault party resides if different) for the best prospect of actually making a recovery. Specialist UK-based lawyers will have networks of foreign lawyers they can call upon and trust in respect of such proceedings,” Brown explained.
Speaking from experience, Scognamiglio said that those legal entities acting on behalf of insurers will be well used to arguing about the inclusion of an outlay within a claim brought in the UK against an EU insurer, and that such claims need to be brought in the insurer’s own name.
“The argument tends to be that the EU directive is not designed to protect insurers; it is designed to protect the injured party,” he explained. “As the travel insurer’s outlay claim needs to be brought in the insurer’s own name, that needs to be brought in the defendant’s home jurisdiction, and not in the injured party’s jurisdiction. Courts in the UK have taken an inconsistent approach to this, but the prevailing consensus, and my view, is that the loss of the injured party and the travel insurer relate to the same incident and require the same facts to be considered, and should therefore be heard once and within the injured party’s claim. The most conventional forum or court for the case is that where the injured party has already brought their claim, and the outlay claims should therefore be brought in the UK.”
Adapt and survive
Of course, there are other steps insurers can take to adapt to the new landscape, before proceedings reach the courtroom. Carter said that many are being proactive, reviewing their standard operating procedures and making in-house changes in order to reduce the cost of handling claims, increase automation and improve the overall experience – not just for insurers, but consumers as well.
“We have seen insurers turn to an increased use of automated and parametric technology,” Carter said, “which has allowed traditional insurers to benefit from reduced operating costs and reduced claims handling times across borders. Those insurers that are slow to adopt new technology will soon find themselves at a material disadvantage, compared to more forward-looking insurers that link up with specialist partners.”
An uncertain outlook
None of the contributors we spoke to had a particularly rosy view of the immediate future. Carter said he thought it ‘unlikely’ that things would improve over the next few years – indeed, he felt there was a new status quo, with insurers better served adapting to circumstances, rather than waiting on a miracle.
“Absent the UK being part of the EU regime or agreeing a bilateral treaty, it is going to be increasingly difficult for UK insurers to recover their outlay,” said Scognamiglio, “as more claims need to be filed within the EU rather than the UK. That will make a lot of claims uneconomic to pursue.”
While there are potential developments that could improve matters, insurers probably shouldn’t hold their breath. Brown said: “Ever since Brexit, there has been discussion about the UK acceding to the Lugano Convention (a treaty of cooperation and recognition of jurisdiction and judgements of foreign courts between European countries). Previously, the UK was a party to Lugano by virtue of its membership of the EU. If this were to happen, then pursuit of subrogated recovery claims in the English courts would arguably be easier, but at present the UK becoming a Lugano signatory does not look to be on the near horizon.”
Unfortunately, it seems that for the insurance industry, the advice is much the same as it is for anyone struggling with the realities of Brexit – it’s happening, so get with the programme.