EU: Implementation of the EU Services Directive

EU Member States are due to implement the EU Services Directive by 28 December 2009. The British Government is seeking views on implementation into UK law and has issued a Consultation Document. The Services Directive’s direct impact on EU insurers and insurance intermediaries will be limited, but it will affect their business customers.

The Services Directive was formally adopted in December 2006. It aims to remove
barriers on cross-border trade in services throughout the EU by making it easier
for business:

• To set up in another Member State.
• To provide services across borders to another Member State.

It requires Member States to simplify their legislative requirements that apply to
such businesses and to establish online ‘points of single contact’ to assist those in other Member States aiming to do business in their country.

The Services Directive does not apply to financial services or to a number of other
specified sectors (generally those covered by existing Directives). Consequently, its provisions do not apply to those working in the insurance sector. Nevertheless,
there are two ways in which it could affect EU insurers.

The first of these is through its provisions relating to compulsory professional
indemnity insurance. Article 23 permits Member States to require service providers
to subscribe to ‘appropriate’ professional liability insurance, if the service provided
presents ‘...a direct and particular risk to the health or safety of the recipient or a
third person, or to the financial security of the recipient...’. However, they cannot
require that the insurance be provided by a local insurer, if the service provider
already has the cover in its own country.

Member States are required to review all their legislation and administrative
practices and to amend them if they are not compliant with the Directive. This
Article should therefore prompt Member States to review compulsory insurance
requirements applying to business covered by the Directive. Following such a
review, a Member State could decide to require all ‘high-risk’ service providers to
take up professional indemnity insurance – or it could decide to remove existing
requirements to purchase such cover, if it believes that the requirements are
currently applied to ‘non high-risk’ services.

Professional liability insurances made compulsory by law in the UK are few in
number and many of those that do exist apply to services excluded by the
Directive. The UK Government is unlikely to amend its approach to such insurance
as a consequence of the Directive. Compulsory insurances are more numerous in
other Member States and the Directive may have a bigger impact in countries such as Belgium or France, with extensive lists of trades and professions whose
practitioners must arrange professional liability cover.

The second way in which the Directive may affect insurers is more general. If the
Directive achieves its objectives, it will encourage more businesses to provide
services to other Member States either by setting up presences abroad, or on a
cross-border basis. This could change the risk profiles of some insured businesses. It is important that service providers seeking business in other Member States understand the markets into which they are venturing. Lack of understanding could increase the likelihood of insurance claims.

Within the UK Government, responsibility for implementation lies with the
Department of Business Enterprise & Regulatory Reform (BERR). It has issued a
Consultation Document, detailing its proposals for implementation and seeking
responses to a series of questions. The Consultation Document is at:
www.berr.gov.uk/consultations/page42211.html.  It has requested responses
by 11 February 2008.

Lloyd’s Government Policy & Affairs will monitor implementation of this Directive
in the EU and will inform the market of any issues relevant to the insurance
industry if they arise.
Last updated on 14 Feb 2008