James Walmsley
Lloyd’s
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
Contact
Lloyd's International Trading Advice on +44 (0)20 7327 6677 or LITA@lloyds.com for more information.
