Published: May 2017Contents
i ) What are the hot topics?
In June 2016, the UK electorate voted to leave the European Union. ‘Brexit’ will have profound consequences for the UK and its European neighbours. The time frame for the UK’s exit is unclear and the process is likely to be complex and challenging. For the (re)insurance industry, one of the biggest concerns is whether the UK government will be able to reach an agreement with the EU in respect of ‘passporting’ (whereby a range of authorised businesses are able to operate across the EU so long as they have a base in the UK).
Cyber risk remains a hot topic. Repeatedly, surveys reveal that cyber risk is among the top three or four concerns for corporate boards and for insurers alike. The increase in the frequency and sophistication of cyber failures and attacks draws into sharp focus the importance of insurance. However, outside specialist circles, it is concerning that the insurance coverage for cyber risks is not better understood and managed – there are notable gaps. Moreover, there remains a widespread uncertainty as to whether, and if so how, non-specialist insurance policies will respond to a significant cyber event.
ii) Tell us about any key legal developments – recent or pending – and their international impact.
In August 2016, the Insurance Act 2015 (IA15) came into effect, introducing the most radical changes to key areas of English commercial insurance law for at least 100 years. It applies to all non-consumer insurance and reinsurance contracts agreed on or after 12 August 2016 that are governed by English law. It will have a significant impact on the international markets. London is the largest global hub for commercial and speciality (re)insurance and many risks involving non-UK entities and interests are placed in the London market under contracts subject to English law.
When the Enterprise Act 2016 comes into effect on 4 May 2017, insurers and reinsurers whose contracts are governed by English law may be liable for consequential damages if claims are not paid within a ‘reasonable time’. This is a significant change in the law and will raise new and challenging issues for domestic and international (re)insurers, particularly for their claims handlers.
iii) What are the biggest opportunities and challenges for practitioners and clients?
For practitioners, the need to provide innovative solutions to client problems is both a challenge and an opportunity. Practitioners need to move away from simply servicing their clients’ legal work to a business partnering model, whereby they work together with their clients to identify ways of meeting the clients’ strategic objectives. In the insurance market this could mean, for example, practitioners working with clients to design and develop cutting edge products.
For clients, one of the biggest challenges is the continuance of a soft market, characterised by high levels of capacity and low rates. This, combined with commercial pressures exerted by the brokers, means that it is increasingly difficult for insurers and reinsurers to reject or challenge claims even where there are potentially good defences available to them.
A challenge for practitioners and their clients alike is enabling the quick and cost-effective resolution of disputes between insurers and reinsurers while at the same time preserving business relationships.