Welcome to Insurance Briefing - a fortnightly round-up of insurance legal and business developments with analysis and commentary from the insurance team at Pinsent Masons.
The six topics we're focusing on this week include:
Regulators toughen expectations on financial services firms' Brexit preparations
The European Insurance and Occupational Pensions Authority (EIOPA) has warned UK financial firms that they should not rely on leniency from local regulators in the EU if the UK exits the trading bloc without a deal on the cross-border provision of financial services provision in place. Tobin Ashby, a financial services expert at Pinsent Masons said that Bernardino's comments "reinforce what we are increasingly seeing from regulators – that they are looking for contingency plans to be implemented by financial services firms sooner rather than later. If insurers are not sufficiently prepared closer to Brexit, regulators will point to these statements and firms will not be able to argue that they were not aware of the issue. While there is still some hope for a political solution to the problem for cross-border financial services emerging from negotiations, firms need to be taking action to be ready for a range of outcomes if they are not doing so already," he said.
Pace of regulatory change an issue for 'nearly every' wholesale bank
Wholesale banks remain concerned about the pressures of complying with the "volume, pace and complexity" of new regulation, according to a survey of compliance officers. Nearly every respondent to a recent survey by the Financial Conduct Authority (FCA) ranked regulatory change as either the first or the second most significant challenge to their business. The second most commonly cited challenge was adequate staffing of the compliance function itself, with new regulation and new technology among the reasons given for the need for more compliance staff. The survey findings "confirm the position compliance officers have been telling us about", according to contentious regulatory expert Jonathan Cavill of Pinsent Masons. "Whilst such changes are arguably necessary to further the FCA's objective of protecting and enhancing the integrity of the UK financial system, the financial and operational pressures arising from these changes put firms and their compliance teams under significant strain," he said. "On top of this, there have also been an increasing number of enforcement actions by the FCA against compliance officers personally, where fines have been levied ranging between £20,000 and £200,000."
Court of Appeal: voidable ATE insurance is not adequate security for costs
After the event (ATE) litigation costs insurance which can be voided is not adequate security for costs, the Court of Appeal has ruled. While the existence of an ATE policy should be taken into account when the courts are considering an application for security for costs, that policy had to provide the other party with sufficient protection. Whether it did so would depend on the terms of the policy, and the likelihood that the insurers would seek to avoid liability where there had been non-disclosure or misrepresentation, Lord Justice Longmore said. Legal costs expert Keith Levene of Pinsent Masons said that the case was "good for defendants seeking security for costs in claims brought by impecunious claimants, but not a good day for ATE insurers who have been actively promoting the taking of ATE as a means of providing security for costs, as opposed to having to make a payment into court, or provide a deed of indemnity or a bank guarantee. It is assumed ATE insurers will not take avoidance provisions out of their policies. The judgment clarifies an important question of principle not previously considered by the Court of Appeal in respect of ATE standing as security for an opponent's potential entitlement for costs. It is now clear that the risk of potential avoidance of an ATE policy will restrict their acceptance in security for costs applications," he said.
Standardise cyber insurance policy language to build trust in those products, says EU cyber agency
Insurers across Europe should standardise the language they use in cyber insurance policies to build trust in those products, an EU cybersecurity agency has said. The European Union Agency for Network and Information Security (ENISA) said standardising policy language and underwriting questionnaires can help both insurers and customers "understand what they are selling and buying while avoiding the potential for coverage disputes and costly litigation". Among the specific recommendations ENISA made was a call for industry to "develop common questions to assess cyber risks based on industry best practices". It further urged the development of industry standards "to define terminology, use cases, coverage, incident types, [and] policy trigger parameters".
FSB confirms move to assessing insurer risk based on activity rather than size
The Financial Stability Board (FSB) has decided not to update its list of global systemically important insurers (G-SIIs) for 2017, pending further work by international insurance supervisors on developing an activities-based approach to assessing risk. The nine insurers identified as G-SIIs by the FSB in November 2016 will retain the designation for the coming year. The FSB will continue to apply the stricter regulatory rules it set out at that time to those firms, minus the postponed higher loss absorbency requirement.The FSB coordinates financial regulation across the 'group of 20' (G20) major global economies. It has traditionally updated its list of G-SIIs each November, based on the recommendations of the International Association of Insurance Supervisors (IAIS).
Driverless car manufacturers should face criminal penalties where faulty software causes injury or death, says cycling body
Driverless car manufacturers should face criminal penalties if software in their vehicles "is responsible for injury or death", a cycling lobby group has said. Cycling UK said the new offence should be written into UK law. It made the recommendation in written evidence submitted to the Public Bill Committee in the UK parliament which is scrutinising the proposed new Automated and Electric Vehicles Bill. It also said UK law should be updated to make tampering with a vehicle's software a "serious offence".
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