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New EU rules could have «seismic impact» on industry | Insurance Business

European Commission plans to give consumers the right to collectively sue companies could have a “seismic impact on consumers, industry and the insurance sector,” says a major law firm.

Proposals announced yesterday would see ‘qualified entities’ empowered to launch representative actions on behalf of consumers who have suffered harm, with the rules extending to consumer protection online.

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The move would also introduce stronger sanctioning powers for Member States’ consumer authorities, which Europe’s Justice Commissioner said means they would “finally get teeth to punish the cheaters.”

The plans come amid growing frustration over corporate cheating, with the Commission pointing to the Volkswagen emissions scandal as one where it was “difficult to enforce” EU consumer protection in practice.

“Major corporations are not afraid to cheat because of the current penalties. They differ widely across the EU and are often too low,” Věra Jourová, commissioner for justice, consumers and gender equality, said in a press call yesterday.

While conferring stronger rights to consumers, Jourová stressed that the plans would not be tantamount to adopting a US-style system.

“This model will be very different from the US model of class action. It’s not about more business lawyers, but more fairness,” she said, adding that the Commission is interested in “compensation for consumers rather than punitive damages.”

But according to global law firm Clyde & Co, there is serious cause for concern when it comes to the effect of the plans on the insurance industry.

“This proposal may please consumers, but is likely to cause alarm in corporate and insurance circles,” said Dr. Henning Schaloske, partner at the firm.

“Creating an environment which encourages consumer class actions changes the game. As we know from our experience in country markets, once claimant lawyers and litigation funders see opportunity, they will actively propose class actions and aim to recruit consumers,” he told Insurance Business.

That would have several consequences, including more claims being generated that might not previously have gone ahead, and more consumers making claims overall – that, combined with an increase in publicity, would “raise the stakes” for the industry and insurers.

“The net result is more and higher-value claims,” Schaloske said. “Down the line, a greater number of higher-value claims increases insurers’ costs and means that premiums will have to rise in order to cover the shortfall.”

While the proposals would need to be approved by national governments and the European Parliament, Schaloske said that the backing of Jourová and support from Commission President Jean-Claude Juncker suggests that progress will be made – and urged insurers to respond quickly.

He added: “Insurers will need to move fast to communicate concerns around the risk of claims inflation and the unintended impact on consumers in terms of higher premiums.”

 

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