Lobbying for support

No one likes to endlessly repeat themselves - even those who feel passionately about a subject find it frustrating to reiterate the same arguments time and time again. So our sympathies should lie with Phil Bell and his lobbying colleagues at the Comite Europeen des Assurances who must surely be hoarse from their ongoing lobbying to dispel a popular political myth, that everything is insurable.

As chairman of the CEA's general liability committee, Mr Bell is charged with representing the concerns and views of the insurance industry to the European Commission, other political bodies and trade organisations (see box). And in his view, the main problem lies in the growing trend of new liability laws emerging from the European Union, with the sweetener for consumers and businesses of compulsory financial security.

The political scenario goes something like this: individuals and businesses must be protected from emerging risks, be they from environmental pollution, GM crops or product safety. This will be overcome by tightening liability laws with the promise of compensation, though the costs of these laws should not be borne by national governments. The simple answer is, therefore, to introduce a financial guarantee, namely by making insurance compulsory.

Single contact source

"I am genuinely concerned about this trend because the EC is not at all joined up on these issues," says Mr Bell. "It seems to be left with individual directorate generals to come up with their own ideas and thoughts. So trying to lobby against compulsory insurance at a European level becomes more difficult due to the absence of a single source of contact to communicate with."

How should the CEA go about improving communication to prevent what Mr Bell calls the "typical muddled thinking of Brussels"?

"We did actually hold a workshop a few years ago on the whole issue of insurability," he explains. "This went down quite well and helped the commission understand what you can and can't insure. The difficulty comes from the fact that civil servants move around, so by the time something else crops up, all the people who had taken the messages on board may no longer be working in that area."

Surely the basic principles of insurance are easy to understand - if risks, potential exposure and losses cannot be quantified, terms and conditions or premium levels cannot be set. Is this lack of understanding genuine or somewhat deliberate, with politicians ignoring the obvious in order to tell the electorate what it wants to hear?

"I certainly believe many MEPs do not know how insurance works and I find it difficult to imagine that something like environmental liability at a European level is a significant vote winner - it's more an issue of unfamiliarity. This has come across when speaking to people about our concerns only to find them looking genuinely surprised when you say insurers can't underwrite certain risks or offer terms. In fact, they tend to think they are doing you a favour by generating new business."

The CEA's lobbying against compulsory insurance has been successful on several occasions - most notably with the Environment Liability Directive initially introduced in 1993. The proposal is that strict liability should attach to remedy future environmental damage arising from certain hazardous activities, with liability channelled under the 'polluter pays' principle.

Compulsory system

After being bogged down in bureaucracy, the EC published plans in early 2002. By this time, parliament had backed down on its call for compulsory insurance, with the commission announcing its intention to undertake a six-year study after the directive comes into force, to assess the feasibility of a compulsory system.

"What the commission will report on in 2010 is how products and solutions may have already developed, what the remaining barriers are and what may be done to overcome them. It may make recommendations for a further period of review or conclude that financial security is not required. In short, it may conclude anything in between those two options."

Whatever the outcome, Mr Bell appears confident that the EC will only require financial guarantees at a date that everyone agrees is workable.

"There is nothing worse than forcing businesses to buy something that doesn't exist. All it does is turn them into criminals and, realistically, that's not going to happen."

A key problem remaining for insurers in the environmental directive is the issue of limited defences - the main ones being act of God, compliance with a permit, and state of the art, whereby businesses operate within existing scientific or technical knowledge.

The outcome in the commission's 2002 proposals is that both permit compliance and state of the art will not be available as defences. Instead, they will only be taken into account as possible reasons for mitigation of liability. Mr Bell explains why this aspect of the directive will cause problems for insurers: "It will be down to each national government to decide whether to allow state of the art in mitigation of a loss. So we could end up with huge variations. One country could allow 1% in mitigation while another allows 99%, which would create quite different problems for insurers in different jurisdictions."

Further education

Despite lobbying against calls for compulsory environmental insurance, Mr Bell wants to make one thing very clear: "The CEA has made the point repeatedly that we are not saying we can never do this, simply that at the present time it is impossible to insure without more learning and development."

The CEA has already made a proposal to several bodies that joint work is done at a European level to generate the necessary environmental data and statistical information - something Mr Bell feels there is great scope for.

"When you consider that the EU now comprises 25 countries, there would be a massive duplication of work if every national association looked to develop its own way of doing things, with its own government and experts. Also it is quite possible that the data we need exists only in one or two places, so the workload for those people having to respond 25 times to the same question would be significant."

Under European law, the commission is supposed to consult with all relevant stakeholders before it publishes any proposed directive or recommendations - but it has failed to do this on several occasions. Specific examples include the feed hygiene regulations adopted in April and the proposed services directive. "Without consultation, without any advance warning, it becomes much more difficult to get our messages across," explains Mr Bell. "Certainly, better dialogue before these things are produced would save a lot of people a lot of time."

Directive review

Another key concern that Mr Bell highlights is the formal review of the Product Liability Directive, set to begin early next year. This follows an initial five-year review period that was prompted by one MEP calling for changes to the existing law in 1999, based on increased consumer protection.

Requested changes included: the inferral of a causal relationship between the defect and the harm, in other words to shift the burden of proof to the producer; to remove the state of the art defence; to extend the 10-year limitation period; to introduce compulsory insurance; and to introduce class actions.

Mr Bell points out the dangers that would lie in any such changes being made to the directive, not least for the consumer. "The balance of the directive is crucial. Disturbing the balance in either direction could have negative, rather then positive consequences. For example, in state of the art, what is currently insurable could become uninsurable if the defence was removed. So while it may be perceived that this defence is detrimental to consumers, in the absence of insurance, any compensation that they might otherwise be entitled to, may not be forthcoming."

The question about what is insurable or not will hold increasing relevance going forward, due to other European-wide developments impacting insurers directly. "We are seeing ever tighter regulations and solvency requirements, so there simply won't be the capital to support new product development - particularly if something is deemed adventurous or difficult."

Environmental pollution is a good example. This type of cover does not enjoy a good reputation, says Mr Bell, principally due to problems in the US. "Therefore, finding the capital to support these products will be difficult unless the insurer has got an absolutely solid case on what can be predicted, the expertise to underwrite it, to risk manage it, to handle claims and the ability to charge the right prices."

Underpinning the CEA's issues with all these individual directives is perhaps a matter of greater concern - how the Precautionary Principle, already adopted by the EC, will affect liability insurance. Despite adoption, this principle remains "incredibly vague" says Mr Bell but its potential to turn the fundamental basis of liability insurance on its head is very real.

Producer liability

In essence, the principle lays down procedures for dealing with potential problem areas; if there is any doubt, act on the basis of precaution.

"It, therefore, opens up the question that if a defective product is put on the market does that mean the producer is automatically liable?"

This would reverse the traditional burden of proof, with the claimant no longer having to prove that a product is defective and caused injury.

Instead the producer would have to prove it is absolutely safe. "In many areas there is simply no scientific proof either way. If you cannot prove a product is safe, the presumption would be that it is harmful. This could open the floodgates to a product liability problem that would probably result in the market ceasing to exist."

The implications for producers are also contradictory, he says. "Having a requirement on the producer to make sure products are safe is, on the one hand, a strong impetus for risk management; on the other hand, if the producer would be liable for the consequences anyway, that producer is in the same position as another who completely ignores risk management."

Mr Bell believes the precautionary principle will have an increasing impact but where the line will be drawn regarding liability, onus of proof and defences remains to be seen. "If the state of the art defence were to be taken away, it would completely remove the traditional basis for negligence - the forseeability of harm. And it could ultimately kill off certain types of insurance."

So with the possibility of heading up the general liability committee until 2008, what has Mr Bell set his sights on achieving during his tenure?

More importantly, what objectives does he feel can be realistically achieved?

"Certainly, I believe we can find better ways of making insurance available for emerging risks. Simply applying more exclusions to policies does not do a lot for our customers whose own liabilities could be getting wider. If that is coupled with reduced protection we are not servicing them properly."

Unity of approach

Better communication to the commission of how insurance works is also high on his agenda. In addition, he wants to help drive a unity of approach from the insurance industry to issues in Europe. "We are dealing with a whole range of different cultures, backgrounds and liability laws - what might seem obscene to one country may seem perfectly normal to another. Understanding each others' positions and achieving a common goal is something I would like to achieve."

Mr Bell stresses one fundamental point - unity does not mean compromise.

"We need to find the right solution, which may well mean that some countries have to give up traditional thinking, including the UK. If we are going to get the outcome that best serves our interests, we first need much better statistical information to get our points across to MEPs and commissioners. Lobbying, after all, is a whole lot easier if you have the statistics to hand that prove your case."

The CEA already has a working group looking at statistics and how these can be built upon and Mr Bell highlights a crucial point: "Statistics will only ever be as good as the national associations that respond to requests for information. We may have the best system in the world but if those organisations do not respond, it will be very difficult. We must explain why the information is important, what needs to be captured and what we are going to do with it."

RESPONSIBILITIES OF THE CEA AND GENERAL LIABILITY COMMITTEE

The role of the Comite Europeen des Assurances is to represent the interests of European insurers - not just the European Union - at a European level, particularly in areas of strategic importance. Today, it represents 32 European markets and undertakes lobbying activity at the European Parliament and with the European Commission on a wide range of issues.

Through its technical committees, it addresses technical issues. Outputs may be decision-making on a particular issue, information and knowledge sharing, position papers, lobbying activity and collation of statistics to support lobbying activity. The general liability committee deals with all liability-related issues and the chairman is responsible for setting the agenda - although every member has a right to raise issues. It has two formal meetings a year but these will take place on a more regular basis, ad hoc as required, when issues are active and under debate.

The role of chairman is a leadership one - representing the industry at meetings with the EC and other political bodies and trade organisations.

Individuals can serve as chairman for a maximum of four years.