The European Commission looks set to impose some consistency among the patchwork of alternative dispute resolution systems that currently exist. Vic Wyman assesses what this will mean for the European insurance market.
It is no surprise that there is disagreement around the European Union over the benefits of schemes to keep disputes between insurers and customers out of the courts.
And there are a large number of approaches to out-of-court alternative dispute resolution; including a mix of central and local, public and industry and mandatory- and voluntary-membership schemes, with rulings that are binding or simply advisory.
Patchwork of schemes
For all types of business, the European Commission points to a current patchwork in the EU - and within member states - of more than 750 consumer ADR schemes involving a neutral third party, such as an arbitrator or mediator, who can propose a solution to a dispute or bring the parties together to help find a solution.
However, it now appears likely that the commission will impose some consistency in the near future. After a 2009 public consultation on ADR for insurance and other financial services that resulted in no action, the commission has just completed a consultation on ADR for all commercial transactions and services. It says ADR "can provide cheap, simple and quick solutions to consumer disputes".
"ADR can provide cheap, simple and quick solutions to consumer disputes. CEA"
The commission plans to hold a public hearing by the end of June and to propose legislation in November, assuming that its three relevant directorates general - health and consumers, competition and justice - can agree a proposal.
Although the CEA, the European insurance and reinsurance federation, says in a position paper that "ADR systems should be encouraged as a valuable alternative to court proceedings", it cautions against uniformity "given the differing local legislations, systems and traditions" in ADR in different countries.
To bind or not
EU action should be non-binding, according to the CEA: "What seems a priority to us is information on - and easy access to - ADR or similar mechanisms, and not uniformity of systems."
It added: "It is very difficult to find any difference between the quality of systems where adherence to the system is obligatory and those where the companies are not obliged to join the system."
"It has become too popular." Young
Doubts about ADR
The preliminary results of a survey of mediation in commercial insurance disputes by the UK-based law firm Davies Arnold Cooper show a success rate significantly lower than the latest 75-80% reported by the Centre for Effective Dispute Resolution.
More than a third of the nearly 100 initial respondents to the survey (which is still open - see below) were only "sometimes" happy with settlements, with, overall, doubts about mediation's cost-effectiveness and its appropriate use and about the performance of mediators.
More than half of respondents cited excessive use of lawyers. "It has become too popular," says DAC partner Nick Young about mediation, which he nonetheless favours for the right commercial disputes. "My concern in the UK is that it has become too institutionalised," he adds.
One reason is that judges promote mediation; they can adjust damages or compensation if cases still go to court, says Mr Young. Insurance litigation lawyers might now have one trial a year, compared with three or four 20 years ago, he says.
"Mediation is an extremely useful and efficient method of resolving disputes." George
But he believes mediation - despite rising costs, partly because of more use of lawyers - can be faster and cheaper than going to court but it is one of the more expensive means of resolving disputes.
Better options - and perhaps half the cost of mediation and a third the cost of a trial - might include the parties negotiating "without prejudice" over a cup or tea and a sticky bun, with their lawyers, or calling on an independent negotiator, he claims.
Lynn George, European claims manager for insurer Chubb, calls mediation "an extremely useful and efficient method of resolving disputes", being less destructive to business relationships than litigation and letting the parties feel more in control than waiting for a trial judgment.
However, she claims little cost-saving over litigation: "Our experience has shown it is no cheaper, often, to go for arbitration." She suggests financial incentives and strict deadlines could boost ADR usage. Also, some people will always demand their day in court, says Ms George, even against their lawyers' advice: "A lot of people are very blinkered."
"We are not aware of any rise of consumers' complaints in the Czech insurance market." Karel
Parties to arbitration must also accept the potential for and the need to compromise and put emotion aside, she says. She sees a need to manage people's expectations and make them realise the strengths and weaknesses of their position: "You have to make it clear from the outset that any arbitration is usually about compromise."
In her experience arbitration tends to be popular for particular sectors; in the UK for financial risk insurance disputes and in the Netherlands for IT project delay policies, for example. In France, insurers and lawyers have little interest in ADR, she says, while in Germany lawyers tend to accept arbitration but usually fail to reach agreement and end up in court anyway: "They don't seem to lose out."
The CEA says out-of-court procedures are already used extensively in insurance claims. About 95% of firms in Germany are members of the system there and 100% of French insurers are members of the French system.
According to the CEA's latest figures, almost all cases registered with Germany's insurance ombudsman are settled out of court and Portugal's Centre for Information, Mediation and Arbitration in Motor Insurance resolved 2938 out of 3410 cases in 2009.
"It should be based on the voluntary principle. It should be based on self-regulation." žáková
Ondřej Karel, responsible for EU affairs at the Czech insurance association Česká Asociace Poji¨ťoven, says that his country has no specific insurance ADR scheme, but that in 2008 the government set up a mediation and arbitration project (a voluntary ADR scheme) for out-of-the court settlement of consumers' complaints in all sectors.
In its first two years, the scheme dealt with 2370 complaints, including only 63 (2.6%) in financial services. Results of the usage of mediation or arbitration in those cases are not available, says Mr Karel.
"We are not aware of any rise of consumers' complaints in the Czech insurance market," he says, adding that most policyholders' complaints are dealt with by insurers themselves, with satisfactory results for policyholders.
"We are not considering [establishing] any specialised ADR scheme for insurance at the moment since we don't see a need for it."
"We are not considering [establishing] any specialised ADR scheme." Karel
Jozefína žáková, director general of Slovenská Asociácia Poistovni, the insurance association in Slovakia, says that the country's previous government planned to set up a complicated and very expensive insurance ombudsman, with huge power and the bills paid by the industry.
However, the present government has other concerns and there is no current ADR or ombudsman proposal, she says, but adds of any potential ADR: "It should be based on the voluntary principle. It should be based on self-regulation."
No confidence vote
The association has little confidence in a commission that the government set up a few years ago as a sort of collective redress ADR scheme, to make non-binding recommendations to courts in cases taken by consumer organisations.
Ms Záková concludes that the commission, apart from having an unclear legal status, has no industry input and only members from government ministries, which have little insurance or banking expertise. Maybe the EC will succeed, however, where these have failed.
- Government to unveil discount rate reform
- Claimant lawyers accuse government of ‘washing its hands’ of injured people
- City Minister on why the government is supporting insurance as the engine of the economy
- RSA's Gail Parker on using internal brand engagement to better serve customers
- XL Catlin adds Brexit continuity clause to policies
- Tributes paid to former APPG insurance deputy chair Baroness Turner
- Ombudsman launches review following undercover investigation