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Expert group to analyse whether EU legal framework constrains cross-border insurance trade

Out-Law News | 23 Jan 2013 | 11:30 am | 2 min. read

A new "expert group" will advise the European Commission on whether the cross-border trade of insurance products is being inhibited because of existing EU laws on insurance contracts

In a 'decision' published last week, the Commission established a new Commission Expert Group on European Insurance Contract Law which it said would be made up of representatives from the insurance industry as well as insurance product users and lawyers.

The group has been asked to review what "obstacles" there are that prevent insurance companies selling cover across EU national borders. The Commission said that the issue "merits a specific in-depth analysis".

"Acknowledging the need to take into account the specific characteristics of the financial services sector, the Commission considers it necessary to set up a group of experts to assist and enable the Commission to draw on a wide range of practical expertise and knowledge for the purpose of its analysis," the Commission said in its decision document.

"The group of experts shall explore whether differences between insurance contract laws of the Member States create barriers to cross-border trade and if so, in which specific insurance areas, including certain life insurance products which could serve as private pensions, this is the case," it added.

The group is required tor report its findings to the Commission before the end of the year.

"Many European insurers already carry out significant amounts of business within the EU on a cross border basis," insurance contract law specialist Toby Thompson of Pinsent Masons, the law firm behind Out-Law.com, said. "However, the current differences between national laws represent one barrier for insurers who wish to offer uniform products across Europe.  Insurers are likely to welcome this announcement, which follows calls from the industry for an expert group to be formed to examine these issues in detail."

The establishment of an expert group to look at specific contract law issues encountered in the insurance sector could signal the start of a process that concludes with the Commission drafting a new legal framework for insurance contracts.

The European Commission is currently looking to progress proposals for a new Common European Sales Law (CESL) after it said a new optional contract law should be made available to better facilitate cross-border trade. However, as Out-Law.com first reported in September 2011, CESL would not be able to be used for the sale of insurance or other financial services.

The Commission's CESL proposals would, if introduced, create a new '28th regime' of contract law alongside the existing frameworks that apply in the 27 EU member states. The new law could be used in contracts for the cross-border sale of goods between businesses and consumers or between two different traders providing at least one of the traders is a small or medium-sized enterprise (SME).

The Commission has said that the new law would offer a harmonised alternative to the differences in contract laws that exist within the national laws, reducing costs for businesses and giving consumers more confidence in their rights and access to cheaper goods. It said businesses currently spend €10,000 on average in legal costs when expanding into selling in a new country within the EU.

The UK Government has outlined its opposition to the current drafting of CESL and has taken the view that there are "fundamental flaws in both the principle and practical operation" of the Commission's proposed new regime. In a report issued last month into CESL, the European Scrutiny Committee in the House of Commons said it agreed with the Government's opposition to the plans and said the pressing ahead with the proposed framework was not a  "viable way" to boost cross-border trade within the EU.