The new 2021 Insurance & Reinsurance guide covers 25 jurisdictions. The guide provides the latest information on sources of insurance and reinsurance law, overseas-based insurers or reinsurers, making an insurance contract, intermediary involvement, alternative risk transfer (ART) transactions, warranties, conditions precendent, insurance disputes and insurtech.
Last Updated: January 19, 2021
In 2020 the drive to modernise the world’s insurance markets has continued apace, and that trend will continue in 2021. The changes being introduced are in many cases fundamental and bring with them a range of legal and regulatory challenges for insurers, brokers and regulators alike.
One aspect of the drive for modernisation is the continuing search by established insurers for new markets and territories in which to expand. This reflects the continuing overcapacity in traditional markets, which has increasingly led to market saturation. The desire for expansion is being assisted by regulatory adjustments in some jurisdictions that are increasingly open to external investment, but it is also challenged by the growing assertiveness of insurers domiciled in emerging markets. It is imperative, therefore, that insurers, related professions and their advisers all understand the different legal and regulatory requirements for operating in different jurisdictions. This Guide, written by experts from around the world, seeks to provide a practical overview of these requirements in the key international jurisdictions.
The growth of insurtech and the wider use of artificial intelligence presents both opportunities and challenges to insurers and brokers. Insurers are using insurtech to create more personalised and better targeted insurance products through the development of sophisticated algorithms to analyse detailed source data and broader market data to produce a highly specific risk profile and price. Similar initiatives are being developed to speed up the handling of claims while increasing insurers’ ability to detect fraud and analyse the cost and benefit of claims disputes. At present, these advances are limited principally to personal lines insurance and SME business, but it is expected that they will be applied to larger commercial risks in the coming years.
The increasing use of insurtech, and AI more generally, brings with it significant legal and regulatory challenges, and the responses are likely to vary from jurisdiction to jurisdiction. For example, insurtech involves managing huge quantities of personal data, which is often of a sensitive nature. The coming into effect of the European Union’s General Data Protection Regulation (GDPR) has created a new legal regime within which insurers have to manage this data, with the risk of incurring very significant financial penalties for non-compliance. Importantly, although this is an EU Regulation, it applies to insurers anywhere in the world who hold information about EU citizens, so has potential ramifications for insurers and their advisers wherever they may be. Jurisdictions outside Europe, of course, have different approaches to data protection, which this Guide seeks to highlight.
One of the key objectives of insurtech is to strengthen the connectivity between insurers and their clients. This is achieved through more personalised underwriting and the adoption of different distribution methods, including social media and internet apps. Many innovative, new products rely on source data gathered through wearable technology and the internet of things (IoT). These communications, and information from things like wearable technology, will be subject to a new EU regulation, the ePrivacy Regulation (ePR). As with GDPR, ePR will have a worldwide reach and bring with it the same significant penalties for breach as GDPR.
2021 is expected to see continued growth in the use of blockchain technology by insurers, particularly with regard to the provision of information, the verification of documentation and the contracting process.
All of these technological advances are challenging existing legal assumptions, which are often based on laws developed for an entirely different commercial world. How the laws of different jurisdictions adjust to these challenges is one of the issues we seek to address in this Guide.
As well as the regulatory issues associated with the growth of insurtech, the adoption of AI technology by insurance buyers raises new legal challenges for insurers, including the question of where liability will lie if a piece of AI technology, dependent on machine learning, causes injury or breaks the law. Similar issues will arise in relation to the programming of autonomous ships and vehicles and the choices they may have to make when faced with the likelihood of collision. The answer to these questions is likely to differ between jurisdictions so it will be important for insurers to understand local laws before accepting business that exposes them to risks of this nature.
It is likely that 2021 will see continuing political instability and tensions between some of the world’s leading economies, and the insurance industry is not immune to the commercial consequences of such conflict. For example, the imposition of sanctions by the US and its allies, and the retaliatory sanctions from the targeted countries, is creating a difficult legal and regulatory environment for insurers. These difficulties are only enhanced by conflicts between differing sanctions regimes. For example, European insurers find themselves trapped between US sanctions against Iran and the EU’s Blocking Regulation, which is intended to limit the impact of those sanctions on EU-domiciled insurers. It remains to be seen whether a change of President in the US will help to ameliorate these difficulties. In the meantime, however, balancing conflicting regimes raises legal barriers for insurers both in the settlement of claims and in the collection of premiums from risks that impact the sanctioned jurisdictions.
These political tensions have also been expressed in actual or alleged cyber-attacks by one country or its proxy against another. These attacks can lead to very significant insured losses, both in targeted countries and in other countries that experience "collateral damage". These losses have raised difficult coverage issues for insurers. Most cyberpolicies exclude coverage for war and related risk, but defining and proving "war" in the context of a cyber-attack often challenges existing legal definitions.
The Brexit transition period will terminate on 1 January 2021. What will happen after that is unknown, and it remains possible that no replacement for the current passporting arrangements will be agreed between the United Kingdom and the remaining EU members. This is one of the many regulatory and legal uncertainties that will continue to hinder European insurers through 2021. Until the post-Brexit regulatory framework has been agreed, there will inevitably be uncertainty over the ability of UK insurers to write European business (and vice versa) and how that business may be written – for example, with respect to the regulation of underwriting agents.
One of the defining features of 2020 has been the COVID-19 pandemic which has swept the world, causing terrible human misery and a financial shock unprecedented in modern times. Although the financial loss to the insurance industry is likely to be manageable, the pandemic has caused both insurers and insureds to question the adequacy of the industry’s response to the crisis and the suitability of current policy wordings for risks of this nature. Inevitably, this has led to extensive litigation in a number of jurisdictions, with the United Kingdom and the United States being just two examples. As a consequence, courts are revisiting previously accepted approaches to concepts such as causation and aggregation as well as the proper construction of key policy terms. Clearly, the courts’ conclusions on these key issues will vary from jurisdiction to jurisdiction, and this Guide provides an invaluable overview to the approach adopted in key jurisdictions around the world.
2020 was the 5th costliest year since 1970 in terms of natural catastrophe losses, with a record number of severe storms and wildfires. During 2020, insurance has covered 45% of global economic loss, above the ten-year average of 37% (Swiss Re Sigma Preliminary Results December 2020). These losses have only increased the already widespread concern that climate change will see a long-term increase in the number and severity of catastrophic losses. In addition, climate change is likely to challenge previous assumptions about the nature of the risk posed by natural disasters: for example, flooding may become more frequent and more widespread. From a legal perspective, these developments will raise issues of policy construction, for example in relation to aggregation clauses and the obligation on reinsurers to follow aggregation decisions of the underlying insurer.
At the same time, new risks are emerging, and concern continues about the potential for a "new asbestos" – be that legalised cannabis and medical marijuana, opioids or microplastics and nanotechnology. The legal context for the handling of insurance claims and coverage disputes in different jurisdictions will play a large part in determining the impact of any of these risks, if they do emerge.
Despite the uncertainty and risk development the industry faces over the coming years, there is no shortage of investment, with private equity houses continuing to show an interest. The industry saw continuing consolidation among insurers and brokers in 2020. In addition, money from outside the industry continues to be invested in new insurance vehicles such as insurance-linked securities (ILS), which are said to have "come of age" during the COVID-19 pandemic. Regulators in a number of jurisdictions are opening their markets to the underwriting of these products but it remains to be seen whether they can be sufficiently flexible to wrest a meaningful share of the market from Bermuda.
Overall, 2021 is expected to see the continuation and speeding up of the modernisation process across the insurance industry together with a slower, but nonetheless significant, shift towards new markets and new ways of doing business.