European motor insurance - not (RE)FIT for purpose?
UK business faces the prospect of having to buy motor insurance with unlimited cover for all vehicles – even those such as fork lift trucks, diggers and bulldozers that may never leave the premises. The annual cost is estimated at up to £2bn. Alistair Kinley of BLM explains.
In 2017 the European Commission carried out a review, known as REFIT, of the relevant Directive in light of Vnuk and other cases (see inset). In May 2018 it published plans to amend the Directive to codify this wide view of motor insurance in a new law. What might this mean for risk managers and how, if at all, is it connected with the wider Brexit debate?
The Commission's proposal, if implemented, would require any vehicles used as means of transport to be covered under a motor policy. The possibility of liability cover within EL or PL polices would no longer exist. Under UK law, this would mean that vehicles such as pallet trucks, forklifts, quad bikes, diggers, bulldozers (etc) would have to be registered in some way on the motor insurance database and that insurance cover for personal injuries caused by their use would need to be unlimited. It would also follow that claims arising from the uninsured and untraced driving of such vehicles would have to be meet by the Motor Insurers' Bureau in the same way as it presently does for uninsured and untraced accidents on roads, which would raise difficult questions of funding options and of administrative burdens on businesses.
Commercial sectors such as agriculture, construction, logistics and airside services will be among those most obviously affected. And motor sports as a whole could face serious implications if personal injury liabilities between participants has to be insured on an unlimited basis. The UK Government estimated that premium increases could amount to up to £2 billion, a figure which includes a significant allowance for increased fraud risks.
The legislative process in Europe will now start in earnest after the summer break. The Commission's recommendation will be considered by the European Parliament over the coming weeks and months. It is expected that the European bodies should reach agreement before the May 2019 elections to the Parliament, with any new law taking effect not much more than a year later than that, say in the second half of 2020.
No Brexit 'get out of jail' card
With the UK leaving the EU at the end of March 2019, this likely timetable nevertheless gives cause for concern. The main reason is that the thinking around the UK's transition period after Brexit day suggests it could run to the end of 2020. So there looks to be no Brexit 'get out of jail' card here - since the UK would have to implement new laws (such as this) which take effect during any transition.
The level of concern about the proposal is well illustrated by 94% of those responding to the UK Government on the point saying that these changes would be worse than current motor insurance law. That said, the Commission's proposal in May appears to have dismissed possible compromise options in favour of the widest possible scope for European motor insurance. The imminent negotiations between the European institutions and with Member States' Governments will be critical to the outcome.
Alistair Kinley is director of public policy & government affairs at insurance and risk law firm BLM and leads its work on this topic
The original case arose from an injury claim in which a Slovenian worker was knocked off a ladder by the trailer attached to a reversing tractor on a farm. The ECJ ruled that as this vehicle was intended to be used on a road, it should be covered by the compulsory motor insurance regime under the 6th Motor Insurance Directive (MID).
More specifically, the decision was that compulsory motor insurance applied to any vehicle being used anywhere, for any purpose, for which it was intended. Such a wide ambit encompasses all sorts of vehicles traditionally covered under EL and PL policies, for example agricultural vehicles, construction vehicles, forklift trucks, EBTs and driveable aircraft steps.