Cross-border insurance: a new opportunity?

A European Commission expert group report on European insurance contract law this year examined systems within European Union countries and whether there should be a harmonised law governing insurance contracts.

After the release of the report, Insurance Europe, part of the commission's expert group, released a statement opining that contract law was, in fact, only one obstacle to pan-European cross-border insurance being a reality.

In the report, the expert group also identified language differences, tax and labour laws, regulatory systems, the need for local claims handling and fraud as other barriers to cross-border insurance.

In its statement, Insurance Europe said: "These factors have a greater impact on the cross-border provision of insurance than differences in contract law as they affect the risk to be underwritten by the insurer, the design of the insurance product and the subsequent management of claims and customer support."

Insurer appetite
Despite such obstacles to cross-border insurance, commentators are certain there is appetite among insurers to be able to offer a single product in multiple territories.

Glenn Gillard, Deloitte Ireland partner, says: "There definitely is an appetite from insurers to have some sort of pan-European offering - the concept of a single product development cycle that creates products which can be sold into different markets."

"Whether in practice insurers believe they can deliver that is a different [story] because there is - particularly in traditional insurers in Europe - still a very strong domestic market history within groups," Gillard says.

PWC UK insurance head Jonathan Howe says for general insurers, the ability to execute cross-border insurance depends on whether the firm is looking at the commercial or retail lines arena.

"There is always an appetite to grow the market because in the more established parts of Europe we are pretty much saturated. Opportunity in the UK to grow is around market share and new products, rather than uninsured people," Howe says.

An Irish precedent
There is precedent for cross-border insuring in other areas. In the Irish context, Gillard gives Zurich as an example of practising across borders. "[Zurich] set up its general insurance European carrier as one single entity but if you look at how it is developing and selling its products, they are still done country-by-country," he explains.

Howe also puts Ireland in the spotlight, saying several Irish insurers have been targeting the UK market - but he adds: "Most of what you have seen [elsewhere] has been in the life market and that has been cross border in one or two territories."

While general insurers might have been slower off the mark than their life counterparts, it is clear there are significant opportunities in conducting cross-border insurance.

For Gillard, the cost-saving benefit is a key driver. "For product innovation, if you can do that once rather than 15 times across Europe then there are definitely savings. It also makes you more flexible - if you can get a product out quicker to market because it is not going through a pipeline through each country [that is a benefit]," he says.

Expanding businesses
Howe agrees cost-saving is a benefit, but also sees merit in the economies of scale that come with cross-border insurance.

"If you can standardise products and sell them to more people - particularly if you can use a cost efficient platform - then even though you get small margins on the scale, you can get the profitability you need," he says.

The mid-corporate arena is a key opportunity area for Allianz Commercial underwriting and technical director Neil Clutterbuck. He comments: "This growing segment includes businesses that are looking to expand, not just their UK operations, but also their global footprint. The lower cost of manufacturing in some territories encourages UK businesses to set up overseas subsidiaries.

"Internet shopping is a growth market and businesses have access to a more international customer base which may lead them to set up warehousing and distribution facilities in target regions. With this expansion comes a need for international insurance solutions across many lines of business, and customers will look to an insurer with experience and capability beyond the UK," he says.

Cross-border challenges
While the benefits for insurers are clear, at this stage the challenges of cross-border insurance appear to outweigh the opportunities. Clive Hassett, Ace multinational services director, says this comes down to a lack of synergy between insurance and commercial law or of the government institutions involved in insurance.

"For example, employer's liability legislation and motor vehicle insurance legislation is different in every EU state. Many countries also have levies to provide funds in the event of insurance company failures," Hassett says.

He does not agree with some of the obstacles highlighted by Insurance Europe. "Challenges such as language and cultural differences can be relatively easily overcome and there are many examples of insurers' ability to provide high-quality cross border services."

Hogan Lovells insurance practice partner Victor Fornasier agrees language is unlikely to cause problems. He identifies understanding the local legal frameworks as crucial to successful cross-border operations - particularly around whether policyholders are liable for punitive damages and whether it is normal for policyholders to use brokers.

"Potential policyholders will also need to be comfortable that non-local insurers do not present any problems for them. The fact the premium from a non-local insurer is cheaper does not equate to equal or similar product suitability," Fornasier says.

The impact of regulation
Both Gillard and Howe consider conduct regulation as a key challenge to cross-border insurance.

"The closer the EU comes together and homogenises, the more [cross-border insurance] will be possible. We have seen it coming together on the regulatory side with Solvency II but the conduct agenda [is different between territories]. If those sorts of agendas start to homogenise across Europe then the opportunity becomes a lot larger," Howe said.

Gillard agrees: "You are subject to host country consumer regulation and that is very different on a country-to-country basis. It is more of a challenge if you are selling cross-border because you maybe don't have the familiarity and you are not close enough to the marketplace."

Despite this, commentators agree cross-border insurance is not just a pipe dream. Howe concludes: "This is a way off but the way the direction of travel is it will become more and more important."