Insurance & Reinsurance 2019 – Discussion

Who’s Who Legal brings together Laura Foggan at Crowell & Moring and Henning Schaloske at Clyde & Co to discuss issues facing insurance and reinsurance lawyers and their clients in the industry today.

Have there been any significant legal trends in the insurance market over the past 12 months in your jurisdiction?

Laura Foggan: A top concern for insurers right now is the possible impact of the American Law Institute (ALI)’s Restatement of the Law, Liability Insurance. The Restatement has been criticised for not reflecting existing common law, including by the legislatures of several states, such as Michigan, Kentucky and Ohio, as well as a number of governors and insurance commissioners. The ALI’s own guidelines say that its restatements are meant to “aim at clear formulations of common law . . . and reflect the law as it presently stands or might appropriately be stated by a court” (ALI Style Manual, 2015). Unfortunately, a handful of courts already have begun citing the Restatement, making it clear there will be a battle over the weight this project should be accorded in the courts. Many courts are not aware that this Restatement has been criticised as reflecting subjective views of the law, rather than a faithful report of the established common law insurance rules. Thus, it is critical for insurers and their counsel to be prepared to respond effectively when the Restatement is cited in courts, and to help educate judges about how and where it is at odds with settled insurance law.

Another trend is the growth of “event-based” securities litigation – claimed false statements or omissions associated with a high-profile, unexpected adverse event that is followed by a corresponding stock drop. Examples include the Brazilian mining dam collapse, the Edison suit following the California Wildfires, the Anadarko Petroleum suit after vertical well explosion in Colorado, the Arconic suit in the aftermath of the Grenfell Tower fire and the BP Deepwater Horizon suit after the oil spill. These claims involve greater volatility and difficulty in developing underwriting criteria to predict the risk of a company experiencing major adverse event. However, it may be possible for insurers to identify or predict categories of risk (eg, cyber, #MeToo, GDPR) that will be jumping-off points for plaintiffs’ firms that are bringing event-driven securities claims. 

Henning Schaloske: The hot topics in the German legal landscape continue to be Dieselgate and its implications for the greater litigation landscape, FID&O liability, including cumex, data protection and increasing compliance requirements in general. All of these have a lasting and expectedly increasing impact on the insurance market. D&O and PI remain at the top of the charts and we see an even further increase in claims at the horizon. New risks will come to life with the introduction of German and European class-action options. In Germany, a model declaratory action on behalf of consumers has been available since November 2018. In this regard, the legislator took action in light of Dieselgate but the new instrument will also be applicable to many other cases including eg, GDPR. Regarding data protection, companies are continuing their compliance efforts and while the regulators have been hesitant to impose fees in the top range so far (41 fees in 2018, the highest being €80,000), Google’s top-range fine of €50 million imposed by the French regulator marks the future risk potential all across Europe.

Sources have reported to us that the insurance industry is particularly price-conscious at present. What are lawyers in your region doing to combat the issue of pricing?

Laura Foggan: Delivering the right outcome is only one part of the job. Insurers need their outside counsel to manage legal budgets and provide predictability. Value-based billing agreements are a key tool that Crowell & Moring LLP uses in helping our clients manage legal spend. We offer flat fees, performance bonuses, partial or total contingency fees, client-satisfaction holdbacks and other creative approaches to pricing legal services. There is no one-size-fits-all billing model. Recognising this is critical to meeting insurers’ business needs while solving what are often their most challenging legal problems. 

Henning Schaloske: We at Clyde & Co have a unique setup for the insurance industry with an unparalleled international insurance offering that is highly attractive to our clients in the insurance industry and beyond. Over 1,800 lawyers in more than 50 offices worldwide offer service on all levels and aspects especially to our insurance clients. In order to meet all of our clients’ needs, not only do we provide tailor-made, practical solutions on the highest professional level in each singular case – we also tailor our strategic relationships with our clients accordingly. This naturally includes pricing models suited to fit our long-term relationships as well as each single case. Excellent service on a commercially reasonable basis has proven to be a winning concept for our German team and worldwide.

What challenges does the market face with the rise of insurtech?

Laura Foggan: Insurtech – the innovative use of technology in insurance – presents a twofold challenge for insurers: in addition to making successful business ventures, they must work with regulators to chart currently uncharted territory. Companies have to determine if their innovations will succeed as the regulatory environment takes shape. Dialogue with regulators is essential in this effort. And there are shared interests between insurers and regulators in addressing insurtech challenges. After all, facilitating technological innovation is a key part of the regulators’ charge to provide a vibrant marketplace for insurers and consumers. Regulators recognise that increased insurer use of technology may lead to new insurance products, better customer service for consumers and increased efficiency for insurers – although they are expressing concerns about issues such as data privacy and discriminatory impact or bias in data sets.

Henning Schaloske: The emergence of new risk carriers powered by state-of-the-art technology, as well as new sales channels that enable more meaningful customer interactions, leads to an overall shift in customer expectations and competition. Incumbents that feel left behind in terms of their technological capabilities and are sometimes hindered by decades-old legacy systems are struggling to keep pace. This has given rise to so-called ecosystems where incumbent insurers try to collaborate with other actors, such as technology start-ups, to provide the service level their customers expect. However, only the larger incumbents have the critical mass necessary to maintain such ecosystems. In addition, the provision of services through several different actors leads to new regulatory risks, inter alia, with regard to outsourcing requirements or data protection law.

With continued market consolidation, how do you see the market developing over the next 12 months?

Laura Foggan: Consolidation has reflected insurer and reinsurer commitment to growth, and to addressing the challenges of a market changing through digital transformation. From the standpoint of someone who counsels insurers and reinsurers on strategic opportunities, litigation trends and emerging risks (such as autonomous vehicles and drones, privacy and cyber liability, global warming, artificial intelligence and blockchain/distributed-ledger technology), the changes in the marketplace driven by innovation are exciting to watch.

Henning Schaloske: M&A has been gathering momentum with deals on the corporate agenda. Clyde & Co’s Growth Report 2019 lists 382 deals in 2018 worldwide – a 9 per cent increase on 2017. The report presents a review of transaction activity and the key trends that are driving insurance growth, including: a focus on securing the advantages of insurtech, a search for scale and reach, and the impact of regulation being felt. With the exception of the Middle East and Africa, all major geographic regions recorded an increase in transaction activity. However, as we look ahead to the coming year, Brexit, trade wars and protectionism are casting long shadows. We therefore expect 2019 to be a year of two halves with a lull in M&A activity in some markets in the first six months followed by a return to form later in the year.

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