Impact of collective redress

Swiss Re’s new Focus report, “The Globalisation of Collective Redress: Consequences for the Insurance Industry”, examines the increasing global consideration of collective redress systems. David Bassi, Head Casualty Centre at Swiss Re, explains why we closely monitor trends in liability dynamics, including the more widespread use of collective redress and collective action.

Q: Why is collective redress important for Swiss Re?

A: As a global reinsurer Swiss Re has seen first hand the benefits and challenges associated with collective redress systems. If they are well designed, these systems provide access to equitable resolution for those who have suffered harm. They have many advantages: for instance, they allow large numbers of individual consumer claims to be consolidated into a single case and they also mean that the size and scope of a payout can be quickly resolved. However, systems of collective redress can also lead to unintended consequences which can bring unexpected expense for plaintiffs and defendants. Ultimately increased expense raises insurance costs and thus impacts the price we must charge our customers. Therefore we are interested in promoting a balance that fosters the primary objective of collective redress while providing sufficient safeguards against potential abuse. Our position is based on the lessons learned from the US litigation environment where systems of collective action have unfortunately resulted in exorbitant tort costs and an inflation in claims costs.

Q: Why is collective redress important for clients?

A: Systems of collective redress are becoming increasingly popular around the world and therefore the insurance industry needs to be aware of those sectors most likely exposed to changing litigation and mediation patterns. Improved access to justice by way of collective redress may lead to an increase in demand for liability coverage. This means clients may need to adjust their underwriting policies or contract language to align their exposures in specific markets.

Q: What makes Swiss Re’s latest Focus report so timely?

A: Right now there are several significant European developments in terms of collective redress. Two of the European Commission’s Directorates General (DG) are preparing to introduce EU-wide collective redress schemes: one will be proposed by DG Competition and aims to enable compensation of damages resulting from infringement of EU competition rules; the second will be put forward by DG Consumer Protection and seeks to improve consumer protection by way of introducing collective redress instruments. In fact, just a few days ago, DG Competition circulated a draft directive and may table a formal legislative proposal in the course of June 2009. If adopted, the directive would trigger far-reaching changes in EU member states’ civil justice systems. This is why we published the Focus report at this juncture. We believe that businesses and insurers should closely monitor these developments and should be making national governments aware of the implications of the introduction of this new legislation.

Q: What negative impacts of these proposals could be in store for the insurance industry?

A: In Swiss Re’s view, there is a risk that current EU proposals will lead to unbalanced systems of collective redress, thus possibly opening the door to claims without merit and rising litigation costs. Without sufficient safeguards built into the new legal framework, we risk seeing some US-style abuses in collective redress litigation in Europe, with large companies/insurers being seen as an easy target for aggressive litigation.

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