The European Commission proposed on 24 May to strengthen EU rules on motor insurance to better protect victims of motor vehicle accidents and improve the rights of insurance policyholders.
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What is the Motor Insurance Directive and why is it important?
The current Motor Insurance Directive (MID), a consolidation of five earlier Directives, the first of which dates back to 1972, enables seamless travel within the EU by EU residents with their vehicles for both business and leisure purposes. On the basis of a single premium, EU residents can travel anywhere without the need to buy additional insurance. The Directive also ensures a high protection of potential victims of motor vehicle accidents and is instrumental for the functioning of the Schengen Zone.
Key elements of the Directive include:
- An obligation on motor vehicles to have a motor third party liability insurance policy, valid for all parts of the EU on the basis of a single premium.
- Obligatory minimum amounts of cover provided by insurance policies (Member States may require higher cover at national level).
- A prohibition on Member States from carrying out systematic border checks of insurance of vehicles.
- An obligation for Member States to create guarantee funds for compensation of victims of accidents caused by uninsured or untraceable vehicles.
- Protection for victims of motor vehicle accidents in a Member State other than their Member State of residence (“visiting victims”).
- A right for policyholders to obtain a statement of their claims history for the past five years from their insurer.
Why are you revising the Motor Insurance Directive?
To assess the effectiveness, efficiency and coherence of the motor insurance legislation, the Commission Work Programme 2016 announced an evaluation of the MID. The conclusion of the evaluation was that most elements of the Directive remain fit for purpose, while certain amendments in specific areas would be appropriate.
In the Consumer Financial Services Action Plan of March 2017, the Commission announced its work on possible amendments to enhance the protection of traffic accident victims where the insurer is insolvent, and to improve the recognition of claims history statements. The present proposal addresses those two issues, together with three others identified in the evaluation: risks due to uninsured driving, harmonisation of minimum amounts of cover, and the scope of the Directive.
Insolvency
What is the Commission proposing in case of insolvent insurers?
The proposed solution ensures that if the insurer of a vehicle responsible for an accident is insolvent, victims will be rapidly and fully compensated by a compensation body located in their Member State of residence. If the insurer provides cross-border insurance services, the compensation body in the victim’s Member State of residence initially pays the claim of the victim. It will then be reimbursed by a compensation body from the insurer’s home Member State. This will ensure that the ultimate financial responsibility is borne by the insurance sector of the home Member States of the insurer, while allowing for quick payments to the victims.
Uninsured driving
Why is uninsured driving a problem and what is the Commission proposing?
Uninsured driving negatively affects victims of accidents, insurers, guarantee funds and honest motor insurance policyholders who eventually foot the bill. According to the Association of European Vehicle and Driver Registration Authorities, uninsured driving is a growing problem within the EU, which cost the EU 870 million in claims only in 2011.
This problem should be addressed both at national level and at the European level. At national level, Member States are required to take effective action to reduce risks of unisured driving. They can do so by conducting domestic systematic verification of motor third party liability insurance of registered policies, carrying out roadside checks and imposing effective penalties for owners of uninsured vehicle.
Uninsured drivers also drive across borders, giving the issue an EU dimension. But in light of the principle of free movement of people and vehicles in the Single Market, the current Directive prohibits border checks of insurance on vehicles entering the national territory.
Without interfering with the free movement of persons and vehicles within the EU, this proposal takes advantage of new, unobtrusive technological developments (such as number plate recognition technology) to verify the insurance obligation. These checks can be carried out provided they are necessary and proportionate, are part of a general system of checks on the national territory, are not discriminatory and do not require the vehicle to stop.
How will personal data be protected under the new system?
The unobtrusive checks should be conducted in accordance with the European General Data Protection Rule. This ensures the appropriate collection and treatment of data for the purpose of law enforcement allowed within the framework of the Motor Insurance Directive.
Claims History
What are claims history statements and what are they used for?
In order to facilitate switching to a new insurance provider, the current Motor Insurance Directive establishes the right for policyholders to request a claims history statement covering the last five years from their insurer. Such statements provide an overview of all third party liability claims involving the vehicles covered by the insurance contract or the absence of such claims.
In many Member States, this claim history statement is already taken into account to determine a new motor insurance premium for policy holders willing to change to another insurance provider. It is also a tool used by providers to avoid fraudulent motor insurance claims. However, there is no requirement for insurers to take such statements into account when calculating premiums.
What are the changes proposed by the Commission?
To facilitate the authentication of claims history statements by insurers, the proposal harmonises the content and the format of these statements across the EU. In addition, when taking into account claims history for the purpose of determining premiums, there should be no discrimination based on nationality or on the basis of the previous Member State of residence of the policyholder. To ensure the enforcement of this obligation, insurers are required to disclose how claims history is taken into account when calculating motor insurance premiums for current and prospective clients.
Minimum Amounts of Cover
What are you proposing on minimum amounts of cover?
The proposal will ensure equal minimum protection across the EU in case of an accident with a motor vehicle. The new rules are designed to adapt such minimum amounts every five years to take into account the evolving economic reality and to remove remaining differences between Member States.
However, as under the current rules, Member States remain free to set, at national level, higher minimum amounts of cover than those foreseen in the Directive.
Scope of the Directive
Will the scope of the Motor Insurance Directive be modified?
While the scope of the Directive remains unchanged, today’s proposed amendments add clarifications, following the recent rulings of the Court of Justice of the European Union (CJEU). Such clarifications are needed as the evaluation showed that some Member States interpreted the obligation for motor third party liability insurance as not extending to all motorised vehicles used in all locations and for all purposes.
Today’s proposal clarifies the concept of ‘use of a vehicle’ drawing on the rulings of the CJEU. The ‘use of a vehicle’ means any use of the vehicle, intended normally to serve as a means of transport, that is consistent with the normal function of that vehicle, irrespective of the vehicle’s characteristics and irrespective of the terrain on which the motor vehicle is used and of whether it is stationary or in motion.
In the Vnuk ruling (C-162/13), the Court ruled that any use of the vehicle that is consistent with its normal function should be covered. In Rodrigues de Andrade (C-514/16), the Court ruled that “normal function of the vehicle” is to be understood to be linked with its transport function and not any other function that a vehicle could have (e.g. ploughing in case of a motorised plough). In Torreiro (C-334/16), the Court ruled that the characteristics of the terrain have no bearing to determine whether the vehicle is in “normal use” or not.
Technological developments
How will the Directive deal with driverless cars?
Driverless cars, also known as ‘autonomous vehicles’, have the potential to drastically reduce road fatalities, which currently mainly occur due to human error. Nevertheless, the evaluation demonstrated that the existing requirement for mandatory motor third-party liability insurance also applies to autonomous or semi-autonomous vehicles (i.e. any motor vehicle must have motor third party liability insurance irrespective who is the driver). Thus, today’s proposal does not bring any changes in this respect.
How will the Directive deal with electric bikes and other new types of electric motor vehicles?
The evaluation demonstrated that new types of motor vehicles, such as electric bikes (e-bikes), segways, electric scooters already fall within the scope of the Directive as interpreted by the Court of Justice. Furthermore, in accordance with the principle of subsidiarity, Member States have the power to exempt new types of electric motor vehicles from compulsory third party motor insurance on the condition that a national compensation fund will ensure compensation of victims in case of an accident. So there is no need to bring any legislative changes in this respect.
Source: European Commission
