Issue No. 31 (May 2010)
- Editorial: Résumé, my period of Presidency 2005-2010 (by Ulf Blomgren)
- General Assembly: Welcome to Sweden (by Mats Olausson)
- Traffic Accident Compensation: The Danish System (by Ginnie Henriksen)
- Continuous Insurance Enforcement: A Road Map for CIE (by MIB UK)
- Green Card Bureaux: The geographical Scope of the Green card System– Should it be enlarged? (by Alain Pire)
- Data Protection: Paving the way for an enhanced Data Protection system (by Caroline Maion)
- Solvency: Solvency II - a need for change (by Marc Henry)
- Guarantee Calls: The new version of the Online Guarantee Call system (by Kerstin Fabel)
- Agenda: Next meetings
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Résumé, my period of Presidency 2005-2010
(by Ulf Blomgren, CoB President)
On the one hand, it is easy to state that a five year mandate elapses quickly. On the other hand, you realize after going through minutes of meetings and related documents that a lot of things have happened. We have a new transitional Member, Russia, and three Bureaux have become full members: Lithuania, Belorussia and Moldova.
First, I would begin with the 5 year mandate itself. I am the first President to have been in office for such a period. My opinion is that one, and only one, period is a good solution. A five year term gives the President an opportunity to influence the agenda of the Management Committee, various projects, partnerships and so on. For the CoB system it vitalizes the leadership if there is a periodical change in the President’s office. Nowadays, the CoB is such a comprehensive system with members all over Europe, the Middle East and North Africa that we shall allow for rotation to vitalize the system in many respects.
I would like to highlight two events during my Presidency which I consider the two most essential ones: the move to Brussels and the joint Secretariat for the Green Card System and the 4 MID structure.
The move to Brussels and the recruitment of new staff that followed brought change. A new very experienced Secretary General in the System and a staff with more qualified personnel formed a new platform which has enabled us to widen the scope of our efforts and substantially increase quality. On top of the advantages we experience following the move,we have also noted advantages in the form of cost reduction and accessibility in transport all over Europe.
The successful administrative merger of the GCS and the 4 MID structure is to me the single most crucial event during my Presidency, manifested in the Rotterdam Agreement between Guarantee Funds and Compensation Bodies.
Just a month after my election, when I realized that there was an ongoing process to establish a parallel system for the 4 MID structure, it came quite as a shock to me. By determined argumentation and debate in Paris during the conference in autumn 2005, we could summon a meeting in January 2006 to put the pieces together and get back on track for a joint effort leading to the Rotterdam Agreement in November 2006 where the Dutch GF and its CEO Mr. Frits Blees hosted a fruitful meeting leading to the establishment of a joint administration within the CoB Secretariat.
This construction also gave us the opportunity to form a “Hub strategy” being the facilitator of international MTPL claims handling providing the infrastructure for the players in the field, whether they are Bureaux, Guarantee Funds, insurance companies or independent claims handlers. We are the backbone of this business.
Many substantial jobs and projects have been carried out during the period. Let me mention a few of them.
The extensive work done in the GRC and also SRC by checking all the past decisions of the GAs was quite a demanding job. I would underline the great efforts Dr. Silvio Lovetti invested in this job as chairman of the GRC and later also as chairman of the SRC for a short period. The output was included by the Secretary General in the Explanatory Memorandum.
Another work-horse of the system is Dr. Jakub Hradec. He has taken on another very essential job of the GCS, to form a total view of the Financial Stability in the GCS. The WG has delivered new rules for mediation, a new routine for online guarantee calls including all Bureaux and is now finalising the general survey on financial stability we probably will run regularly in the future. I hope that the membership at the GA in 2011 will decide upon a new committee dealing with financial stability encompassing monitoring, the online guarantee calls, reinsurance and the financial stability survey. This will establish an early warning system on the related issues the GCS needs.
Yet another work-horse is our Vice-President Françoise Dauphin. She has taken on the issues connected to the increased use of correspondents. This resulted in the setting up of a correspondent’s charter and model agreement for regulating the interaction between the parties. A much needed initiative that reflects the changing claims handling pattern, especially after the introduction after the 4 MID.
During this period we also made a profound renewal of the Green Card document which was approved by the UN WG Party on Inland Transport in 2008. The WG was chaired by Dr. Martin Metzler.
We have also agreed on an overhaul of the Constitution, which led us to new rules for the election of the President and the introduction of a Vice-President’s office as well. The new rules have worked well, although there are details to improve.
All these results also need to be presented. During the last few years, we have managed to improve our websites for the “Hub functions” step by step. This is very decisive for a modern well functioning administration. The services provided are of good quality but can be even better.
There are more items to mention, but few can be covered within the scope of this report. Has anyone heard of uninsured driving, random checks and despatched vehicles?
A certain progress I cherish is the year by year improved functioning co-operation within the regional groups. These groups are essential in many respects, not only for nominating candidates to WGs and committees and the exchange of knowledge and experience within the region but also for the smooth running communications to and from the Secretariat. I am especially satisfied with the development within the South-Eastern Group which has undergone a substantial boost since 2005.
I am proud of what the CoB has done over the last 5 years. After retirement from the office I will certainly follow the further progress at a distance. To all of you thanks a lot for your support and I wish you all the best for the future.
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Welcome to Sweden
(By Mats Olausson, Managing director, Trafikförsäkringsförenin)
Dear delegates and companions,
Trafikförsäkringsföreningen (Swedish Motor Insurers) has the honour and pleasure of welcoming you to the 44th General Assembly of the Council of Bureaux - this time in Stockholm.
The Kingdom of Sweden is located on the Scandinavian Peninsula in Northern Europe. In terms of area, it is the third largest country in the European Union (450 000 km²). The total population amounts to 9.2 million, which means no more than 21 inhabitants per km². However, the southern half of the country is more densely populated and about 85% of the Swedes live in urban areas. Swedish is a North Germanic language similar to Norwegian and Danish. As you will notice it has three additional letters: å, ä, & ö.
Sweden has been a unified country since the 11th century, around the time when the Viking age ended. In the 17th century the country expanded its territories to form the Swedish Empire, dominating the Baltic Sea region. Most of the conquered territories were lost during the following centuries. Since 1814 the country has been at peace, adopting a non-aligned foreign policy in peacetime and neutrality in wartime. The country has been a member of the European Union since 1995.
Sweden is a constitutional monarchy with a parliamentary system of government. Speaking of royalty, it could be mentioned that the Swedish Crown Princess Victoria will get married just a few weeks after our meeting, on 19 June. This event is expected to bring many visitors and Stockholm is preparing for the festivities!
For a long time, the country has relied upon its export-oriented industry, with timber, hydropower and iron ore as a resource base for the economy. Sweden's engineering sector accounts for 50% of the output and exports. Agriculture accounts for only 2 percent of GDP and employment. Among the largest companies you will find Volvo, Ericsson, IKEA, Vattenfall, Skanska, SCA, Electrolux and Sandvik.
In terms of culture, Sweden has been the home of authors like August Strindberg, Astrid Lindgren and the Nobel Prize winner Selma Lagerlöf. For the time being another kind of fiction has reached popularity in Europe, the Swedish crime novel, with Stieg Larsson’s Millennium series as a best seller. Among painters Carl Larsson and Anders Zorn are probably the best known and you may also have heard of the sculptors Tobias Sergel and Carl Milles. On the screen, film maker Ingmar Bergman and actresses like Greta Garbo and Ingrid Bergman have gained admirers. Also in music, Swedish artists have been successful - just think of ABBA. It could perhaps be interesting to know that Sweden has a popular choral music tradition. In fact, out of our population of 9 million, it is estimated that 5-600 000 people sing in choirs.
About half of the inhabitants take active part in different sports activities. Due to our climate winter sports like ice hockey and skiing play an important role. Yet, the best known Swedish sportsman abroad is probably a tennis player – Björn Borg.
Stockholm is Sweden's capital and largest city, with a population in the municipality of 830 000 and a total of 2 million in the metropolitan area. The city is located on 14 islands, where the Lake Mälaren meets the archipelago of the Baltic Sea. Stockholm is known for its beauty with open water and many parks. The oldest section is Gamla Stan (Old Town) located on the original small island of the city's earliest settlements and still featuring the medieval street layout.
Here is a useful link if you wish to learn more about Stockholm before your arrival: http://beta.stockholmtown.com/en/
In 2009 the total premium from non-life insurance amounted to 5, 8 billion Euros. For MTPL-insurance it was 0,9 billion Euros. The number of policies written for vehicles was just over 6, 6 million, of which 4 million were private car policies.
For the time being our bureau has 68 member companies, 46 of them are active. In practice, the motor insurance market is dominated by only four company groups that have a market share of more than 90 percent. They are Länsförsäkringar, If Skadeförsäkring, Trygg-Hansa (part of RSA) and Folksam.
Currency
The currency is called krona (crown) and is abbreviated kr. The plural form is kronor and one krona is subdivided into 100 öre. Roughly speaking 10 kronor is equivalent to 1 Euro.
Transportation
On arrival to the airport, called Arlanda, you will have a choice of different means of transportation to Stockholm (prices one way): direct bus (119 kr), high speed train (240 kr) or taxi (approx. 500 kr).
Taking a taxi directly to the hotel is the most convenient way. Please see to that the taxi applies a fixed price for the trip, which should be around 500 kr. We recommend that you go by taxis belonging to Taxi Stockholm, Taxi Kurir or Taxi 020. Some small companies charge by the meter, which can be very expensive considering the distance. The buses and trains go to the Central Station. From there you will continue to your hotel by taxi (ca 100-200 kr).
Weather
The month of May is often quite sunny with average daytime high temperatures of 16-18 C and cool nights. However, the weather can vary a lot so please bring some warm clothes and an umbrella, just in case.
We will provide you with a weather forecast for the relevant days by e-mail about a week in advance.
We look forward to seeing you all in May!
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The Danish System
(by Ginnie Henriksen, Danish Motor Insurers' Bureau)
In order to protect the weakest element in daily motor traffic - the human being - the concept of strict liability was introduced in 1986 in the Danish Road Traffic Act (Færdselsloven), to ensure that personal injury suffered in connection with a motor traffic accident would always be compensated. Consequently, any personal injury suffered must be compensated – irrespective of fault for the accident.
Compensation. Reduction of Damages
Uninsured motor vehicles in accidents
As the volume of motor traffic increased steadily, it was found necessary to protect the interests of the softest element – the human being. Traffic laws were revised over the years and the basis of awarding compensation for personal injury steadily moved away from the original tort laws, where damages could only be awarded if the motorist was at fault, and towards strict liability, where fault was not a factor to be considered.
A step towards strict liability was presumption liability, which was introduced in 1903 in the Danish Road Traffic Act, where the onus of proof of fault was shifted from the claimant to the motorist, who had to prove that the accident was unavoidable and was not due to any negligence on his part(1). Predictably, this was almost impossible to prove and most claims for personal injury were decided against the motorist. The next logical development was to introduce this precedential practice into law and formally recognise the de-facto existence of strict liability. This was achieved in 1986(2) by an amendment to the existing Road Traffic Act (Act 984 of 5 October 2009) and is found in section 101(1):
"Any person in charge of a power driven vehicle shall be liable for any damage caused by such vehicle by a traffic accident or by an explosion or a fire arising from fuel-feeding installations in the vehicle."
Before the implementation of the strict liability concept, another system was considered, namely first party insurance, which exists in Sweden: In connection with accidents involving personal injury, drivers are compensated by their own MTPL insurer in the first instance. However, we moved away from this concept, as we in Denmark follow the principle that one cannot be liable toward oneself(3).
The concept of strict liability is automatically included in the compulsory MTPL insurance, as all insurance companies which offer MTPL insurance must provide cover in accordance with the Road Traffic Act in which the strict liability concept is defined. It is thus not possible to de-select the strict liability clause when taking out a MTPL insurance, and all insurance companies offering this insurance are obliged to indemnify third party personal injuries under the MTPL insurance. The consequences of strict liability are taken into account when setting premiums for this insurance. Furthermore, when the insurer of the “innocent” party pays compensation for personal injury to the party at fault, it will not raise the premium of their insured and the insured will not lose any bonus obtained. Also, when compensation is paid on the basis of strict liability, the insurer of the “innocent” party does not have a right of recourse against the insurer of the party at fault or any other party, as they normally would have, but must bear the costs themselves(4).
Strict liability solely covers personal injuries and is restricted to motor liability alone(5). Damage to property is fault-based and governed by Art. 101 (3) (nonmotorised parties) and 103 (2) (motorvehicles) of the Danish Road Traffic Act:
"Damages or compensation for damage to property may be reduced or dispensed with in case of contributory intent or neglience on part of the sufferer."
"In case of damage to property in consequence of collision between power-driven vehicles, the decision whether or by which amount damages or compensation shall be paid shall be based on the circumstances in question".
There are no intentions of extending the clause in art. 101 (1) of the Danish Road Traffic Act to also include cyclists, pedestrians etc. All victims of motor accidents are entitled to indemnification under the clause and compensation levels are the same for all victims and do not differ according to type or use of vehicle. The maximum sums of cover under the Danish Road Traffic Act are adjusted every year and for the year 2010 constitute DKK 104m (EUR 13.8m) for personal injuries and DKK 21m (EUR 2.8m) for property damage(6). The sums provide adequate cover and are rarely exceeded. The reason why strict liability does not apply to property damage is that this would go against the sense of common justice. If strict liability covered property damage, both the “innocent” party and the party at fault would be compensated by each others' MTPL insurers. Consequently, the party at fault would never be burdened with costs in connection with traffic accidents.
Compensation. Reduction of Damages
Even though all victims of motor traffic accidents are entitled to compensation for the personal injury suffered, the level of compensation may be reduced or damages may not be awarded at all under section 101(2) of the Danish Road Traffic Act:
"Damages or compensation for personal injury or for loss of supporter may be reduced or dispensed with in case of contributory intent on the part of the injured or killed person. In special cases, such damages or compensation may likewise be reduced or dispensed with in case of contributory gross negligence on the part of the injured or killed person."
This subsection is applicable e.g. in case of driving under the influence of alcohol, or if the victim was trying to commit suicide and thus intentionally contributed to the accident. However, legal practice shows that if compensation is reduced, it is reduced by no more than 1/3 and only extremely rarely is it completely dispensed with(7).
After the amendment of the Danish Road Traffic Act in 1986, another law was introduced to simplify and standardise the compensation and handling of personal injuries, namely the Danish Liability for Damages Act (Erstatningsansvarsloven, no. 885 of 20.09.2005). This act made it possible for insurers to settle most claims for personal injury themselves, as fixed tariffs and a streamlined procedure of claims handling for the various injuries were introduced. This has sped up claims settlement and greatly reduced the litigation process to the satisfaction of insurers, the courts and not least the victims.
After the introduction of strict liability, the need to strive to obtain compensation for personal injuries via fraud is no longer present, as compensation is paid automatically. Nevertheless, there are still cases in which victims commit insurance fraud by faking symptoms and thus trying to make their injuries appear more severe than they actually are in order to receive higher levels of compensation. However, this is a common insurance hazard and involves a very small marginal group.
As mentioned earlier, strict liability is applicable to personal injury alone and liability for property damage is fault-based. In the event of a collision between two motor vehicles, A and B, where A is 100% at fault, the insurer of A will have to pay for both the property damage and the personal injury to the driver of vehicle B and passengers in both vehicles if any. The driver of vehicle A is entitled to compensation from B's MTPL insurance for personal injury but not for property damage.
In accordance with Danish legal practice, liability of the parties involved for property damage may be divided 50-50 or 1/3 - 2/3(8). Any personal injury suffered must still be indemnified 100%, no matter how fault is divided between the involved parties.
In the event of an accident between a "soft party" (a pedestrian, cyclist etc.) and a motor vehicle, the MTPL insurer of the vehicle will always pay compensation for personal injury to the "soft party", irrespective of fault for the accident. However, if the driver of the motor vehicle is at fault and suffers personal injury, s/he will only receive compensation for personal injury if s/he has taken out accident insurance. S/he cannot claim compensation from the third-party liability insurance of the cyclist.
Any property damage suffered by either of the parties will be compensated on the basis of fault. If the driver of a motor vehicle is at fault, the MTPL insurer will compensate the property damage of the cyclist. If the cyclist is at fault, the damage to the motor vehicle will be compensated by the third-party liability insurance incorporated in the cyclist's home insurance policy and the cyclist will not be compensated for any damage to the bicycle.
If the scenario is a solo accident, where the vehicle for example hits a tree and the driver suffers personal injury, no claim for compensation for personal injury can be presented, as there is no opposite party with a MTPL insurance, and as the MTPL insurance of the driver does not cover the insured's own personal injuries. Consequently, in order for the driver to be indemnified for the personal injury suffered, a third party must be involved in the accident.
Uninsured motor vehicles in accidents
As MTPL insurance is compulsory, a workable system is in place to ensure that all vehicles registered in the Central Register for Motor Vehicles (CRM) are legally insured. This is achieved by close co-operation between the police, the national tax authorities, who manage the CRM, and the insurance companies. The number plates issued by the police are obligatory and the number plates are only issued upon presentation of an MTPL insurance certificate, which names the MTPL insurer, date of issue and details of the vehicle. This information is stored in the archives of the CRM. In case of non-payment of the insurance premium, the insurer informs the tax authorities, who then update the CRM and notify the police. The police are then entitled to remove the number plates from the vehicle, rendering it illegal, if it is used on public roads. New number plates will only be issued when a new insurance policy is taken out and after payment of any previous outstanding premiums(9).
Accidents involving uninsured vehicles are handled and settled by the Danish Guarantee Fund, which acts as insurer of the uninsured vehicle and indemnifies personal injuries to the other involved parties(10). Unlike MTPL insurers, the Guarantee Fund has a right of recourse against the uninsured driver(11). If, for example, vehicle A (insured) and vehicle B (uninsured) collide and both driver of A and driver of B suffer personal injuries, the MTPL insurer of vehicle A will indemnify B and the Guarantee Fund will indemnify A and recourse B – irrespective of fault for the accident. But again, please bear in mind that this procedure only applies to personal injuries. Any compensation for damage to property is subject to fault for the accident. If we imagine that the driver of the insured vehicle A is at fault, the Guarantee Fund will not compensate property damage of vehicle A, and the insurer of vehicle A must indemnify the uninsured for both property damage and personal injuries.
The Danish system of strict liability is complex and may be difficult for Danes and foreigners alike to understand. Yet, however illogical the concept of strict liability may seem, the system fulfils its purpose; to ensure that the weakest element in traffic always has the possibility of being indemnified for any personal injury suffered in connection with a motor traffic accident.
Footnotes
(1) H.H. Vagner, Færdselsansvar ( 2004), 13
(2 )E. Jensen, Forsikring af Motorkøretøjer (2003), 87
(3) Ibid, 26
(4) E. Jensen, Forsikring af Motorkøretøjer (fn. 2), 97, 110
(5) H. H. Vagner, Færdselsansvar (fn. 1), 19-20
(6) Cf. art. 105(2) of the Road Traffic Act.
(7) Ibid., 84-85
(8) H. H. Vagner, Færdselsansvar (fn. 2) 91
(9) The Danish law on MTPL for motor vehicles: BEK 579 of 6 June 2007 Bekendtgørelse om ansvarsforsikring for motorkøretøjer mv. art. 6-10
(10) Ibid, art. 19
(11) Ibid, art. 21(5)
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A Road Map for CIE
(Motor Insurers Bureau, GB)
The introduction of Continuous Insurance Enforcement (CIE) will be one of the most significant changes to affect anyone who owns and keeps a vehicle in the UK. It is also the most important change for the insurance industry since the Motor Insurance Database (MID) was launched in 2001.
The scheme is supported by the Department for Transport, DVLA, the insurance industry and the police and will be a crucial tool to reduce further the level of uninsured driving in England, Scotland and Wales.
Put simply, it will be illegal to keep a vehicle and not insure or SORN it. At this time it is an offence to drive a vehicle without insurance.
From early 2011, anyone keeping a vehicle which does not appear on both the DVLA and the MID records will be contacted with a notice advising them to declare the vehicle off road (SORN) or to purchase appropriate insurance.
For anyone who owns, drives or keeps a vehicle, it will be important to understand these new changes. In the same way as the TV license used technology to identify homes without a license, the CIE scheme will use vehicle registration details to identify registered keepers with no insurance.
From early 2011, letters will be sent every day to registered keepers with vehicles which have no SORN record and also appear to have no insurance.
The letter will set out the choices and next steps available, including:
- To declare the vehicle “off road” (SORN) with the DVLA;
- To check with their insurance provider (and/or askMID.com) that the insurance policy details are correct and appear on the MID; or
- To purchase an appropriate motor insurance policy.
Any registered keeper who fails to take action as result will face a £100 fixed penalty notice as well as having their wheel’s clamped. Ultimately prosecution and a fine of up to £1,000 could follow. Of course the police will also continue to carry out their successful roadside operations to seize vehicles from people who flout the law and drive without insurance. Since 2005, more than 550,000 uninsured vehicles have been seized in this way.
Neil Drane, Head of MID services says, “The Motor Insurance Database has been central to our work with the police and is now the cornerstone in our partnership with the DVLA and DfT in delivering this new scheme for all drivers to be insured all the time.
“The insurance industry has taken significant steps to support the effectiveness of the MID. This next stage in addressing the levels of uninsured driving is of equal importance and will take us much closer to the long term goal of a 40 per cent reduction. Without the CIE scheme, the costs to all insurers and ultimately all insured drivers will continue to rise exponentially.”
Since the beginning of 2006 the number of claims to MIB has reduced by 13% and this will reduce even further in 2009. The introduction of the CIE scheme across England, Scotland and Wales, along with ongoing police activity, is anticipated to save the industry and ultimately consumers about £100 million each year.
The CIE project team at MIB are working closely with colleagues at the DVLA as well as the DfT to ensure that the technology, new systems and the steps to communicate with registered keepers are tested and in place by early 2011.
The teams are focused on selecting the right technology required to review large volumes of data as well as working through the different criteria that need to be used to know which registered keepers will receive the first letter in early 2011 advising them to take action or later face a penalty and clamping.
Drane continues, “Currently the levels of uninsured driving remain unacceptably high – one of the highest in western Europe in fact. So we anticipate thousands of letters will be issued every day. Anyone who has a valid tax disc, but doesn’t appear on the MID is a potential candidate to receive a letter.
“Further improvements to the integrity of the data on the MID is essential. At this particular time insurance providers as well as fleet managers are being encouraged to focus on mistyped data. This ensures that the VRM on the policy also matches the vehicle record on the MID. Policy holders can also play their part and we encourage people to check the record on the MID by visiting askMID.com.”
Public interest in the high levels of uninsured driving has increased, particularly with the launch of the Stay Insured campaign in September this year. The campaign aims to remind drivers, who may be vulnerable to cancelling or not renewing their motor insurance during an economic recession, of the consequences of taking to the road without insurance.
“All drivers need to know that the law relating to insuring a vehicle is going to change,” says Drane. “The DVLA and DfT are working with MIB to ensure that the public are made aware in good time and in different ways. This includes working with all insurance providers to help new and existing customers understand the changes that will come about in 2011.”
The project teams at MIB and DVLA are looking at the most efficient and effective ways to help those registered keepers who receive a letter with any queries about their tax disc and or their insurance policy. This includes establishing call centre teams or using existing helplines to have the capability to field calls and clearly guide people through the choices available. For example, any requests from registered keepers to make changes to the record on the MID can only be managed by the insurance provider directly; and any changes to the registration details of the vehicle will need to be managed by a DVLA agent.
There is much more to the introduction of the CIE scheme than meets the eye. The challenges of bringing different systems and ways of working/cultures together is being met with real enthusiasm and a commitment to making it work for everyone who owns and keeps a vehicle.
Drane concludes, “For drivers the change must be simple and easy. Right now if you drive it, you must insure it. From 2011, if you drive it or just keep it, you must insure it.”
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The geographical Scope of the Green card System– Should it be enlarged?
(by Alain Pire, Secretary General, CoB Secretariat)
The geographical Scope of the Green card System– Should it be enlarged?
In 2006, acting upon their wish to see their country becoming Member of the Green card System, the Government of Kazakhstan contacted the United Nations Economic Commission for Europe in Geneva. The Commission then put the question to the Secretariat of the Council of Bureaux which answered that this request for membership could not be considered owing to the decision taken in 1996 by the CoB General Assembly according to which membership of the Green card System shall be restricted to the countries situated to the west of the Urals and the Caspian Sea as well as to the countries bordering the Mediterranean Sea.
In 2009, ECO (Economic Cooperation Organization), an international organization with an economic aim made up of ten countries situated in the Middle East (Afghanistan, Azerbaijan, Kazakhstan, Tadzhikistan, Turkmenistan, Pakistan, Uzbekistan, Turkey and Iran), contacted the Council of Bureaux informing it that its member countries would wish to become members of the Green card System but that aware of the difficulties resulting from the geographical limits of this system and pending any change to such limits, they wanted to develop a comparable system between themselves which would go by the name of “White Card”. ECO was also asking for aid and technical assistance from the Council of Bureaux in the development of their project.
This request for help made by ECO was received positively by the Management Committee of the Council of Bureaux which would look favorably on any development of parallel but separate International Insurance card systems outside the European territory. Consequently, this very year, a meeting was held in Brussels giving the delegates of ECO an opportunity to meet with the President of the CoB and the members of the Secretariat who, on this occasion, gave their visitors a presentation of the specific features of the Green card System. Furthermore, thanks to the Secretariat, Mr. Ulf Lemor, former President of the CoB, was appointed as expert in charge of the facilitation of the development of the “White Card” system. He has, in so doing, the full technical support of the General Secretary.
It is important to bear in mind that the determination of the member countries of ECO is to set up an interim system pending their future accession to membership of the Green card System. This is a major issue which will have to be thoroughly examined in a near future. What follows in this feature Article aims at providing some objective fundamentals to facilitate future work.
What was the decision of the Council of Bureaux at its General Assembly in 1996?
Mr.Lemor, then General Manager of the German Bureau and member of the Management Committee of the CoB, presented on behalf of the Committee, a report reading as follows:
"The Management Committee has closely examined the decision of the General Assembly in May 1979 which was in the following terms: “It would not be practical to contemplate a general extension of the System to other non-European countries beyond the present geographical boundaries, although special consideration might have to be given to those countries bordering the Mediterranean Sea. The Management Committee fully endorsed this decision which was qualified as very pragmatic and realistic in order to maintain the exercise of efficient central control over all operations of the Green card System. Obviously the 1979 decision was applied only to those applicants from non-European countries, when membership applications from European countries must be considered to be acceptable in principle having regard to the fact that the System is European in origin. Having reached this conclusion, the Management Committee strongly recommended that the future geographical scope of the Green card System should be restricted to the following countries:
1) European countries – (countries situated to the west of the Ural mountains and the Caspian Sea):
Byelorussia – Georgia – Latvia – Lithuania – Moldova – Russia – Ukraine
In addition, the Management Committee will consider further whether Armenia and Azerbaijan should be treated as European countries.
2) Non European countries (countries bordering the Mediterranean Sea) :
Algeria – Egypt – Lebanon – Libya – Syria
Moreover, the Management Committee has decided to examine an arrangement allowing for a potential cooperation with other international motor traffic systems”.
From this unanimously adopted decision it results that, at first sight, all countries in Europe may, in theory, become members of the System. The question remains, however, as to what the term “Europe” is meant to cover. By consulting Wikipedia on the subject we understand that “From a purely geographical viewpoint, Europe’s limits to the far east are usually taken to be the Ural mountains and the Ural river. To the Southeast, the Caspian Sea, the Caucasus Mountains and the Strait of Bosporus separate it from the Near East. To the south, the Mediterranean Sea and the Strait of Gibraltar separate Europe from Africa….”. Among the 5O countries then cited as being situated in geographical Europe we find Armenia, Azerbaijan and Kazakhstan. The moot point is whether the 1996 decision was based on a correct definition of Europe. Prior to this review more fundamental consideration should be given to the question as to whether the Green card System really is, with the exception of the countries bordering the Mediterranean Sea and Iran, an exclusively European system.
We shall recall that it was created in 1949 upon Recommendation n°5 delivered to the countries member of the Economic Commission for Europe of the United Nations. This was later substituted by Annex 1 of the Revised Consolidated Resolution on the Facilitation of Road Transport. Which are the countries concerned at present? All the European countries (as meant by CoB) together with Armenia (1993), Azerbaijan (1993), Kazakhstan (1994), Israel (1991), Kyrgyzstan (1993), Tadzhikistan (1994), Turkmenistan (1993) and Uzbekistan (1993). It is, hence, to be noted that this Economic Commission for “Europe” covers a much wider scope than the actual European territory. How can this apparent anomaly be explained? Very simply - by reference to its purpose which is to “foster sustainable economic growth among its 56 member countries” all situated within the same geographic area which exceeds the traditional limits of Europe.
A question comes thus to the fore: having been created at the initiative of the UNECE, is CoB justified in restricting its scope to a geographical Europe when the international body under the aegis of which it operates covers a much wider territory? Let us recall, at this point, that one of the objectives pursued by the UNECE is to facilitate international road transport and that, in this context, the Green card System is meant to remove the barrier to development of such transport caused by the adoption of national laws instituting motor insurance as compulsory.
If the answer to such a question is in the negative, a modification to the 1996 decision will have to be proposed. What could we envisage?
Restricting accession to the countries member of the Economic Commission for Europe? We shall then have to justify the exceptions represented by the countries bordering the Mediterranean and Iran (as well as Iraq in the past).
Doing away with any geographical limits? This solution would be acceptable on the sole condition that it be replaced by a more appropriate criterion. This criterion could be based on the density of trade exchanged by road between the candidate country and the existing members of the System.
These few issues should be examined within the present framework which is significantly different from what it was in 1996. Indeed, due account is to be taken of the fact that, since that time, the Council of Bureaux has adopted very strict rules imposing requirements on its new members, in particular in the field of reinsurance and financial guaranties, the effect of which is to restrict accession to the System to reliable partners only.
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Paving the way for an enhanced Data Protection system
(by Caroline Maion, Manager, Legal & Technical, CoB Secretariat )
In early 2009, the Management Committee decided to set up a Working Group on Data Protection under the aegis of the SRC and GRC to address some concerns related to the EU requirements on data protection (Directive 95/46/EC). Any failure to comply with those requirements could lead to serious consequences for the security and reputation of the Green Card system. Indeed, particular aspects on data protection have to be considered when handling claims: the protection of fundamental rights of natural persons (i.e.: right to privacy) has to be ensured when processing personal data. Possible restriction or prohibition of the free flow of personal data has also to be avoided. Directive 95/46/EC does not cover only data processing within the EEA but also the transfer of data to non-EEA countries.
The Coordination Committee was informed of this initiative and agreed to involve the 4th MID Bodies to the work being carried out within the Green Card system. This had led to the establishment for the first time of a joined Working Group composed of Representatives from Bureaux, Guarantee Funds and Compensation Bodies. The Working Group was mandated to analyse and to make legal, organisational and technical recommendations to enhance data protection across the CoB in order to ensure a good level of compliance with Directive 95/46/EC. Those recommendations had to cover short, medium and long term perspectives.
To take stock of the current situation as regards data protection, questionnaires were issued to the Green Card Bureaux, Guarantee Funds, Compensation Bodies and Information Centres. The results from these questionnaires have indicated that there is still room for improvement since various levels of data protection are in place across the CoB. In that context, the Working Group has decided to set up minimum common standards based on Directive 95/46/EC which do not preclude the fact that national legislation on data protection will always prevail and should be followed. Those minimum standards have been gathered by the Working Group in a document called the tool kit on data protection which was approved by the Management Committee on 25th March 2010 and which will be recommended by the Working Group to the 44th General Assembly for endorsement. The workshop of this General Assembly will also be dedicated to data protection. This will allow for an extensive presentation of the tool kit to the Membership with time for questions and answers.
The same tool kit will also be proposed for endorsement to the 4th MID Bodies during their Annual Conference in Athens after having been presented to the Coordination Committee on 6th May 2010. This will allow both the Green Card System and the 4th MID Bodies to have the same document containing recommendations to be followed by the 45 National Bureaux and the 30 Bodies of the 4th MID structure.
The tool kit on data protection is a comprehensive document divided into 7 sections and 5 columns. It follows as much as possible the structure of Directive 95/46/EC. It aims at helping the Bureaux and the 4th MID Bodies to ask themselves the right questions when enhancing their data protection system. It does not only contain recommendations and comments but also examples of existing practices used by the Czech, Irish, UK and Swedish Bureaux or reported in the replies to the questionnaires.
The tool kit wants to be a useful document with practical illustrations to support the effort of the Bureaux and the 4th MID Bodies to implement a compliant data protection system. Each section refers to a relevant part of Directive 95/46/EC. The object and the applicability of the directive are briefly described in two different sections to familiarise the Bureaux and the 4th MID Bodies with its purpose and definitions. Important concepts such as personal data, data processing, controller and processor are highlighted to draw the attention of the Bureaux and the 4th MID Bodies on their meaning.
A specific section is also dedicated to the processing of personal data: it focuses on the data quality and lists grounds allowing for a legitimate data processing within the EEA. It also provides for the legal basis that each Bureau and 4th MID Body should consider when processing specific categories of data (i.e. sensitive data). Finally this section gives useful recommendations to ensure an adequate level of organisational and technical measures complying with security and confidentiality requirements. An adequate level is meant to be proportionate to the risks, to the size of the organisation as well as to the sensitivity of the data and to be cost effective. During the 44th General Assembly, the Working Group will also recommend to the Membership to transfer personal data by encrypted e-mail and to refrain from using unencrypted fax messages for the transfer of personal data and special categories of personal data (health).
The data subject’s rights have also to be guaranteed: a particular section of the tool kit gives to the Bureaux and 4th MID Bodies some guidance on how to inform the data subject (e.g. victims, liable party, etc.) about the processing of his data, on how to grant him access to his data and how to deal with his right to object to the processing of his data.
Two respective sections deal also with the notification of the data processing to the national supervisory authority and with the use of data processor (outsourcing).
Since, the transfer of data to non-EEA countries (i.e. third countries) without an adequate level of protection is prohibited, unless additional requirements are met, the last section of the tool kit provides for the legal grounds that Bureaux and 4th MID Bodies can use to transfer personal data to their counterpart located in those countries.
The Working Group trusts that the tool kit will be a useful material which will provide the needed support to enhance data protection within the CoB. Nonetheless, encryption remains still a challenge for the Working Group which will continue dealing with the matter after the 44th General Assembly in order to deliver appropriate recommendations to the Management Committee by the end of 2010. A separate technical paper dealing with electronic transfer of data to ensure appropriate encryption will be provided to the Membership after the 44th General Assembly and will launch the consultation on this matter.
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Solvency II – a Need for Change
(by Marc Henry, Reinsurance Advisor )
Solvency 2 is a fundamental review of the capital adequacy regime for the European insurance industry. It aims to establish a revised set of EU-wide capital requirements and risk management standards that will replace the current Solvency 1 requirements.
Introduction
In an insurance contract, the insurer agrees to pay the policyholder a sum of money upon the occurrence of a specific event, in exchange for payments from the insured (called premiums). This basic definition of an insurance contract usually leads to the well-known inversion of the production cycle: the premium precedes the pay-outs. Indeed, unlike most other sales processes, the service (claim payment) is only delivered after the payment (premium). For example, in Motor insurance, the premium is typically paid before the issuance of the insurance contract, and the claim (if any) is settled well after the premium payment, sometimes several years later.
This inversion of the production cycle implies that the insurance undertakers must carry on adequate reserves to fulfill their liabilities in the long run. Therefore a major preoccupation of the supervisory authorities is to scrutinize the financial solvency of the insurance undertakers, in order to protect the policyholders. Analysis the solvency of insurance undertakers is an attempt to measure the overall “health” of the company.
At the European level, the foundation of the solvency principles are based on the First Council Directive 73/239/EEC of 24th July 1973 (non Life)(1), and the First Council Directive 79/267/EEC of 5 March (Life)(2),
In 1997, the European Commission ordered a report on the solvency of insurance undertakings. As a result of the publication of this report (the “Mueller Report”(3)), discussion took place, and the Solvency I regulation - adopted in 2002 – was put in place in 2004, and is the continuation of the previous regulation:
- The Directive 2002/13/EC of the European Parliament and of the Council of 5th March 2002 amends the Council Directive 73/239/EEC as regards the solvency margin requirements for non-life insurance undertakings(4).
- The Directive 2002/83/EC of the European Parliament and of the Council of 5th November 2002 replace the former Council directive on life insurance(5).
While Solvency I provides harmonized rules in terms of solvency margin and minimum guarantee fund, the estimation of solvency margin does not consider the risks associated with the assets (investment strategy). In addition, the Reinsurance is not always adequately taken into account, and no credit is given on the matching between assets and liabilities (ALM).
The escalation of competition observed during the last decades, together with the evolution of the insurance industry and financial market, amplified the pressure within the insurance companies, and underlined the need to reinforce the prudential control, in order to maintain the core objective of the policyholder’s protection.
In May 2001 the European Commission began a fundamental review of Insurance regulation, the “Solvency II” project. Preliminary conclusions are laid down in the report on Prudential Supervision of insurance Undertaking (known as the “Sharma Report”(6)), and the KPMG report(7). In particular, the Sharma report which provides a summary of lessons learned from European Insurers’ failure, and shows that the Solvency I requirements did not provide early warning that intervention from supervisory authorities was required. In particular, the management shortfalls which lead to many EU insurer failures.
Solvency II aims at establishing a new regulatory framework for the insurance industry in order to ensure the protection of the policyholders. This new solvency regime should be better adapted to the changing economic environment, to encompass all the risks directly or indirectly related to the insurance activity, in a prospective manner. Furthermore the management of the company will be actively involved in the risk evaluation process, in full cooperation with the supervisory authorities.
After a short description of the fundamental principles of Solvency I, we describe the core objectives of Solvency II, and will show how Solvency II will impact the whole risk management process of the Insurance companies.
The current legislation shall be in force until October 2012, at which date the new Solvency rules will take place.
Focusing on the Non-life insurance, the regulation is based on the requirement that insurance undertakings establish, on top of the technical provisions, a solvency margin to act as a buffer against adverse business fluctuation.
The Solvency margin, according to Solvency I, is defined as the highest of the Premium and Claim index:
Premium Index = [18 % x (first layer of 50M EUR Premium), + 16% x (amount in excess of 50M EUR Premium] x Retention Ratio
Claim Index = [26 % x (first layer of 35M EUR Gross Claim), + 23% x (amount in excess of 35M EUR Gross Claim] x Retention Ratio
With Retention Ratio = Sum of retained claims / Sum of gross claims over the last three years, with a minimum of 50%
The insurance undertaking must possess the minimum guarantee fund, equal to 1/3 of the solvency margin, with a minimum of EUR 2,000,000 or EUR 3,000,000 depending on the class of business.
This (too) simple formula lead to criticism that emphasized the need for a new regulatory framework. Indeed the formula may lead to inconsistencies. For instance if an insurance undertaking reduces its premium tariff (for the same risks), they could claim for a lower solvency margin, based on the Premium index. The same situation may occur if the reserves are underestimated: the Claim index will decrease, potentially leading to a decrease in the solvency margin.
Compared to competitors that maintained their tariff and/or level of provisions, the insurance undertaking as described above is more vulnerable to business deterioration, and in the same time may reduce its solvency margin, which is not consistent.
In addition, the evaluation rules regarding the technical provisions are still following the local legislation. Regarding the investment of the assets covering the technical provisions each member state may define the nature of assets, as well as the valuation rules.
Eventually not all the risks are taken into account (credit risk, liquidity risks, market risks operational risks etc.).
On 22nd April 2009, the European Parliament approved the Solvency II directive, endorsed by the Council of Ministers on 5th May 2009. The implementation date for the Directive is 31st October 2012.
Solvency II is not only a fundamental reform of the quantitative aspect for capital requirement, but also a new framework to provide supervisors with an early warning so that they can intervene promptly if capital falls below the required level, and a new tool to promote the confidence in the financial stability of the insurance sector.
Solvency II is organized around 3 Pillars: Pillar 1 regards financial requirements, Pillar 2 refers to the supervisory review process and qualitative aspect of management and Pillar 3 includes disclosure requirements:
1. PILLAR 1 aims at demonstrating adequate financial resources: it considers key quantitative requirements, and like Solvency I, sets out two levels of capital requirements:
a. The MCR (The Minimum Capital Required) is the minimum level of own fund that the company must possess. Before that level supervisory authorities must intervene (withdrawal of licence).
b. The SCR (Solvency Capital Required) represents the target capital necessary to absorb fluctuation of results due to unexpected events, being insurance related or not. For instance, the exceptional losses resulting from a large claim, a natural catastrophe, a default of Reinsurers, a devaluation of assets… should be absorbed by the SCR.
The SCR is the major quantitative tool that should encompass all types of risks to which an insurance entity is exposed. This does not only relate to the underwriting risks (risk of fluctuation of insurance technical results, inadequate provisioning), but also to the Credit risk (e.g. default of a creditor, downgrade of an invested asset…), the liquidity risk (risk of trading/liquidating assets unexpectedly, with lower return), the market risks (e.g. risks linked to change in interest rate, currency…) and – last but not least – the operational risk (risk linked to human capital, management control, systems and strategy).
Measuring the SCR
The level of adequacy of capital must be set up in a way that there is a 99.5% probability that the SCR will be sufficient to cover all risks. In terms of time horizon this statement can be translated as follows: over a horizon of 200 years, the SCR should suffice to cover all the risks at least 199 years.
There are two approaches of estimating the SCR: the standard formula, and the Internal Model. However, Insurance entities may also blend the approaches, using the internal model for some risks or in some branches, and considering the standard formula for the other risks/branches.
- The standard formula is currently being calibrated, through the Quantitative Impact Studies (QIS). The next quantitative impact study – QIS 5 - will be launched during the 3rd quarter 2010, and all companies throughout the EU will be invited to measure their SCR using the standard formula.
- The companies willing to use an internal model to assess the risks, and thus the SCR, need to receive the approval from their supervisory authorities before using such model. Although this may require additional resources, the use of internal models should be the best choice for companies willing to accurately measure their risks, and further deploy optimal, proactive strategies.
2. PILLAR 2 aims at demonstrating an adequate system of governance: including effective risk management system and prospective risk identification. Indeed the very recent history (financial turmoil) demonstrated the management of a company cannot heavily rely on quantitative approaches without an in depth understanding and control of the risks and the processes. With this second pillar, we enter the core process of the Solvency II, the “quality control”.
To comply with Pillar 2, insurers must review and - where required - modify and implement internal risk management processes incorporating the management of policies, claims, provisions and risks. Pillar 2 also stresses the importance of corporate governance and clearly defined roles and responsibilities for the management. To summarize, Pillar 2 sets out rules relating to the following areas:
- Governance: aims at ensuring a sound, prudent and knowledgeable management of the business. This is done through the setting of the appropriate apportionment of responsibilities, and specific functions across the entity (actuarial, risk management, internal audit…).
- ORSA (Own Risk and Solvency Assessment): this key supervisory tool aims at ensuring that the entity carry out regular assessment of its solvency need and its compliance with those needs, and submit the results to the supervisor. Under the ORSA, the management must ensure that the own funds and the provisions of the company are sufficient to cover the SCR and the MCR, and that the methods and assumptions used in Pillar 1 are adequate and in line with the risk profile of the company.
- Supervisory Review: Supervisors will review and evaluate both the qualitative and quantitative requirements of the company in its operating environment and the risks it does or may face. The supervisory review will further ensure the full compliance with the directive requirements.
3. PILLAR 3 aims at harmonizing the reporting to the Supervisors, and enhance the public disclosure, thus increasing market transparency:
- The Report to Supervisors (RTS) sets out the information to be regularly reported to the supervisory authority. This report will not be publicly disclosed. It encompasses all of the achievements made and the analysis resulting from the application of the Pillar 1 and 2, including a detailed Business and Performance report (incl. objectives and strategies), the system of governance, risk profile, regulatory balance sheet, capital management, undertaking with an approved internal model, and eventually the quantitative reporting templates.
- The key information that should be available to the wider audience is the central requirement within Solvency II to achieve transparency. The Solvency and Financial Condition Report (SFCR) shall have the same structure as the RTS, where some information that is not required to be disclosed: business strategy, legal and regulatory issues, variance against the plan, projection of future solvency needs and future risk exposure. The potential readers could include other insurance and reinsurance undertakings, intermediaries, trade associations, financial analysts, professional advisors, rating agencies, investors, shareholders, and policyholders, alongside of course supervisory authorities.
The challenges arising from the new regulation framework are numerous, and will indubitably lead to changes from the various interlocutors, with increased responsibilities.
- From the management, to develop an appropriate framework in order to capture and measure the various risks, and to enhance the transparency in the risk management and reporting process.
- From the Supervisors, in addition to the permanent supervision, the need to understand the risks and specificities of each insurance undertaking. Their responsibilities will be increased, as they will have to approve the development and application of internal models or blended models.
This can only be achieved if all interlocutors are aware of their own role in the process. Furthermore, in a permanent changing environment, this will require all the participants to be permanently educated in their specific areas of expertise and in the area of the enterprise risk management in more general terms.
In short, a need for change.
Footnotes
(1) http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31973L0239:EN:NOT
(2) http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31979L0267:EN:NOT
(3) http://www.ceiops.eu/media/files/publications/reports/report_dt_9704.pdf
(4) http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32002L0013:EN:NOT
(5) http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32002L0083:EN:NOT
(6) http://ec.europa.eu/internal_market/insurance/docs/solvency/impactassess/annex-c02_en.pdf
(7) http://ec.europa.eu/internal_market/insurance/docs/solvency/impactassess/annex-c01a_en.pdf
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The new version of the Online Guarantee Call system
(by Kerstin Fabel, Manager, Operations & Financial Analysis, CoB Secretariat)
As the membership was informed with Circular 042/2010 on 1st April 2010, an upgraded version of the Online Guarantee Call system is available for all Bureaux.
The new version of the online application is a result of the feedback from several Bureaux that was received by the CoB Secretariat after the introduction of the system to the whole membership as from 1st July 2008. Another source of input was the Financial Stability Working Group which identified potential improvement opportunities which were endorsed by the General Rules Committee.
In detail, the following new features were introduced:
1. Separate Handling and Guaranteeing Bureau sections when entering the system
This feature was introduced to improve the user guidance of the system.
2. New data fields in Section 1
As per request of some members two new data fields were integrated into section 1 of the Guarantee Call form:
• Guaranteeing Bureau claim number
• Registration plate
The purpose of the new fields is to ensure a better identification of a Guarantee Call.
3. New status options for the activation and deactivation of Online Guarantee Calls
In the previous version of the system it was only possible for the Secretariat to modify the status of a Guarantee Call. Usually this happened when a Handling Bureau discovered that a Guarantee Call was issued by mistake. With the new version, the Handling and the Guaranteeing Bureau both have the option to modify the status. Additional values of the status have also been added.
| Status Type | Description | Can be assigned by |
| Active HB | Activated by Handling Bureau | Default after creation of a new Guarantee Call |
| Inactive HB | Deactivated by Handling Bureau | Handling Bureau when a Guarantee Call is considered as not justified |
| Inactive GB | Deactivated by Guaranteeing Bureau | Guaranteeing Bureau when a Guarantee Call is considered as not justified |
| Active GB | Reactivated by Guaranteeing Bureau | Guaranteeing Bureau when a Guarantee Call was deactivated but then considered as justified |
| Active Mediation | Mediation procedure pending | CoB Secretariat |
| Active Arbitration | Arbitration procedure pending | CoB Secretariat |
| Inactive | Exceptional cases | CoB Secretariat |
4. An option to fill in Section 3 when Section 2 is empty
The closing of a Guarantee Call by filling in Section 3 was only possible when Section 2 had already been filled in. To facilitate the closing of Guarantee Calls, Section 3 is now independent from Section 2.
For further details, we recommend to study the updated manual of the Online Guarantee Call system on the CoB website at http://www.cobx.org/modules/doc/public/get.php?id_doc=37
Bearing in mind that the application should be kept as easy and user friendly as possible, all members are invited to submit their ideas for further improvements of the system to the CoB Secretariat. We hope that the new version of the system offers a superior handling of the Online Guarantee Calls which will also support the improvement of the Online Guarantee Call statistics which will be presented to the 2010 General Assembly in Stockholm.
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Next Meetings
June 2010
- 15th June, Meeting of the Financial Stability Working Group (Brussels)
- 22nd June, Meeting of the Monitoring Committee (Bucharest)
September 2010
- 14th September, Meeting of the Working Group on Data Protection (Brussels)
October 2010
- 6th October, Meeting of the General Rules Committee (Brussels)
- 7th October, Meeting of the Specific Rules Committee (Brussels)
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