Insurance

In a nutshell

Insurance is the practice of hedging against financial risk. This practice and its fallout require a lot of legal work. Insurance and reinsurance (even insurers are vulnerable to financial risk and they transfer part of their risk on to reinsurers) are practised by a significant number of specialist law firms and general commercial outfits across the UK. Insurance can be split into many sub-specialisms (see below). Firms may offer all or some of these services. Personal injury and clinical negligence (including public liability, employers' liability, accident-at-work claims etc) are also insurance-related practice areas. Maritime insurance was the first type of insurance to exist. Read our practice area overview on shipping law for more. 

It's possible to insure pretty much anything against almost any eventuality. Put differently, insurance is taken out to cover risks: human error, accidents, natural disasters etc. The most common types of insurance which lawyers deal with are: insurance against the destruction of tangible assets (eg property), insurance against the loss of intangible assets (eg revenue streams), and insurance against mistakes made by professionals (professional indemnity – the insurance-related bit of professional negligence). So, insurance lawyers work on cases related to property damage, product liability, fraud, insolvency, director's liabilities (D&O), aviation, business interruption, mortgage losses, political events, technology, energy, environment, construction, finance... the list goes on. Disputes arise between the insured policyholder and the insurer; between the insured plus the insurer and another party; or between the insurer and the reinsurer.

Other lawyers specialise in the transactional aspects of the insurance industry, advising on tax, regulations, restructurings, drafting insurance policies, and M&A activity between insurance companies. 

What lawyers do

 

Professional indemnity

  • Represent professionals accused of malpractice and their insurers. Professions most often affected include engineers, architects, surveyors, accountants, brokers, financial advisers and solicitors as well as GPs, dentists, surgeons etc.
  • Investigate a claim, assess its authenticity and look into the coverage of a given insurance policy to determine an insurer's degree of liability.
  • Take advice from experts on professional conduct.
  • Draft letters in response to claims.
  • Prepare documents for court or out-of-court settlements.
  • Attend pre-trial hearings, case management conferences and trials if a case goes to court.
  • Attend joint-settlement meetings, arbitrations or mediations in out-of-court cases.

Commercial insurance disputes

  • Work on claims related to things as varied as properties damaged by flood or fires, oil rigs destroyed by hurricanes, or gold mines nationalised by socialist governments.
  • Work on disputes between insurers and the insured over insurance payouts and what insurance coverage consists of, or act for the insurer and the insured together in litigation with a third party.
  • Assess coverage and the insurer's liability.
  • Interview witnesses to find out how events occurred.
  • Value the claim and build up the case for what the client feels is an adequate settlement.
  • Attend court or mediations/arbitrations in order to come to a settlement.

Transactions

  • Broadly similar to the work of a general transactional lawyer. There are extra rules and regulations governing insurance transactions which lawyers need to take into account.

Realities of the job

  • While several legal practice areas fall under the insurance umbrella, the insurance industry itself is a distinct, single block within the City and the UK as a whole. There are a few big well-known insurance companies out there, but over 400 are registered with the famous insurance market Lloyd's of London.
  • London is the global centre for insurance and reinsurance. It has been ever since Lloyd's of London was founded over 200 years ago. The industry is extremely well established and has its own rules, traditions and obscure terminology. Businesses based overseas will often be insured with a London firm, and the biggest disputes often have an international angle to them.
  • The insurance industry has a reputation for being a bit dull; however, the legal side kicks in when calamities occur, making it quite eventful, as any 'wet' shipping lawyer will tell you. It is also home to plenty of colourful characters, and big companies organise many events, lectures and conferences for like-minded insurance-o-philes to rub shoulders.
  • Insurance is a complex and technical area. Insurance policies are not the lightest reading material you'll ever come across. Stints in insurance seats are challenging for trainees, even those who have taken an insurance law elective on the LPC.
  • Insurance lawyers are known for their precise and fastidious working style. Good organisational skills are crucial, because lawyers are often dealing with a host of claims at various different stages. There are often daily deadlines and clients need to be kept constantly informed.
  • Lawyers have to pay special attention to potentially fraudulent claims or parts of claims.
  • Insurance cases range from huge international disputes to small local squabbles. Trainees might run a small case themselves, but only work on a component of a large high-value dispute. Lower-value work is usually done by small or mid-size regional and national firms, while the largest disputes are the preserve of City outfits.
  • Many firms regularly act for both insurance companies and insured policyholders. There is a trend towards firms specialising in either policyholder or insurer work.
  • The insurance industry is regulated by the Financial Conduct Authority.

Current issues

  • New risks to insure against are arising all the time. Lately, protecting companies from cyber attacks has gathered steam.
  • Technology is affecting the way that insurance is bought and sold. New software is changing the way that Big Data can be gathered, analysed and utilised, while cloud storage can offer insurance companies a fast and effective way to retain such data. However, cloud storage can also raise the risk of cyber attacks for insurance companies themselves.
  • Telematics is a growing area in car insurance. A device in a car can track the driver's behaviour and send that info to the insurance company, who will charge premiums accordingly based on that driver's risk of accident. In August 2014, BMW announced that it will produce the world's first factory-fitted telematics.
  • The EU's Solvency II directive – aimed at harmonising EU insurance regulations to enhance consumer protection – came into force on January 1st 2016. The directive has already had a major impact on the insurance industry, and as companies seek legal advice on compliance, some have turned to M&A and restructuring as a solution. The directive also affects data gathering and storage, linking it to the technology issues raised above. Of course, Brexit may have an impact here, but the UK remains under Solvency II for now.
  • The scandal of mis-sold payment protection insurance is ongoing and claims continue to be dealt with; the industry has already shelled out £23 billion in compensation. Some claims date back to the 1980s, making compound interest a significant factor, and according to the Professional Financial Claims Association (PFCA), banks could now face a further £22 billion in payouts. On top of this, the UK financial services industry could be facing a £33 billion compensation bill for failing to disclose commission payments to customers, according to independent research firm Autonomous Research.
  • The Insurance Act was passed in 2015, signalling the end of a process to reform insurance law in the UK. It came into force on August 12th 2016 to align insurance rules for businesses with those that apply to consumers. While it made major changes to disclosure and warranties, giving larger protections to the policyholder, the reforms were also supported by a number of insurers.
  • In 2015 reinsurer Munich Re recorded 1,000 reports of natural catastrophic events – the highest number ever registered. Insured losses, however, remained similar to 2014 at roughly £30 billion. The earthquake in Nepal resulted in an overall loss of $4.8 billion (but only $210 million of this was insured), while the winter storms that hit the US and Canada totalled $2.1 billion of insured damage. In the long term, major disasters such as Hurricane Sandy can affect the reinsurance market, causing reinsurance premiums to rise. The insurance market is called 'soft' when premiums are low and 'hard' when premiums are high – often because of a recent catastrophe or disaster (for example, the market 'hardened' after 9/11).
  • While the full impact of Brexit remains unclear, it is felt that insurers are best placed in the financial services market to ride out potential volatility.